6 July 2009
Dozens of angry Lehman Brothers minibond investors staged a noisy protest outside Government House yesterday, calling on Chief Executive Donald Tsang Yam-kuen to accept responsibility for their losses and step down.
Holding banners and shouting slogans, the protesters broke through police barriers on Upper Albert Road but returned to the pavement following police persuasion.
More than 50 people took part in the unauthorized demonstration, police said.
The protesters maintained Tsang has failed to supervise the banks and is not doing enough to help them.
Allied Victims of Lehman Products chairman Peter Chan Kwong-yue had initially suggested the protesters would refuse to leave until Tsang talked to them.
Chan, who organized the demonstration, had also expected a turnout of 200 to 300, but traffic diversions and the rain took their toll.
The group will now be applying for permission from the police to stage a protest outside the Legislative Council tomorrow when Tsang arrives for a question and answer session, Chan said. He expects between 400 and 500 people to attend.
Nobody from the government came forward to accept a letter from the group yesterday. And banks involved have not replied to investors even though the group has reached out to them, Chan said.
Upper Albert Road was reopened by early evening yesterday, with all protesters dispersed by 6pm.
A police spokesman said the force had not been informed in advance of the protest so the group violated the Public Order Ordinance. While there were no arrests, an investigation is under way.
Sixteen distributor banks for Lehman Brothers minibonds last Monday met the Securities and Futures Commission to indicate they would pay most investors 60 percent of the principal invested, while investors aged 65 or above would receive 70 percent of their investment. An official proposal was sent to the regulator on Thursday.
SFC chief executive Martin Wheatley said on Friday that the suggestion of paying investors only 60 percent of principal on average was not fair.
A 52-year-old woman linked to Lehman Brothers products reportedly jumped to her death from a Kowloon Bay apartment building on Friday.
Tuesday, July 07, 2009
Singapore bars 10 firms from selling structured notes
By Lee Siew Hoon, Channel NewsAsia | Posted: 07 July 2009 1728 hrs
SINGAPORE: The Monetary Authority of Singapore (MAS) has, for the first time, imposed bans on the sale of structured notes by 10 financial institutions (FIs) which had distributed toxic structured notes linked to the collapsed US financial institution Lehman Brothers.
The bans took effect on July 1 and will remain in place until MAS is satisfied there are adequate measures to address the findings of its investigation into the sale of the failed structured products last year.
The 10 FIs are ABN Amro Bank, CIMB-GK Securities, DBS Bank, DMG and Partners Securities, Hong Leong Finance, Kim Eng Securities, Maybank, OCBC Securities, Philip Securities and UOB Kay Hian.
MAS revealed this as it released the findings of its investigations into the sale of the failed structured products last year.
The regulator found that the 10 FIs had policies, procedures and controls in place for the sale and marketing of the structured notes, but the extent of due diligence and level of internal controls differed among them.
As a result, MAS said there were various forms of non-compliance with its notices and guidelines on the sale and marketing of these investment products.
MAS said some of the specific failings included insufficient steps taken by some FIs to ensure that all their financial advisory representatives were properly trained before marketing and selling these products.
The regulator also noted that some FIs had assigned risk ratings to the products that were inconsistent with risk warnings stated in the prospectus and pricing statement.
According to MAS, there were also weaknesses in how some FIs ensured that their sales representatives were properly equipped with accurate and complete information about the structured notes.
As a preventive measure, the regulator said FIs must rectify all weaknesses identified in the investigations, appoint an external person identified by MAS to review action plans and report on implementation, and appoint senior management staff to oversee compliance with MAS' direction.
MAS said that until it is satisfied with the measures put in place, the FIs will not be able to distribute structured notes.
MAS also gave details about how the FIs have compensated investors who bought structured notes.
Hong Leong Finance paid S$57.6 million to 2,048 investors who bought the structured notes that it distributed. This is the highest amount of compensation paid out to retail investors.
Hong Leong Finance is also barred from selling structured products for two years.
Maybank offered S$25.3 million to 1,100 investors, while ABN Amro paid 262 investors S$14.1 million.
DBS Bank compensated 197 investors S$7.6 million.
The three banks will be banned from selling structured products for six months.
According to MAS, the total settlements for decided cases amounted to S$105 million.
The six brokerage firms, which also sold the structured notes, paid a total of
S$2.74 million to 297 investors.
UOB Kay Hian and DMG & Partners will get a six-month ban, while the others will be barred from selling structured notes for a year each.
http://www.channelnewsasia.com/stories/singaporelocalnews/view/440970/1/.html
SINGAPORE: The Monetary Authority of Singapore (MAS) has, for the first time, imposed bans on the sale of structured notes by 10 financial institutions (FIs) which had distributed toxic structured notes linked to the collapsed US financial institution Lehman Brothers.
The bans took effect on July 1 and will remain in place until MAS is satisfied there are adequate measures to address the findings of its investigation into the sale of the failed structured products last year.
The 10 FIs are ABN Amro Bank, CIMB-GK Securities, DBS Bank, DMG and Partners Securities, Hong Leong Finance, Kim Eng Securities, Maybank, OCBC Securities, Philip Securities and UOB Kay Hian.
