Tan Kin Lian's Blog: Is mis-selling a market misconduct?

Thursday, November 06, 2008

Is mis-selling a market misconduct?

In a speech made in 2002, Mr. Lee Hsien Loong, who was then chairman of Monetary Authority of Singapore said,

"Market discipline also requires an effective enforcement regime. To preserve investor confidence, penalties for transgressions must be swift and appropriate. MAS now has the power to investigate and bring a court action for market misconduct under the new civil penalty regime. This will complement the existing criminal penalty regime administered by CAD.”

Someone commented in my blog as follows:

"Alamak this market discipline referred to is not referring to mis-selling to auntie uncle and ah poh and ah kongs...is to prevent pple from insider trading leh...or market manipulation...but its a good step in the correct direction!! "

Is the mis-selling of mini-bonds and other credit linked notes considered a market misconduct? Was Mr Lee Hsien Loong referring only to market manipulation in 2002?

What do you think?

17 comments:

Unknown said...: "swift & appropriate"... that is so qualitative, and judgemental.

swift & appropriate by whose standard?

another selective implementation of the "discipline"???

I am sorry. if i deviate. Is the MAS gg to DETERMINE if the FI has a committed a mkt-misconduct??; November 06, 2008 1:56 PM
Anonymous said...: Dear all ,

Please refer to newspaper, Today (dated 6 Nov), page 4. Big title: PM Lee to Obama: “You can count on S’pore “.

Victims of ‘toxic structured products’ should raise this question to Mr. Lee Hsien Loong : “ Who to count on to resolve this ‘domestic issue’,by referring to the speech he made on end-Oct 2002, when he was then chairman of MAS ?; November 06, 2008 2:24 PM
Anonymous said...: I think no mis conduct leh; November 06, 2008 2:36 PM
Anonymous said...: Mr. Tan, this person is talking cock. Tell him to refer to section 27 of the FAA. Any deviation from the prescribed steps as laid down by the ACT and to the detriment of the consumers or not is misconduct and should be punishable with fine or jail or both. This applies to FIs and the intermediaries like the RMs and the insurance agents.
Misconduct can be cited for civil suit too for negligence.; November 06, 2008 3:22 PM
Anonymous said...: All official connotations are equal

Some more equal the others.; November 06, 2008 3:57 PM
Anonymous said...: Hi Mr. Tan ,

Please read the following article published in newspaper,Today (dated 6 Nov), page B5 , Title : “Business leaders missing in crisis “ by Ben W Heineman JR (senior fellow at Harvard University’s Kennedy School of Government and Harvard Law School)

I quote the last 3 paragraphs of this article as follows :
“.... Business leaders’ efforts to avoid regulatory change—resorting to cries of 'trust us' and 'trust markets as they were' — won’t work. Too much credibility has been shredded for that and the impact has been too severe.

The future of healthy, sustainable capitalism still turns on corporations’ ability to govern themselves properly. This means balancing wealth creation and risk to drive performance with integrity, to have compensation systems that reward balanced growth rather than kowtow to greed, to respect customers and investors and to provide fairness and transparency.

An honest reckoning is a critical step in developing new regulations that advance the safety and soundness of our financial system. For that to happen, corporate leaders need to show up soon to talk credibly about the failings of the past and how to achieve the right internal balance in the future. “

My question:
What are the viewpoints of our local business leaders,regarding local FIs promote aggresively the 'Minibond or related products' to their loyal (retail) customers ?
I mean local business leaders in Banking sector like Mr.Lee , Mr.Wee , Mr. Quek...who took over the business from their founder fathers who we trusted since our fathers (or grand-fathers) time.; November 06, 2008 4:29 PM
Anonymous said...: Omama can count on s'pore, but s'porean affected in this problem can count on who?????
Someone said Omama's win is deeply inspiring, wait till the opposition party take control, then u see which one is more inspiring?; November 06, 2008 5:30 PM
zhummmeng said...: A misconduct is a legal term meaning a wrongful, improper, or unlawful conduct motivated by premeditated or intentional purpose or by obstinate indifference to the consequences of one's acts.
Does product selling or pushing a financial product constitute a professional misconduct?

Yes ,product selling borders on disclosing half truth, lies, misrepresentation, mis-selling, manipulation of truth and lies and is motivated by intention to beguile the consumers into buying the product which is useless.
Product selling avoids or deprives the full benefit of peace of mind to the buyers.
Product selling leads to improper and inappropriate recommendation of the products.
Product selling premeditates an ill intention and to mislead the buyer into buying a product that benefits the seller.
So you can see that product selling or pushing meets the criteria of wrongful,improper, unlawful, premeditation, intentional, and disregard the consequences to the buyer.
All of the above falls under broader catch all definition of "reasonable basis" which is required by section 27 of the FAA for all advisory work by financial consultants, insurance agents and the RMs.
MAS certainly can enforce the law to discipline the market.; November 06, 2008 6:58 PM
Chew Boon Keng said...: This and several other articles in this blog would form major part in the potential legal argument that these goods should not have been allowed into the retail market in the first place. In the class- action, grounds could be made that there were clear evidence of mis-sellings and misrepresentations.

