7 Jan 2009
HONG KONG: Hong Kong's securities regulator on Wednesday insisted the city's monitoring system had stood up to the financial crisis, despite criticism complex products were wrongly sold to vulnerable investors.
"Hong Kong's system has broadly worked well," said Martin Wheatley, chief executive officer of the Securities and Futures Commission (SFC). "We have not had a systemic failure."
Wheatley said the fact that Hong Kong had so far avoided the collapse of any major financial institutions or a huge fraud on the scale of disgraced US financier Bernard Madoff showed its regulatory regime had worked well.
Madoff was arrested on December 11 after allegedly admitting he had run a multi-billion dollar pyramid fraud in which individual investors, banks, charities and universities lost vast sums of money.
Wheatley conceded the city had suffered from a "mis-selling issue" over the sale of so-called minibonds backed by failed US bank Lehman Brothers.
However, he said it was too early to say if the banks who sold the products or the regulators were to blame.
Critics have accused the city's regulatory bodies of failing to protect investors from the derivative-backed products.
"We have got a problem with retail selling, we need to put that right," he said at Hong Kong's Foreign Correspondents' Club.
More than 40,000 Hong Kong investors – including many retirees – had put a total of 15.7 billion Hong Kong dollars ($2.0 billion US dollars) of their savings into minibonds and other complex products backed by Lehmans.
The collapse of the Wall Street giant in September meant the value of their investments dropped dramatically, which has sparked protests across the city from investors who said they were mis-sold the products.
The SFC and the city's de factor central bank, the Hong Kong Monetary Authority, are investigating hundreds of cases related to the sale of the bonds.
Very often the issue is not the products but the sellers. Miss-selling is about the sellers, a human, a manipulative human who can turn the product upside down. Miss-selling is so common among insurance agents, the bank salespeople and unless it is stopped a lot of consumers' hard earned money will go up in smoke. The key player in this game is the regulator, the enforcer and the referee .If the game is left to be played without the referee, the salespeople and FIs will gang up to cheat the consumers.It is so clear that this has been going for so long and all the consumers' heard earned money have flowed to the pockets of the FIs and the insurance agents. It is time the tide should turn against these people.MAS has this responsibility.
ReplyDeleteHi 8:58 PM
ReplyDeleteIn the case of the credit-linked notes, the issue is mainly the product.
If the product had been properly described and explained, nobody would buy it. And the distributor would not sell it.
Due to its complicated nature, and the misleading description in the prospectus, the product was mis-understood by the distributors and their sales employees. This led to mis-selling.
It makes no sense for a credit linked note to be organised with credit default swaps and a portolio of underlying assets. There are no investor or depositor who need this kind of product. If they wish to gamble, they should go to a casino.
DEAR MR TAN KIN LIAN
ReplyDeleteI salute your clear and concise point on structured products. Thanks for sticking out your neck.
I want to add. Even if the authority thinks the product is suitable, it does not mean the authority should allow it to be sold OVER-THE-COUNTER. For example: We cannot buy CONTACT LENS and VIAGRA from the Pharmacy. We need it to be prescribed by optometrist or doctor. ie no OVER-THE-COUNTER sale.
The professional who prescribes must understand clients needs, advice professionally, explain the side effects clearly etc. In addition, doctor prescribes drug based on client's need; and not based on the drug available by drug company.
From CASHEW NUT
MR TAN KIN LIAN,
ReplyDelete[1] I salute you for posting and enlightenment.
[2] I salute Martin Wheatley, CEO of Hong Kong SFC to make the following HONEST and FRANK comment.
[a] ... Wheatley conceded the city had suffered from a "mis-selling issue" over the sale of so-called minibonds backed by failed US bank Lehman Brothers. However, he said it was too early to say if the banks who sold the products or the regulators were to blame.
[b] ... "We have got a problem with retail selling, we need to put that right," he said at Hong Kong's Foreign Correspondents' Club.
From CASHEW NUT
Dear Mr. Tan
ReplyDeleteYour point is absolute concise and not arguable.
Given the two possible option that HK authority is looking into:-
1. to blame the the banks who sold the products or
2. to blame the regulators
However, maybe there is a 3rd possibility in Singapore is
3. SG investors "walk in with their eyes open seeing" such products mechanism and still buy.
Putting 1, 2, and 3 together, even someone of any age without any education would also know which statement is non-sense.