MAS revealed this as it released the findings of its investigations into the sale of the failed structured products last year.
The regulator found that the 10 FIs had policies, procedures and controls in place for the sale and marketing of the structured notes, but the extent of due diligence and level of internal controls differed among them.
As a result, MAS said there were various forms of non-compliance with its notices and guidelines on the sale and marketing of these investment products.
MAS said some of the specific failings included insufficient steps taken by some FIs to ensure that all their financial advisory representatives were properly trained before marketing and selling these products.
The regulator also noted that some FIs had assigned risk ratings to the products that were inconsistent with risk warnings stated in the prospectus and pricing statement.
According to MAS, there were also weaknesses in how some FIs ensured that their sales representatives were properly equipped with accurate and complete information about the structured notes.
As a preventive measure, the regulator said FIs must rectify all weaknesses identified in the investigations, appoint an external person identified by MAS to review action plans and report on implementation, and appoint senior management staff to oversee compliance with MAS' direction.
MAS said that until it is satisfied with the measures put in place, the FIs will not be able to distribute structured notes.
MAS also gave details about how the FIs have compensated investors who bought structured notes.
Hong Leong Finance paid S$57.6 million to 2,048 investors who bought the structured notes that it distributed. This is the highest amount of compensation paid out to retail investors.
Hong Leong Finance is also barred from selling structured products for two years.
Maybank offered S$25.3 million to 1,100 investors, while ABN Amro paid 262 investors S$14.1 million.
DBS Bank compensated 197 investors S$7.6 million.
The three banks will be banned from selling structured products for six months.
According to MAS, the total settlements for decided cases amounted to S$105 million.
The six brokerage firms, which also sold the structured notes, paid a total of
S$2.74 million to 297 investors.
UOB Kay Hian and DMG & Partners will get a six-month ban, while the others will be barred from selling structured notes for a year each.
http://www.channelnewsasia.com/stories/singaporelocalnews/view/440970/1/.html
MAS Investigation Findings
MAS Releases Investigation Findings on the Sale and Marketing of Structured Notes Linked to Lehman Brothers
100 fun and information personality quizzes
Hi Tan,
We just posted an article, “Know Thyself: 100 Fun and Informative Personality Quizzes”. I thought I'd bring it to your attention in case you think your readers would find it interesting.
Suzane Smith
We just posted an article, “Know Thyself: 100 Fun and Informative Personality Quizzes”. I thought I'd bring it to your attention in case you think your readers would find it interesting.
Suzane Smith
Simplify Internet Banking
Editor
Forum Page
Straits Times
I use internet banking to transfer money to the other people through their bank account. I find this service to be convenient, compared to sending a cheque to them.
However, I find that the actual implementation of this service by my bank to be a hassle in the following aspects:
1. The bank requires the customer to create a record for each new payee and to authenticate it through a PIN sent through the mobile phone.
2. The bank requires the customer to enter the IB Secure PIN for every payment
These layers of security measures are duplicative, as the customer already has to enter user ID, PIN and an IB secure PIN to gain access to the internet banking facility.
The real risk to the customer is by entering the wrong account code of the payee or the wrong amount. The bank is not helping the customer to mitigate this risk.
By giving hassle and distracting the customer, these duplicative tasks actually increases the risk to the customer of making mistakes in entering the wrong bank account or amount. The inconveniences are aggravated when the computer system or internet is slow.
I believe that these security features may have been mandated by the regulator. I hope that the banks and the regulator should re-look at these requirements and simplify the process for the customer, while maintaining an adequate level of security. This will allow the customer to focus on ensuring that the entries are correct.
Tan Kin Lian
Forum Page
Straits Times
I use internet banking to transfer money to the other people through their bank account. I find this service to be convenient, compared to sending a cheque to them.
However, I find that the actual implementation of this service by my bank to be a hassle in the following aspects:
1. The bank requires the customer to create a record for each new payee and to authenticate it through a PIN sent through the mobile phone.
2. The bank requires the customer to enter the IB Secure PIN for every payment
These layers of security measures are duplicative, as the customer already has to enter user ID, PIN and an IB secure PIN to gain access to the internet banking facility.
The real risk to the customer is by entering the wrong account code of the payee or the wrong amount. The bank is not helping the customer to mitigate this risk.
By giving hassle and distracting the customer, these duplicative tasks actually increases the risk to the customer of making mistakes in entering the wrong bank account or amount. The inconveniences are aggravated when the computer system or internet is slow.
I believe that these security features may have been mandated by the regulator. I hope that the banks and the regulator should re-look at these requirements and simplify the process for the customer, while maintaining an adequate level of security. This will allow the customer to focus on ensuring that the entries are correct.
Tan Kin Lian
Prevent Mis-selling of Financial Products
I wrote an article to suggest the following measures to prevent mis-selling of financial products in the future, namely:
a. Enforce the law
b. Allow contingenncy fee system
c. Set up a consumer protection agency.
Read this article.
Funds Transfer
Service Quality Manager
DBS Bank
I find the funds transfer facility provided by DBS Bank through internet banking and ATM to be very useful. I wish to pass this suggestion for your bank to improve this service.