The offer by the distributors to compensate the elderly and those with only primary education appears to be supported by the MAS and the government. This is purely a political ploy to gain the sympathy of the populate and to down play the idea that there have been mis-sellings and mis-representations by the vendors. The fact that even Town Councils have invested in these products is clear indication that they were not aware of the potential high risks involved. Public money should never be spent on risky investments – a public inquiry in this matter will not be out of place.

MAS is just playing lip-service for the time being and is just taking its cue from the government. CASE and MAS should play much bigger role in protecting the interest of the citizens.

How could one deal with this on a “case by case” basis? The whole truth about who are being offered compensations and the rates of compensation will not be revealed on grounds of confidentiality. There will be no transparency. Those who accept the compensations will not be able to take legal action. But, of course if you are satisfied, then by all means accept the offer and close the matter.

I am following the advice of MAS and the government and have lodged my complaint with Hong Leong Finance. Subsequently, if this proved unsatisfactory, I will file my complaint with FiDREC.

This does not prevent me from subsequently taking legal action against the Financial Institution (FI) if I am still not satisfied with the offer of settlement.

For the moment, there is no need to make a Statutory Declaration (costing about $150) or paying the lawyer a retainer of a few thousand dollars just to show your intention of filing a suit against the FI. If a thousand investors were to do SDs or to sign up for possible legal action, the cost itself will amount to $150,000 for the SDs and a few $millions for the legal fees. Legal consultations and instituting a class action can always be done later on. The legal fees will include making of statutory declaration or whatever necessary. The more investors involved the lesser the fees you pay. You could always source around then for the most suitable legal firm to represent you.

Do what you know is best for you in this case – seek around for proper advice and do not jump into the first boat available. We have been burnt once – be wiser now.

Most important of all, in your dealings with the FI we must show our determination and resolve to undertake legal action if it becomes necessary.

I would like to be in contact with people who have invested with Hong Leong Finance – especially those who think likewise. I also welcome those who sincerely and genuinely could give advice or those in need of advice on this matter.

We must carry on supporting Tan Kin Lian and those who are bringing publicity to this issue. This has been brought to the attention of the authorities rather effectively and is something that the government just cannot ignore. The pressure must be kept.

Good luck to all

Chew Boon Keng; November 06, 2008 8:18 PM
Anonymous said...: Why not just ask the man? After all, he was the MAS chairman when he said this. Ask him!; November 06, 2008 8:35 PM
C H Yak said...: I would think the answer lies in the definition of these keywords :-

(a) civil penalty
(b) criminal penalty.

Insider trading & market manipulation are offences punisable by a criminal penalty regime. E.g. Pan-Electric, Nick Leeson, etc. Hence, CAD is involved. Offenders were jailed.

Mis-selling & misrepresentation are acts related to breach of Contract Laws. Hence, it is more likely to be dealt with by a civil penalty regime. Hence, the CAD is unlikely to act and aggrieved parties must sue in Court for remedies. Conversely, both parties may seek arbitration or mediation as an agreed alternative to court action.

To complement the above, there must be an effective "enforcement regime". This probably refers to MAS being given statutory power to enforce certain regulatory framework, such as the FAA etc. Specifically, it was mentioned that MAS would be given power to investigate and bring a court action for market misconduct.

Mis-selling I believe should be termed as a market mis-conduct. Mis-selling is seldom used in contract laws. We commonly mention mis-representaion as a breach of contract which is entitled to civil remedies - rescission of contract and/or damages.

I would think what the PM meant could be that in addition to the civil right for aggrieved investors to sue for breach of contract and seek remedies, FIs could also possibly faced investigation or court action initiated by the enforcement agent of the Government which is MAS.

It is easy for our political leaders to describe in nice wordings the whole regulatory framework and procedures. But in reality to implement it effectively, there must certainly be limitaions, e.g. such the quality and motivation of contended officers.

I am just guessing. The best person to know is none other than the PM himself.; November 06, 2008 10:45 PM
Anonymous said...: Yah, it is refering to insider trading. If not, why for the past six years no swift and appropriate action on mis-selling? These are not his priorities or even on his (MAS) radar. Need an "explosion" to wake them up. Or have they wake up?; November 06, 2008 11:21 PM
Anonymous said...: Yah, it is refering to insider trading. If not, why for the past six years no swift and appropriate action on mis-selling? These are not his priorities or even on his (MAS) radar. Need an "explosion" to wake them up. Or have they wake up?; November 06, 2008 11:22 PM
Anonymous said...: Market manipulation is not mis-selling. It is attempting to influence the market in someone's favour to make the kill.
Mis-selling is hoodwinking someone into buying something which is not suitable.
Both are misconduct. Both are wrongful act.; November 07, 2008 12:18 AM
Unknown said...: The FAA was passed in 2001 to regulate Financial Advisers and their representatives. The Act allows the MAS to issue Notices and Guidelines which must be adhered to by the FAs and FA representatives. Among these is MAS Notice No : FAA-N01- NOTICE ON RECOMMENDATIONS ON INVESTMENT PRODUCTS which emphasises that licensees must have a reasonable basis for any recommendation made with respect to any investment product to a
person who may reasonably be expected to rely on the recommendation.