Regards
Mr. Tan, I agreed with you that the issue is with the product and your analysis.
ReplyDeleteHowever, I personally feel that the distributors (experts) should understand the products well before they sell them to the people.
If the experts are unable to comprehend the prospectus, how can anyone expect the normal investors/depositors to do so.
Going forward and if it is true that the distributors are also misleaded, have they pursue the matters with the issuers (Morgan Stanley and Merrill Lynch? If they do, am sure alot of people will like to know the status.
Hi Sanity,
ReplyDeleteI agree that the distributor has a responsibility to understand the product and to explain it correctly.
It seems dishonesty is rampant these days. Even Satyam of India has unraveled some accounting fraud . Dressing up the account or cooking up the book is so common. Don't know who to trust.
ReplyDeleteI wonder those insurance companies who are very aggressive in their marketing blitz and splurging on their agents with posh hotel meetings, wine and dine and exotic incentive trips are cooking up their books too.
When a company does that it benefits the shareholders, the senior managers and the insurance agents. The suckers are again the consumers and policyholders.
The Gate-keepers, MAS should have banned the products in the first stance as they are incomprehensible,dubious & toxic! By allowing the products to be lodged with it, MAS has given the wrong notion by implication that the products are ok.
ReplyDeletethanks for your info. you are one stop information centre. better than any other media.
ReplyDeleteThe days of insurance agents are numbered. It will be pay back time for many and for some they will have to pay many folds more than they fleeced from their customers. Some may have to serve behind the iron bars and dining and drinking (alcohol not allowed)for free. No, at tax payers' money.
ReplyDeleteBe positive. Imagine away on an incentive holiday trip and lodging in a big posh 7 star hotel or a resort by the sea. Insurance agents are good at this. They can switch on and off from negative to positive by listening to a tape or watching a video. They can fantasise. They have the SECRETS from Ronda Byrne or the Laws of Attraction.
With glib tongue and skill of lying it is not difficult to compete with the retrenched . At the worst be contented working for the fast food outfits and of course the public toilets which need people with different skills.
The day of reckoning is here and it is just the beginning.
Hi Mr. Tan and Sanity
ReplyDeleteIf distributor has responsibility, then how do we account for their scant rejection letters to all investors' complaint without any reason?
Regards
If those credit-linked products were sold directly by the orginators, Lehman Brothers, Morgan Stanley, Merrill Lynch, etc
ReplyDeletevery few people will buy it. It is sold through distributors where the local populace believed and trusted them. These institutions have a responsibility to ensure the products they distributed are good for money and not some synthetic CDOs packaged as triple A notes or bonds. Surely, those FIs would have in-house financial experts who would have been briefed by the originators of those products and evaluated the structure, risks and rewards of those products before putting them out to the public. The internal lawyers would also have looked at the prospectus and together with the internal experts made a recommendations to the management to distribute those products or not.
Chan JC - I wish I know the answer. The best people to answer that will be the FIs and MAS.
ReplyDeleteConcerned - I agreed with you totally. I find it VERY hard to believe that the distributors with their in-house financial experts and lawyers are unable to understand the toxicity of the products and their high underlying risks. Am sure they can seek clarification with the issuers on any doubts.
Essentially the 3 most important aspects in any product are:
1) Nature of the product
2) benefits
3) RISKs (most critical)
In the unlikely event that they are as trusting and naive (for having great faith in the FIs) as us and are really misleaded, are they pursuing the matters with the issuers and compensating the people?
If they do not, it simply means that they understood the products well enough and did deliberately misled the investors/depositors into buying them.
Sanity
ReplyDeleteThanks for the analysis.
Given the various scenarios of
(1) FI themselves do not know the whole product in detail and hence give investors wrong information and caused wrong purchase decision made
(2) FI knows the product in detail and still proceed to sell to investors without full explanation of the product.
Does it mean that just because investor has signed the "sales contract", legal FI who sold the product has NO responsiblities at ALL?
(2) FI knows the product in detail and still proceed to sell to investors without full explanation of the product.
ReplyDeleteThis is tantamount to cheating and it is criminal.
FIs can be fined $250K for every case of cheating.
RMs get $25K for each case of cheating