1. Type of account
When I make a funds transfer by internet banking or ATM to a DBS or POSB account, I am asked to specify the type of account, e.g. current, saving, or other type. Usually, the payee does not tell me the type of account. They only indicate DBS or POSB
Can you change the system to avoid specifying the type of account. I believe that the account number should be sufficient for DBS to identify the actual account.
2. Reference Number
When another person transfers money to me through ATM, the transferor is not able to enter a Reference in your ATM machine. I do not have any idea about the identity of the person making the payment to me through ATM.
Can you change your ATM system to allow a Reference Number to be entered. I am aware that this has to be restricted to a Numeric number, but this is better than no reference at all.
Thank you.
Tan Kin Lian
DBS Bank
I find the funds transfer facility provided by DBS Bank through internet banking and ATM to be very useful. I wish to pass this suggestion for your bank to improve this service.
1. Type of account
When I make a funds transfer by internet banking or ATM to a DBS or POSB account, I am asked to specify the type of account, e.g. current, saving, or other type. Usually, the payee does not tell me the type of account. They only indicate DBS or POSB
Can you change the system to avoid specifying the type of account. I believe that the account number should be sufficient for DBS to identify the actual account.
2. Reference Number
When another person transfers money to me through ATM, the transferor is not able to enter a Reference in your ATM machine. I do not have any idea about the identity of the person making the payment to me through ATM.
Can you change your ATM system to allow a Reference Number to be entered. I am aware that this has to be restricted to a Numeric number, but this is better than no reference at all.
Thank you.
Tan Kin Lian
Diverse Views
I wish to post this reply to the Note of Enouragement by Cashew Nut.
1. I state my views and give my reasons.
Some people who disagree with me, use this approach:
I hope that more people can come forward to express their views honestly and positively. If one has to be anonmymous or use a pen name, it is more important that one should show respect and fairness to other people.
Tan Kin Lian
I welcome diverse views. I hold different views from other people. I observe the following principles in expressing my views:
1. I state my views and give my reasons.
2. I do not pass judgement on other people's views (i.e who am I to judge?)
3. I do not attack another person.
Some people who disagree with me, use this approach:
1. They pass judgement on my views
2. They give an extreme interpretation of my views (i.e. put words in my mouth) and attack it
3. They attack me personally on other matters
4. They carry out these actions, while remaining anonymous.
I hope that more people can come forward to express their views honestly and positively. If one has to be anonmymous or use a pen name, it is more important that one should show respect and fairness to other people.
Tan Kin Lian
A poor return on savings in life insurance
When you pay premium for a whole life or endowment policy, a portion (say $X) goes to provide the insurance cover and another portion (say $y) goes towards savings to pay your the maturity benefit or cash value in the future.
The insurance company aims to earn a return of say 5% per annum on the savings portion. However, they take away more than half of the gain to pay commission to the agent, overhead expenses and profit for shareholders, giving a net return of less than 2.5% to the policyholder.
This net return is not guaranteed, as it takes the form of a bonus that can be adjusted by the insurance company.
When the investment return is bad (as has happened every few years), the insurance company cuts the bonus and gives you a lower return. If the investment return is good, the insurance company may not increase the bonus, as it prefers to keep the excess gain as "orphan money" in the insurance fund. The policyholder is likely to lose out in the long run and get a return lower than projected.
After deducting the cost of insurance (i.e. $X) the net return may be less than 1% per annum. This is a poor return for a long term savings plan.
This very low return is possible only if the policy is maintained for more than 15 years. If it is terminated earlier, the cash value is likely to be less than the total premiums paid, giving a negative return to the policyholder. Many policyholders lose more than half of their savings on early termination.
To give a fair return to the policyholder, an insurance company should follow this approach:
a) reduce its expenses, especially commission to agents
b) distribute most of its investment gain to policyholders
Unfortunately, to my knowledge, none of the life insurance company in Singapore follow this approach.
Hence, it is best to avoid all types of life insurance policies that have high expenses. Buy term insurance for the life insurance. Invest your savings in government bonds or an exchange traded fund.
Tan Kin Lian
The insurance company aims to earn a return of say 5% per annum on the savings portion. However, they take away more than half of the gain to pay commission to the agent, overhead expenses and profit for shareholders, giving a net return of less than 2.5% to the policyholder.
This net return is not guaranteed, as it takes the form of a bonus that can be adjusted by the insurance company.
When the investment return is bad (as has happened every few years), the insurance company cuts the bonus and gives you a lower return. If the investment return is good, the insurance company may not increase the bonus, as it prefers to keep the excess gain as "orphan money" in the insurance fund. The policyholder is likely to lose out in the long run and get a return lower than projected.
After deducting the cost of insurance (i.e. $X) the net return may be less than 1% per annum. This is a poor return for a long term savings plan.
This very low return is possible only if the policy is maintained for more than 15 years. If it is terminated earlier, the cash value is likely to be less than the total premiums paid, giving a negative return to the policyholder. Many policyholders lose more than half of their savings on early termination.
To give a fair return to the policyholder, an insurance company should follow this approach:
a) reduce its expenses, especially commission to agents
b) distribute most of its investment gain to policyholders
Unfortunately, to my knowledge, none of the life insurance company in Singapore follow this approach.
