Singapore punishes 10 firms over Lehman notes sale
SINGAPORE, July 7 (Reuters) – Singapore’s central bank banned 10 financial institutions on Tuesday from selling structured notes, saying they sold investment products linked to Lehman Brothers without adequately highlighting the risks.
Thousands of Singapore investors lost money last year after they bought risky derivatives linked to the collapsed U.S. investment bank that had been marketed as relatively safe alternatives to fixed deposits, sparking several protests in the tightly controlled city-state.
The 10 financial institutions banned by the central bank are DBS Group, UOB Kay Hian, OCBC Securities, ABN AMRO (Singapore Branch), Maybank Singapore, CIMB-GK Securities, Hong Leong Finance, DMG & Partners, Phillip Securities and Kim Eng Securities.
ABN, DBS, Maybank, DMG and UOB Kay Hian received the lightest ban of six months, while Hong Leong Finance was given the longest ban of two years, the Monetary Authority of Singapore (MAS) said in a statement.
The ban specifically applied to structured notes – financial products that appear to resemble fixed income instruments, but contain embedded options. The central bank did not explicitly say if its ban applied to other forms of structured products.
“This would curtail the growth of this market,” said David Cohen, an economist at Action Economies.
He said the collapse of the subprime mortgage market in the United States spilled over to various forms of complex financial products sold to investors worldwide.
The problem also affected Hong Kong, Taiwan and Indonesia, where investors expressed outrage that the bond-like products they bought were actually complex derivatives that led to huge losses for many of them.
The central bank highlighted several flaws in the way these products were sold to investors. It said the risk ratings assigned to some Lehman-linked investment products sold by the firms in Singapore “were inconsistent with risk warnings stated in the prospectus and pricing statements”.
The central bank said several of the firms did not provide their salespeople with accurate and complete information about the notes, or took insufficient steps to ensure staff were properly trained in the marketing and sale of the Lehman-linked notes.
According to MAS, nearly 10,000 people bought the Lehman-linked notes, and financial institutions had compensated close to 4,000 of these investors.
UOB Kay Hian is a unit of United Overseas Bank, OCBC Securities is the stockbroking arm of Oversea-Chinese Banking Corp, Maybank Singapore is part of Malayan Banking <MBBM.KL>, while DMG is part-owned by Malaysia’s OSK. (Reporting by Saeed Azhar and Kevin Lim, editing by Will Waterman)