If there is non-compliance, the FA or FA representative can be fined:

"Under section 58(5) of the Act, any person who contravenes any
requirement specified in a written direction issued by the Authority (which would include this Notice), shall be guilty of an offence and shall be liable on conviction to a fine not exceeding $25,000 and, in the case of a continuing offence, to a further fine not exceeding $2,500 for every day or part thereof during which the offence continues after conviction."

The PM's speech was made in 2002 after the new approach was adopted by MAS in its supervisory role. Thus it can be concluded that the "market misconduct" would include breaches of the FAA.; November 07, 2008 8:22 AM
Anonymous said...: MAS advice you to settle with the banks.
Banks advice you to settle case by case.
Their strategy of divide and conquer is so obvious.
Ultimately, you will get back to sqaure one as the banks are using all the resources against 1 individual investor.
The most they need to concentrate all their firing power on 1 small group of individual.(HNIG)

They know that if take on the whole group that was cheated by all the banks, they will have problem combining their resources, coordinating with each other and shoot down all our claims. Although the bank are wrong and not willing to do the RIGHT thing, sadly, MAS, for some reasons, appears to be helping the banks only and forcing the investors to be slaughtered as individual or small groups.

Would it not be better if the investors were to change their strategy to attack their weakness. Their weakness in the bank coming together to address the issue as a whole. This weakness in gathering all the banks resources is evident in the way they handle the complaints now and they will have difficulties in agreeing on some standards. Examples would be the way they indentify vulnerables group, the compensation to vulnerables(some will compensate full with interest, some not full minus interest), Their timeline of settlement. Their willingness to conduct forums.etc.

The only way to force the bank to admit their wrong doings and address the issue as a whole is through the authorities. The authorities should protect the investor against these crimes.They should actively find evidence of mis-selling and force the banks to admit. For MAS to adress all the banks together, MAS should look at the product itself, the sales process and the product risks that was marketed as diversified suddenly becomes combined.
The risks all investor, RMs understand, of low risk suddenly become high risk and toxic. The banks are wrong in cheating everyone including their own employees.(RMs).

How MAS can confirm these wrong doing? Easy. Study the product and pricing statement carefully and know the high risk involved. Then compare the sales materials/ promotional materials and see if it is EXACTLY as describe in the pricing statement and the way it is marketed as a safe heaven or a risky product. Then conduct interviews or forums with investor and RMs. (RMs too believe these are well diversified low risk bond like instruements.)

Once the banks admit liability, then go settle case by case.

It would be better to combine all the investors resources and concentrate on MAS. Once MAS cannot stand public pressure and start to do the right thing, then investors will have the upper hand and the bank will not bully them anymore if they know that MAS is no longer backing them and will not condone their wrong doing.

This strategy is something like:
If you are outnumbered, attack the leader first and the rest will flee knowing no more backing. It works the other way also. If there is no Mr Tan, investors will not be as willing to fight this cause.

What do you, the investors think of this strategy?; November 07, 2008 10:46 AM
Anonymous said...: hi...i wrote the market misconduct one , but that one is just my opinion leh, so maybe let me tell u why i think this way...law got no right or wrong just who is more right only..

So far market misconduct in its essence has always referred to insider trading, front running, manipulation, stacking,bucketing...aiyah all the stuff to do with MARKETS...be it global markets, stock market...but i think should not be referring to auntie-uncle market...

I think that the higher penalty is still Insider trading...250k plus 7 years in Changi...not sure if anyone went jail yet...but MAS always show their enforcement action...u got time pls go their website to see.

so even then as mis-selling as opined by someone else here comes under civil law and of course if ever convicted (aiyah they alwiz settle out of court lah) then will kena fine the 25k + 2.5k a day...plus its almost alwiz breach of contract/ duty , misrepresentation. so this is where u should apply the S25-27... ur salesman need to tell u what (sq25), need to tell u in what way (s26) and why he need to tell u in the first place and he use what to tell u (s27)...

all wrongful acts are misconduct but not all are MARKET misconduct...maybe a better word for the errant sales practice can be professional misconduct or negligence... just my 2cents worth

who want to whack the FI must prepare their ammo first!!! but lets get them together!!!; November 07, 2008 12:21 PM

Thursday, November 06, 2008

Is mis-selling a market misconduct?

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