Hence, it is best to avoid all types of life insurance policies that have high expenses. Buy term insurance for the life insurance. Invest your savings in government bonds or an exchange traded fund.
Tan Kin Lian
A note of encouragement
MR Tan Kin Lian
May I offer a note of encouragement to your good work.
You should not loose heart when the response to your suggestions may not be as good as you expected. People take time to respond. It takes time to manifest from inward to outward. Even "educated" people like me takes a long time to unwind the process from inside to outside.
One of the scary things we see in myself and others is the apathy of the heart and lethargy of the body to talk about half-justice and half-truth. I think to make people able to think is more important than winning the debate. Once the people is able to think, then we shall leave it to the people to decide. For example, I am a father too.
My job to to impact good value and character (to the best of our ability), teach them to think independently and pray that God will lead them in their pilgrimage of life. I cannot impose once they come of age.
I have the interest of looking at the recent China history. The Chinese people during late Qing has gone through much soul searching. Even great men like "Zheng Guo Fan" and "Li Hong Zhang", they are searching and trying very hard to institute change from within the institution. Zheng Guo Fan did not suffered humiliation as a result and was hailed as a great leader and teacher. Li Hong Zhang is being portrait as a "traitor" although he did a fair amount of good things for China. History can be enlighening and cruel. It may not apply directly to Singapore, to respect history is the beginning of humanness and humanity.
Thanks a lot and God bless.
CASHEW NUT
May I offer a note of encouragement to your good work.
You should not loose heart when the response to your suggestions may not be as good as you expected. People take time to respond. It takes time to manifest from inward to outward. Even "educated" people like me takes a long time to unwind the process from inside to outside.
One of the scary things we see in myself and others is the apathy of the heart and lethargy of the body to talk about half-justice and half-truth. I think to make people able to think is more important than winning the debate. Once the people is able to think, then we shall leave it to the people to decide. For example, I am a father too.
My job to to impact good value and character (to the best of our ability), teach them to think independently and pray that God will lead them in their pilgrimage of life. I cannot impose once they come of age.
I have the interest of looking at the recent China history. The Chinese people during late Qing has gone through much soul searching. Even great men like "Zheng Guo Fan" and "Li Hong Zhang", they are searching and trying very hard to institute change from within the institution. Zheng Guo Fan did not suffered humiliation as a result and was hailed as a great leader and teacher. Li Hong Zhang is being portrait as a "traitor" although he did a fair amount of good things for China. History can be enlighening and cruel. It may not apply directly to Singapore, to respect history is the beginning of humanness and humanity.
Thanks a lot and God bless.
CASHEW NUT
No-fault motor insurance
Hi Mr. Tan,
What are you views on the no-fault motor insurance, that is proposed by the Consumer Association?
REPLY
I sent the following views to the Straits Time. The journalist mentioned it in his report.
There are two types of third party claims and they require to be dealt with differently.
a) Injury claims
For injury claims, it is useful to have a "no fault system" to compensate the injured party, similar to worker's compensation. Here is the experience of such a system used in Sweden. It allows for the compensations to be paid more promptly and fairly, and reduces the litigation cost. See this article in my website:
b) Damage claims
For damage claims, a better solution is for the regulation to require a motorist to lodge a third party claim directly with the insurance company, prior to arranging the repair of the vehicle. The past practice was that the third party will arrange the repair the vehicle with his workshop (who can inflate the claim) and then get a lawyer to lodge the third party claim against the insruance company (hence, adding up the litigation cost as well). (Note: I am not sure if the Motor Claim Framework introduced last year has already addressed this matter).
If the third party damage claim can be put on a proper framework, there is no need to change to law to introduce a "no fault" system for damage claims.
Monday, July 06, 2009
Are we over-reacting to Influence A (H1N1)
Read this article by Dr. Ong Hean Teik. It is purported to be publised in Malaysiakini. He advised Malaysians to take a different approach from Singapore, and to follow the approach taken in the USA.
There was a mention of Dr. Ong in my blog late last year.
There was a mention of Dr. Ong in my blog late last year.
The hidden ugly side of Singapore
Does this article give a fair description of the life of the poor in Singapore, or is it an exaggeration? Give your opinion here.
Consumer Finance Protection Agency
I suggest that a consumer finance protection agency should be introduced in Singapore, similar to the approach being considered now in America under the Obama Administration.
This agency should have the duty to examine financial products and ensure that they are suitable for sale to the general public. This is similar to the role of the drug authority in approving drugs for sale to the public.
It is not possible for ordinary consumers to assess the safety and fairness of the financial products on their own, based on the information given to them and their lack of financial expertise. This role has to be done by an agency that has access to financial experts. In making the assessment, the financial experts can ask relevant information from the product issuer, including information that is not disclosed in the published materials given to the consumers.
It may be difficult for the Government to take the big step of introducing an agency that has the power to approve or reject any specific financial product. I suggest that this agency can provide a white-list of the suitable products that meet its criteria of disclosure, fairness and general suitability.
This approach allows the ordinary people to check that a particular financial product has been on the white-list. Risky products can be on the white-list, so long as it is adequately disclosed and fairly priced.
