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Friday, January 09, 2009
HK: Minibond saga sparks rethink of bank rules
Enoch Yiu and Maria Chan
Jan 09, 2009
Financial Secretary John Tsang Chun-wah yesterday ordered “ an immediate review” of Hong Kong’s financial regulatory structure after both the Securities and Futures Commission and the Monetary Authority issued reports on last year’s Lehman Brothers minibond fiasco.
The government will first focus on “ administrative measures” to improve existing regulations and better protect investors. These would include a cooling-off period for buyers and restricting the sale of investment products at bank branches.
“Later we will carry out a structural review that may be required for improving the regulatory structure and protecting investors as well as other measures that need to be implemented through legislation or legislative amendment,” Mr Tsang said.
The SFC wants laws changed to give it the power to order financial intermediaries to compensate investors in the event of misselling or other irregularities.
In the longer term, consideration should be given to establishing a financial services ombudsman, both regulators say.
A government source said the administration would soon issue a consultation paper on how and when to implement short-term measures.
In the longer term, the government wanted to review the entire regulatory structure for banks’ securities businesses. This would include whether to allow banks to use their branch networks and teller staff to sell investment products.
Mr Tsang ordered the review after the government released reports submitted by the HKMA and the SFC on the minibond crisis.
When US bank Lehman Brothers collapsed in September, 43,700 Hong Kong investors were left holding derivatives it had issued or guaranteed but which had lost much or all of their value. Most were minibonds, which, despite their name, are complex, credit-linked derivatives. Investors claim banks and brokers mis-sold the products as low-risk.
The SFC and HKMA called for tighter oversight of the sale of financial products but rejected – at least in the short run – a call for a single regulator to oversee their sale.
At present banks and their securities businesses are regulated by the HKMA. The SFC regulates brokers but is also responsible for investigating and sanctioning bank staff who sell investment products.
The HKMA report recommended that all bank security business be brought under its supervision.
Both the SFC and HKMA reports said having the same bank branch sell investment products and handle client deposits created a conflict of interest.
The SFC said banks may consider establishing a clear-cut division between their banking and securities services by registering separate subsidiaries or affiliates with the SFC.
“ This is not the only way, however, that such separations of functions can be achieved,” the SFC report said.
There could be “a clear demarcation of premises and staff to avoid confusing customers as to the nature of the services being offered”.
Both reports called for introducing a cooling-off period for investors within which they could cancel their investments, as well as a requirement that intermediaries disclose the commissions they receive for selling such products.
The SFC would also require all investments to contain a brief description of the product and include a “risk reminder” for investors.
Both reports rejected calls to ban the sale of investment products without regulatory approval.
"In the longer term, consideration should be given to establishing a financial services ombudsman, both regulators say."
ReplyDeleteIf there isn't any wrong-doing pointing at certain government authority, why is there a need for "financial services ombudsman". This is rather obvious.
MAS should also see the current practices be changed for all financial institutions, the banks and the insurance companies, from the products check to the ways the salesmen sell and also the commission. MAS must play a more proactive role in supervising , regulating and enforcement. Look into these 4 areas the environment will be safer for the consumers.
ReplyDeleteNow the consumers are wary of the products, the RMs and the insurance agents and the FIs. MAS must see that these players play by the rules and no double standards...Stringent and regular audit must be carried out on them to ensure that they toe the line.
Better still have a watchdog to check, like the FISCA which I hope will be formed. FISCA can play a very critical role by exposing and checking on all the players including the regulator.As the whistle blower if there is irregularity.
All the changes will benefit the future investors only. We are the victims.
ReplyDeleteLooks like we are falling far behind what others are trying to do to improve their systems. Our authorities are too complacent with what they have achieved and reluctant to make changes for the better. Perhaps they don't feel the pinch yet.
ReplyDeleteOur authority is not dumb .They have vested interest. They thought that was the way to go. They didn't know the FIs and the salespeople could not be trusted, eiher they were unethical or dumb and incompetent. They wanted a free play, self regulation and what MAS got was dishonesty and incompetence from the FIs.
ReplyDeleteHistory repeats and along the way it will be strewn with casualties like you guys to clean up for the future investors and consumers.
What a price to pay!!!
But it is not over yet. There is still a lot to do, the compensation for those who were aggrieved by the greedy, incompetent RMs and the FIs.
Once this is over the focus will shift to the insurance agents , another lot of malpractitioners, cheats and dishonest salespeople and of course the insurers..
From now it will be cleansing time and payback time for these unethical insurance agents. Until the industry is cleansed, detoxified will consumers have more confidence in the FIs and its salespeople.
FISCA can play the ombudsman role.
ReplyDelete1. to check and warn the public against bad products
2.to warn the consumers of bad practices by FIs
3. to warn and to haul up the insurance agents and RMs for unethical practices
4.to alert the regulator of frauds
by FIs and the salespeople
5.to check on the regulator for failing in its duty
6.to help institute legal proceeding against the RMs, insurance agents and the FIs.
7.to educate the members of the public.
Insurance agents must disclose the total commission they earn from the product they push..
ReplyDelete"Both the SFC and HKMA reports said having the same bank branch sell investment products and handle client deposits created a conflict of interest."
ReplyDeleteHa! Ha! The HK authorities now recognised there is a conflict of interest here. Is MAS aware of this conflict of interest and take steps to rectify this.
A lot of investors got tricked into buying structured products when they went to the bank - to put a deposit, renew a deposit, to bank in some money or to do some banking and the counter staff seeing that the customers have some money in their bank accounts, directed the customers to the RM, so that the RMs can do smooth talking on the merits of the structured products, without high-lighting the structure and risk of the product on sale.
The HK authorities further states
" This is not the only way, however, that such separations of functions can be achieved. There could be “a clear demarcation of premises and staff to avoid confusing customers as to the nature of the services being offered”.
Is MAS going to do such arrangement?