Tan Kin Lian's Blog: Is MAS at fault?

Saturday, October 11, 2008

Is MAS at fault?

Dear Mr. Tan,
You are a bold person. Please tell me frankly. Is MAS at fault for approving the sale of the Minibonds? Is this why MAS is reluctant to take action now? Are they trying to hide their mistake?

REPLY
I think that you should send this question to your Member of Parliament and ask your MP to bring this question up in Parliament.

The approach taken by MAS in the past was to require the risks to be stated in the prospectus and the advertisement. I was able to see the fine print in the advertisement that said, "In the event of a credit default, you could lose a substantial part or all of your investment". It is difficult for anyone, even an expert, to know what is the extent of this risk. This is why I had recommended against making such an investment.

Sadly, many retail investors relied on the advice of their financial institution representative to explain what this statement meant. The representative did not give them the right explanation and misled the investor into believing that the risk is very remote (when the real situation is quite different).

A better approach, which can only be done in the future, is to ban these types of risky products from being sold to the retail investors. It is difficult for a retail investor to know if a product is risky. This has to be the responsibility of the regulator in approving the product for sale. If the regulator is not able to make an assessment of the risk, how can they expect the retail investor to make this assessment?

The Hong Kong Monetary Authority also took a similar approach in the past and allowed the sale of the structured products. This is why so many investors in Hong Kong have been misled into investing in these products. But the HKMA is now quite pro-active in helping the investors to seek redress. They are now considering a ban on the sale of such products to retail investors in the future.

17 comments:

Anonymous said...: MAS probably should probably distinguish supervision of the consumer banking operations from the bank's other businesses. The "Buyer Beware" policy which has worked well for Treasury Dept and Corporate Bkg dept is not suitable for consumer bankiing.

MAS did their part in scrutinizing the substance of the prospectus. But they prob did not pay enough attention to the "branding" of the structured investment products. Very often, the "branding" of the structured investment products were devised with the deliberate intention to mislead people. Eg. I can never understand the concept of a "Structured Deposit" where your money is locked in for 7 years. In a normal deposit, you can withdraw you money anytime, and MAS would guarantee up to S$20k per account.; October 11, 2008 10:56 AM
ym said...: of coz they are at fault...

MAS was at fault for not thoroughly regulating the use of derivatives in retail products.. (they probably do not understand whats in the minibonds and highnotes themselves)..

the gahmen is at fault for causing a fictious property/casino boom.. Singapore will see really bad times ahead due to these bubble activities..; October 11, 2008 11:24 AM
Anonymous said...: MAS is protecting the FIs. You can see it.; October 11, 2008 11:35 AM
Anonymous said...: I have been told by a few RMs that such risk statement is a standard clause in all the non-principal guarantee products especially most of the unit trust. Therefore we have to rely on the RMs of the FIs who act as finanical advisors to give their professional advice to us. Therefore the FIs and MAS have no way to push away their responsibilities.; October 11, 2008 12:15 PM
Anonymous said...: "In the event of a credit default, you could lose a substantial part or all of your investment". This is the most favorite disclaimer clause used by the FIs in selling their products. It is also stated in the high notes and I believe also in jubilee and pinnacle notes. In fact this clause can be seen in almost all kinds of investment products but can it really safeguard the FIs from misrepresentation or mis-selling? I think only the court can tell. Even putting your money in the bank can be risky if the bank becomes insolvent. So with or without the above mentioned statement, it is the FIs' responsibility to explain clearly and thoroughly in plain words to potential investors all the possible risks involved in their products. There is no excuse that investors have been warn that they could lose a substantial part or all of their capital. FIs should not play this kind of games with the small investors.; October 11, 2008 2:05 PM
Anonymous said...: Do you realise that even in opening a savings account, the terms and conditions are such that it absolves the bank of any fault in case someting happens, ie the banks are not responsible for anything? Some said that when it comes to the test in court, unfair agreements may even be void even though parties concerned had signed it.; October 11, 2008 2:39 PM
Anonymous said...: Is MAS at fault? It is either at fault or not at fault. If at fault, what do you think it will do? Admits its fault and apologies?
If not at fault, what do you think it will do? I can't think of anything it will do, from what we see so far.; October 11, 2008 10:46 PM
Anonymous said...: can we sue MAS? if not, there is no point talking so much

if yes, at what cost, but a class action suit will be more economical for individuals.; October 11, 2008 11:34 PM
Anonymous said...: No one is at fault. This event is a CRISIS. MAS is unable to foresee that Lehman, Merrill, Goldman, Morgan is going to fall like a domino. At the point of sale of these "structured products" the market is rosy and stable. Hence it is classified as "safe and conservative". All these companies are >100yrs and based on probability of default, is less than 1%. Whatever happened is really "unfortunate"...my heart goes out to all that is affected.