The agency can declare products as “not meeting its criteria” without having the power to reject these products.
Tan Kin Lian
This agency should have the duty to examine financial products and ensure that they are suitable for sale to the general public. This is similar to the role of the drug authority in approving drugs for sale to the public.
It is not possible for ordinary consumers to assess the safety and fairness of the financial products on their own, based on the information given to them and their lack of financial expertise. This role has to be done by an agency that has access to financial experts. In making the assessment, the financial experts can ask relevant information from the product issuer, including information that is not disclosed in the published materials given to the consumers.
It may be difficult for the Government to take the big step of introducing an agency that has the power to approve or reject any specific financial product. I suggest that this agency can provide a white-list of the suitable products that meet its criteria of disclosure, fairness and general suitability.
This approach allows the ordinary people to check that a particular financial product has been on the white-list. Risky products can be on the white-list, so long as it is adequately disclosed and fairly priced.
The agency can declare products as “not meeting its criteria” without having the power to reject these products.
Tan Kin Lian
SCMP:Lehman investments recouped
3 July 2009
A total of 329 investors who bought soured Lehman Brothers-linked minibonds from Sun Hung Kai Investment Services and KGI Asia have received their principal amounts back. Under a deal struck with the Securities and Futures Commission, the two firms voluntarily agreed to buy back the minibonds for the principal amount.
Sunday, July 05, 2009
FISCA Research: Interest Rates on Savings Accounts and Fixed Deposits
Here are the interest rates on savings accounts and fixed deposits. Courtesy of FISCA Research.
Cheyenne does the Shape Quiz (T Puzzle)
My niece Cheyenne, 6 years old, tried the Shape Quiz (T Puzzle). She has an artistic inclincation and is able to figure out how to form the shapes by looking at the picture. She did the first 3 shapes out of 100 shapes. She will try the other shapes, one at a time. Watch her on Youtube.
More about the Shape Quiz here.
More about the Shape Quiz here.
Allow lawyers to act on contingency fee
Many investors of the credit linked notes (i.e. Minibonds, High Notes, Pinnacle Notes, Jubilee Notes) had, as a last resort, sought to take a class action against the issuers and/or distributors of these financial products. However, they are daunted by the huge legal cost of a class action.
Many lawyers are not willing to take up the class action as they have existing relationships with the financial institutions and they do not wish to jeopardise their future dealings.
A few lawyers who are willing to act for the investors required a large sum of money to be collected to pay for their case preparation and for their fees and expenses to represent the investors in court. Most of these lawyers are not even prepared to write down their legal arguments and give any assessment of the chance of winning the case, prior to their formal appointment.
Many investors were reluctant to join the class action as they were not sufficiently assured about the credibility of the lawyers or the strength of their case. Some said, “We have been cheated by the banks. We do not now wish to be cheated by the lawyers. We do not want to pay large legal fees, when the chance of winning is unclear or quite remote.”
It is useful for a contingency fee system to be introduced in Singapore for such cases. The lawyers are in the best position to assess the strength of the case, and to take the commercial risk of the litigation. They cannot expect the ordinary folks to make this assessment, especially as the decision has to be taken by many investors with different financial circumstances and understanding of the law.
There are some possible abuses of a contingency fee system, but these abuses can be mitigated. This system provides the positive benefit of allowing ordinary people to seek redress against abuses by large companies.
Tan Kin Lian
Many lawyers are not willing to take up the class action as they have existing relationships with the financial institutions and they do not wish to jeopardise their future dealings.
A few lawyers who are willing to act for the investors required a large sum of money to be collected to pay for their case preparation and for their fees and expenses to represent the investors in court. Most of these lawyers are not even prepared to write down their legal arguments and give any assessment of the chance of winning the case, prior to their formal appointment.
Many investors were reluctant to join the class action as they were not sufficiently assured about the credibility of the lawyers or the strength of their case. Some said, “We have been cheated by the banks. We do not now wish to be cheated by the lawyers. We do not want to pay large legal fees, when the chance of winning is unclear or quite remote.”
It is useful for a contingency fee system to be introduced in Singapore for such cases. The lawyers are in the best position to assess the strength of the case, and to take the commercial risk of the litigation. They cannot expect the ordinary folks to make this assessment, especially as the decision has to be taken by many investors with different financial circumstances and understanding of the law.
There are some possible abuses of a contingency fee system, but these abuses can be mitigated. This system provides the positive benefit of allowing ordinary people to seek redress against abuses by large companies.
Tan Kin Lian
Gathering in Speaker's Corner in August (4)
29 people have replied to the survey mentioned in this blog. Each person indicated that they will ask a small number of people to attend. Only 1 person is willing to speak. Four are willing to share their story (with particulars removed to protect their confidentiality) for another speaker to use.
I need more speakers. If you wish to share your story, I can get someone to speak on your behalf. If you like the gathering to be organised, please give your reply here.
I need more speakers. If you wish to share your story, I can get someone to speak on your behalf. If you like the gathering to be organised, please give your reply here.
