Investor protection, Singapore style

July 7, 2009

Who needs a whole new government agency to protect  consumers from irresponsible banks? Authorities in Singapore have taken a refreshingly straightforward approach in tackling banks deemed to have been less than scrupulous when selling structured notes dragged down by the failure of Lehman Brothers: they banned them.

The Monetary Authority of Singapore on Wednesday banned 10 banks from selling structured notes until they can prove that they have improved processes to highlight the risks involved. Banks including DBS and ABN Amro, now part of Britain’s Royal Bank of Scotland, are out of the business for at least six months. Hong Leong Finance receivd a two-year ban. (The full list is here.)

The so-called Lehman Minibonds are one of the many scandals triggered by the Wall Street investment bank’s collapse. They were sold as bonds that offered principal protection and an attractive rate of interest. In fact, they were complex structures supported by synthetic CDOs with Lehman acting as a swap counterparty. When Lehman filed for bankruptcy, the notes collapsed.

The MAS report is fairly dry, but nonetheless it is fairly clear that banks either didn’t understand the risks of what they were selling, or failed to tell their clients.

Some of the specific failings highlighted by the MAS include:

a) risk ratings assigned by some financial institutions to some series of the Notes that were inconsistent with risk warnings stated in the prospectus and pricing statement;

b) insufficient steps taken by some financial institutions to ensure that all their financial advisory representatives were properly trained before marketing and selling the Notes; and

c) weaknesses in how some financial institutions ensured that their financial advisory representatives were properly equipped with accurate and complete information about the Notes.

This is some consolation for the 7,000-odd Singaporean investors who lost money on the notes. Though 67 per cent of investors have received compensation, they have got just 30 per cent of their money back.

The Singaporean approach has two advantages: it forces banks to compensate investors who received bad advice, and prevents the banks from repeating their mistakes, at least for the time being. But given the horrible complexity of the Lehman notes, it seems highly unlikely there will ever be enough bankers with the qualifications to sell them, let alone retail investors with the sophistication and risk appetite to buy them. Perhaps the MAS should have just banned them for good.


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Did you know in first place that this MAS and LKY are the first to turn the back against the investor through Caveat Emptor mocking the investor of hind investing blindly rather than performing due negligence of investigation ? Did you not know that they are making judgement that there is nothing wrong of mis-selling and mis-representation initially because the bank that sold the product tell them so. Did you not know that the person MAS seeks to clarify issues are not the investors who are mislead and misrepresent but through the very bank that sell the product.
Did you not know that not until that the majority of Town Councils of Singapore have been discovered to incur huge loss over these investment that MAS start to take note and trying to wayang some out ?

Perhaps you should start to learn the word “Wayang” because this is what the local associate the gov with. Wayang means “pretending”

Now back to the case, now to be critical, why do you feel that MAS is doing something effective now where the public already know the “evil” of such structure product and not going to buy it anymore long ago ? That is a wayang, right ? People are not buying structured product anymore long ago, and now MAS announced that structured product would not be sold until further notice, but what effect can that be when no one care anyway ? It is just damage control to create public perception that they are doing something.

IN fact, concerning issue should be compensation of the investor and not a single word mention by MAS.

Posted by Anderson | Report as abusive

It seems the MAS has done no more than the very minimum a regulator is obliged and to do. What is the worst thus far should be the Securities and Futures Commission in Hong Kong because:
(a) it has not reported any findings of its so-called investigation;
(b) it agrees with the banks recently a settlement plan to justify ending of the investigation;
(c) the settlement plan hardly inflicts any monetary penalty on the banks nor does it criticise the banks in any way. On the contrary, the banks are praised for their cooperation.
Only sketchy detail about the settlement plan is available now which is at: sfcOpenDocServlet?docno=09PR100
I wonder if there are prospectuses for the fraudulent structured notes issued by the Lehman Brothers, and if so, where could I find them. Anyone who can help with our search for such prospectuses are requested to let us know via the contact of Lehman Brothers Victims in Hong Kong web-page at: actus.php

Thank you in advance for your help.

Posted by phil | Report as abusive