Just like the China milk incident, the MILK is contaminated, many lives are lost, milk related products from ice-cream to chocolates to biscuits are all affected. Should we all cry foul and start to point finger at the distrubuters like NTUC and cold storage and request for compensation?; October 12, 2008 12:34 AM
Anonymous said...: 12.34am,
if you got brain you don't use both for comparision.
Do you need a consultant to help you select the right milk ? No, right?
On the other hand can you buy a financial product from a supermarket off the shelf?No, right?
I leave the rest to you to settle it with your brain, provided you have one.

have commonsense; October 12, 2008 9:04 AM
Anonymous said...: anonymous 12:34AM:

You made a poor comparison to the tainted milk incident. If MAS and financial institutions, with their financial expertise and ability to understand that these are very risky products that one will lose all with just 1 default but still allowed them to be marketed like safe bond-like instruments, then they have some responsibilities.

Similarly, if NTUC or any supermarkets are aware of milk products that can potentially cause death but hide the "potential death" and still continue to market/sell them as safe, would you be upset if you had bought and consumed these milk?; October 12, 2008 9:13 AM
Anonymous said...: Anonymous 9.04: The comparison is so that you can understand that sometimes shit happens and it's no body's fault. It is not a direct comparison as per se, but just how these 2 incidents draw a certain similarities which affect life of common folks.

The structured products are rated AA when it was launched. Based on the ratings, this is considered as a "safe" products. So, MAS, FI &FA take it as it is safe for distribution. I doubt they have the ability to "predict" that such product will affect so many people's life 1.5 yrs down the road.

Just like when you buy a bar of choc fr the shelf you will not question the food safety until the China milk incident happens.

So, be it recommended by FI or purchase out of ownwill, this is an unfortunate event which has happened and affected many pple's life.

I do not think that anyone at fault, it's just that we are all victim of circumstances. Commonsense tells us that amargeddon don't usually strike. But it just did.; October 12, 2008 8:27 PM
Anonymous said...: MAS has many faults.
1.for failure to check the structured products before approval.
2.for failure to apply section 27 of the FAA on the financial consultants.
3.for failure to regulate the FIs leaving them to do whatever they like.
4.for dragging their feet during this crisis
5.for taichi game during this crisis
6.for not helping the victims

pissed off MAS; October 12, 2008 9:51 PM
Anonymous said...: if MAS is at fault, why don't we organise another event at Hong Lim to prepare for a class action suit?

if we can gather 5000 people, a class action suit will be very viable and economical.

let's appoint a leader. any anynamous?; October 13, 2008 8:57 AM
Anonymous said...: Anonymous 8:27pm, your reasoning makes no sense and is factually wrong.

Please do not confuse people further. DBS High Notes is UNRATED. Read through the prospectus and/or pricing statement. Technically the Note holders act like insurers against junk unregulated Collateralized debt obligations. See this for explaination. http://www.cbsnews.com/video/watch/?id=4502673n

Don't confuse people anymore. BTW I did not invest. The returns of 5% is miserly compared to the risks and lock in period. How HARD is it for the distributers to say in plain English, if any of the reference entities collapse, ALL or MOST of your investment will be gone instead of harping on low risks and very safe etc. Let the consumers make an informed decision instead, then if shit happens, it happens. BTW for 5% P.A, I would rather bet on MU and/or chelsea winning. At least with good money management, I know I will not lose my shirt. And the returns are higher.; October 14, 2008 7:21 AM
Anonymous said...: Anonymous 8:27pm, a more accurate analogy will be this in layman terms: Chelsea vs Swindon, MU vs Colchester, Liverpool vs Yeovil, Arsenal vs Hereford.

Product pusher: Come, Come invest. The premier league teams sure win. Very Safe. No Risk. How to Lose? You think the four teams can all lose mah? 5% payout every year, good returns. The Four teams you know value at how much or not. The reserves also earn more.

CONsumer: Ya hor. Should be ok.

Product pusher: Very good choice, sir. You are very wise. Sign here. And here. And here. And here.

CONsumer go home happy.

Then when shit happens, find out if educated from the fine fine print, that if any of the four teams lose, All their investment gone. If any match suspended, all their investment gone. If Singapore Pools don't pay, Investments gone. If all Teams win by 2 goals or more, Singapore pools can take over by ending the investment and pay principal and 2%.

If CONsumer knows, what are the chances, he/she will buy the investment?; October 14, 2008 8:00 AM
GOHCT said...: Please complete this online form if you wish to report a problem you have with your financial institution to MAS. As the financial sector regulator, MAS' role is to ensure that financial institutions conduct their businesses in an appropriate manner and in accordance with the law. We are interested in matters that may raise issues of supervisory concern. These include violations of our rules and regulations, and breaches of other relevant codes of practice and guidelines.

https://secure.mas.gov.sg/apps/wcmaweb/WebForm/WebCompForm.do; October 17, 2008 8:10 PM