Saturday, July 04, 2009
Mis-representation on Credit Linked Notes
A senior lawyer told me that the law is to be seen in this context:
"The law works on the basis of freedom of contract and caveat emptor, so, in these cases, unless there has been misrepresentation or unless it can be shown that the banks have taken on a special duty of care because of a fiduciary relationship (which most bank documents expressly exclude) the buyer is supposed to know what he is buying and the risks thereof."
MY VIEW:
Clearly, the relationship manager did mis-represent the product that they sold to the investors, who were generally risk averse. The question is, "did the RM understand the product?" Most likely, they did not. If this were the case, surely, they must have mis-represented the product?
The strategy for the investor is to provide clear proof that there was mis-representation. This can be in a sworn statement. Better still, it should be supported by an impartial witness or written documentation.
"The law works on the basis of freedom of contract and caveat emptor, so, in these cases, unless there has been misrepresentation or unless it can be shown that the banks have taken on a special duty of care because of a fiduciary relationship (which most bank documents expressly exclude) the buyer is supposed to know what he is buying and the risks thereof."
MY VIEW:
Clearly, the relationship manager did mis-represent the product that they sold to the investors, who were generally risk averse. The question is, "did the RM understand the product?" Most likely, they did not. If this were the case, surely, they must have mis-represented the product?
The strategy for the investor is to provide clear proof that there was mis-representation. This can be in a sworn statement. Better still, it should be supported by an impartial witness or written documentation.
Can you solve these 4 shapes?
DownloAD this PDF. Cut the 4 pieces. Solve the 4 shapes. You can cut the shapes from cardboard to be more durable.
ATE (After The Event) Insurance
The ATE insurance covers the litigation cost and is now available through an insurance broker operating in Singapore.
I have written a paper to brief the insurance broker about the legal position on the credit-linked note and ask them to see if insurance is available for the investors to take legal action against the distributors.
Credit cards availabe in Singapore as at 15 May 2009
Here is a table showing the credit cards available in Singapore as at 15 May 2009.
Fixed deposit interest rate as at 15 May 2009
Here is a table showing the fixed deposit interest rate offered by banks in Singapore as at 15 may 2009. It is now being updated to show the latest available rates. Hope you find it useful.
Is this negligence?
Take this hypothetical example:
1. You are a senior manager of a bank with several branches
2. An investment bank approaches you to sell their innovative products and offers your bank an attractive commission of 3% to sell the product.
3. As the product looks attractive, you are confident of selling $50 million in your branches in one week. This will give a commission of $1,500,000. After deducting the incentive to your relationship managers (say 1%), you can make $1,000,000 for your bank.
4. You agree to distribute the product and sends your relationship managers for training by the product issuer. This is a short talk covering only the positive features of the product, i.e. "how to sell". It does not cover the prospectus and the negative features (as they do not help in the sales).
5. The product issuer advises you to get a disclaimer signed by the retail customers to waive liability for any loss on investing in the product.
The product turns out to be quite different from what you understood it to be. You realised to your horror, that it includes components such as credit default swaps and collaterialised debt obligations (that your bank or its relationship managers did not realise earlier).
As financial advisers, with responsibilties under the Financial Advisers Act), were your relationship managers negligent in not understanding the product that was sold to the retail customers? Does your bank share in this negligence?
What do you do?
a) Hide under the disclaimer clause?
b) Admit your mistake and offer to share the loss with the investors?
1. You are a senior manager of a bank with several branches
2. An investment bank approaches you to sell their innovative products and offers your bank an attractive commission of 3% to sell the product.
3. As the product looks attractive, you are confident of selling $50 million in your branches in one week. This will give a commission of $1,500,000. After deducting the incentive to your relationship managers (say 1%), you can make $1,000,000 for your bank.
4. You agree to distribute the product and sends your relationship managers for training by the product issuer. This is a short talk covering only the positive features of the product, i.e. "how to sell". It does not cover the prospectus and the negative features (as they do not help in the sales).
5. The product issuer advises you to get a disclaimer signed by the retail customers to waive liability for any loss on investing in the product.
The product turns out to be quite different from what you understood it to be. You realised to your horror, that it includes components such as credit default swaps and collaterialised debt obligations (that your bank or its relationship managers did not realise earlier).
As financial advisers, with responsibilties under the Financial Advisers Act), were your relationship managers negligent in not understanding the product that was sold to the retail customers? Does your bank share in this negligence?
What do you do?
a) Hide under the disclaimer clause?
b) Admit your mistake and offer to share the loss with the investors?
Local Transport Service
We should provide a local transport service to serve a town, such as Ang Mo Kio, Bedok or Tampines. It will create jobs and provide a useful service to other people who are already employed. More details here.
Create jobs to help recovery of Global Economy
Many people look forward to the early recovery of the global economy. There was hope that the stimulus packages in USA, China and other countries would be able to spur this recovery. The bad employment report in USA for June was a big disappointment. It caused a big drop in the stockmarkets.
Several economists said that the situation will continue to be bad for a long time. If more people lose their jobs, they will cut their spending. This will cause more jobs to be lost. It is a downward spiral. I share this view.
For the global economy to recover, it is necessary that many jobs be created and that people are sure that they can find a job, even if it is at a minimum wage, as long as they are willing to work. They also need a way to defer the repayment of their debt until they find a better paying job. My suggestion is set out in this article.
I hope that the governments in some countries will adopt this idea, and other governments will follow, if the idea proves to be workable.
Tan Kin Lian
Several economists said that the situation will continue to be bad for a long time. If more people lose their jobs, they will cut their spending. This will cause more jobs to be lost. It is a downward spiral. I share this view.
For the global economy to recover, it is necessary that many jobs be created and that people are sure that they can find a job, even if it is at a minimum wage, as long as they are willing to work. They also need a way to defer the repayment of their debt until they find a better paying job. My suggestion is set out in this article.
I hope that the governments in some countries will adopt this idea, and other governments will follow, if the idea proves to be workable.
Tan Kin Lian
Friday, July 03, 2009
Request for another Petition to MAS
Dear Mr. Tan
I suggest that we gather another petition to collect signatures for those who had not been offered compensation or low compensation to our MAS Chairman, Mr Goh, as he announced a fictitious figures of 2/3 being compensated. Judging from many I spoken to, I doubt this figuures are true.
EL
REPLY
According to the MAS statement, 2/3rd were offered compensation. But in many cases, the compensation was rather low (say 10%), and were not accepted by the investor.
I do not know if the investors are still keen to sign a Petition, as previous petitions have been ignored by MAS
I suggest that we gather another petition to collect signatures for those who had not been offered compensation or low compensation to our MAS Chairman, Mr Goh, as he announced a fictitious figures of 2/3 being compensated. Judging from many I spoken to, I doubt this figuures are true.
EL
REPLY
According to the MAS statement, 2/3rd were offered compensation. But in many cases, the compensation was rather low (say 10%), and were not accepted by the investor.
I do not know if the investors are still keen to sign a Petition, as previous petitions have been ignored by MAS
Show of support?
I gave my intelligence quiz (vol 1 and vol 2) and shape quiz to a non-Singaporean friend. He decided to buy 200 sets of each item to be given to the staff of his company. He wanted to show his support, in return for some help that I gave to him many years ago.
I appreciate his generosity. This type of attitude appears to be somewhat missing among Singaporeans. Most of us are too busy thinking of ourselves, and do not act to show support for others.
Someone posted a comment that my blog should not be promoting my products, as it should focus on giving advice on "insurance and investments". I do not know if this comment comes from a Singaporean, but I have a strong feeling that it does.
There are a few appreciative Singaporeans, but perhaps too few. They sent "thank you" cards or e-mail to me. One sent me a nice book. Another sent me a box of chocolates from Hawaii.
The easiest way to show your appreciation is to buy my books to give to your friends or to help in promoting my books. You can order them here.
I appreciate his generosity. This type of attitude appears to be somewhat missing among Singaporeans. Most of us are too busy thinking of ourselves, and do not act to show support for others.
Someone posted a comment that my blog should not be promoting my products, as it should focus on giving advice on "insurance and investments". I do not know if this comment comes from a Singaporean, but I have a strong feeling that it does.
There are a few appreciative Singaporeans, but perhaps too few. They sent "thank you" cards or e-mail to me. One sent me a nice book. Another sent me a box of chocolates from Hawaii.
The easiest way to show your appreciation is to buy my books to give to your friends or to help in promoting my books. You can order them here.
The Standard:New deal to settle minibond buyback
3 Juyl 2009
Sixteen banks which sold Lehman Brothers minibonds will pay most investors 60 percent of the principal as settlement - and no more.
Investors aged 65 and above will receive about 70 percent of their investment. In a formal proposal made to the Securities and Futures Commission yesterday, the banks said they will cap the total payable sum at 60 percent and will not repay the difference if collaterals are sold at a higher price in the future.
The move, which came a day after the July 1 protest, was a follow-up to the "touch base" meeting that representatives of the banks had with the SFC on Monday, in which no specific settlement plan was tabled.
It also came ahead of SFC chief Martin Wheatley's scheduled third meeting with a Legco panel today.
Explaining the cap, a source told The Standard that the banks will now lose as much as HK$1.5 billion rather than the HK$800 million as reported earlier by local media.
Some Lehman minibonds have lost all their value and a few are worth at most 20 percent of their original value.
Reports that the receiver of Lehman Brothers assets in Singapore will soon sign a deal offering the local liquidator an extra 20 percent to 30 percent of the collateral values of minibonds does not bode well for local investors, a banking source said.
"Investors may only get back less than 40 percent of their invested sum [rather] than the 53 percent Ernst & Young originally offered," the source said.
Possible litigation in the United States may also affect what Hong Kong investors retrieve.
The liquidator of Lehman assets has claimed that it has the right to own the collateral of all Lehman-related products globally.
This may compel distributor banks to go to court in the United States, where Lehman Brothers was based, and reduce any settlement with local investors.
Another source noted that the local investors' group - Allied Victims of Lehman Products - is avoiding the fact that few lenders have settled cases with a payback ratio higher than 60 percent to 70 percent and those payments were not retrospective.
The banking industry could lose up to HK$4.2 billion if the Lehman products' valuation drops to 26 percent of the original price, and up to HK$7.5 billion if they are worth nothing.
Lehman-related products worth HK$12 billion were sold in Hong Kong by 19 banks, according to the Hong Kong Monetary Authority.
Eleven of the banks were found to be involved in misconduct in the sale of those products, the SFC told lawmakers last week.
An SFC spokesman declined to comment on the banks' proposal.
But at last Friday's meeting at the Legislative Council, Wheatley said the SFC welcomed all proposals as long as they deterred misselling practices.
Meanwhile, the SFC said brokerage firms Sun Hung Kai Investment and KGI Asia have both completed their voluntary repurchase of Lehman Brothers minibonds, according to agreements they had with the regulator.
SHKI and KGI separately undertook to repurchase all outstanding Lehman Brothers minibonds subscribed, at a price equal to the principal amount, from eligible clients following the SFC's investigation into their sale of Lehman Brothers minibonds.
These agreements helped 329 clients recover their initial investments in full.
Last month, BOC Hong Kong (2388) - the largest vendor of Lehman minibonds - offered a similar payback ratio of 60 percent to 70 percent to investors plus a top-up for future collateral sales.
Sixteen banks which sold Lehman Brothers minibonds will pay most investors 60 percent of the principal as settlement - and no more.
Investors aged 65 and above will receive about 70 percent of their investment. In a formal proposal made to the Securities and Futures Commission yesterday, the banks said they will cap the total payable sum at 60 percent and will not repay the difference if collaterals are sold at a higher price in the future.
The move, which came a day after the July 1 protest, was a follow-up to the "touch base" meeting that representatives of the banks had with the SFC on Monday, in which no specific settlement plan was tabled.
It also came ahead of SFC chief Martin Wheatley's scheduled third meeting with a Legco panel today.
Explaining the cap, a source told The Standard that the banks will now lose as much as HK$1.5 billion rather than the HK$800 million as reported earlier by local media.
Some Lehman minibonds have lost all their value and a few are worth at most 20 percent of their original value.
Reports that the receiver of Lehman Brothers assets in Singapore will soon sign a deal offering the local liquidator an extra 20 percent to 30 percent of the collateral values of minibonds does not bode well for local investors, a banking source said.
"Investors may only get back less than 40 percent of their invested sum [rather] than the 53 percent Ernst & Young originally offered," the source said.
Possible litigation in the United States may also affect what Hong Kong investors retrieve.
The liquidator of Lehman assets has claimed that it has the right to own the collateral of all Lehman-related products globally.
This may compel distributor banks to go to court in the United States, where Lehman Brothers was based, and reduce any settlement with local investors.
Another source noted that the local investors' group - Allied Victims of Lehman Products - is avoiding the fact that few lenders have settled cases with a payback ratio higher than 60 percent to 70 percent and those payments were not retrospective.
The banking industry could lose up to HK$4.2 billion if the Lehman products' valuation drops to 26 percent of the original price, and up to HK$7.5 billion if they are worth nothing.
Lehman-related products worth HK$12 billion were sold in Hong Kong by 19 banks, according to the Hong Kong Monetary Authority.
Eleven of the banks were found to be involved in misconduct in the sale of those products, the SFC told lawmakers last week.
An SFC spokesman declined to comment on the banks' proposal.
But at last Friday's meeting at the Legislative Council, Wheatley said the SFC welcomed all proposals as long as they deterred misselling practices.
Meanwhile, the SFC said brokerage firms Sun Hung Kai Investment and KGI Asia have both completed their voluntary repurchase of Lehman Brothers minibonds, according to agreements they had with the regulator.
SHKI and KGI separately undertook to repurchase all outstanding Lehman Brothers minibonds subscribed, at a price equal to the principal amount, from eligible clients following the SFC's investigation into their sale of Lehman Brothers minibonds.
These agreements helped 329 clients recover their initial investments in full.
Last month, BOC Hong Kong (2388) - the largest vendor of Lehman minibonds - offered a similar payback ratio of 60 percent to 70 percent to investors plus a top-up for future collateral sales.
Was there an attempt to cheat?
Let us discuss this hypothetical case.
1. An investment bank was able to buy several credit default swaps (CDS) and collateralised debt obligations (CDOs) from the market to produce a return of 50% over 5 years.
2. It introduced an "innovative product" that pays an interest rate of 5% a year over 5 years, totalling 25%. It set aside 10% to pay a top legal firm to draft the prospectus and pay distributors to sell the products to its retail customers. The investment bank was able to keep a profit margin of 15% to sell the product. It planned to sell $100 million of the product, yielding a profit of $15 million to the investment bank.
3. The prospectus was drafted to be legally correct, but totally incomprehensible, even to the knowledgable people. The prospetus was "registered" with the regulatory authority, giving the impression that the product has been approved by the regulator.
4. The "genuis" who created this product wrote in the prospectus that the issuer had the right to choose the underlying assets after the launch of the product. This allowed the investment bank to select riskier assets (so long as they fit the credit rating) that produced a higher profit margin for the invsetment bank.
Does this hypothetical product sound familiar to you? Was the investment bank cheating the public?
Are these actions considered as "cheating"?
a) writing a prospectus that does not fairly describe the product or the underlying assets to the retail customer?
b) failing to disclose the expenses and profit margin, which are relevant for an analysis of the product?
c) giving a misleading description of the product in the advertisements?
d) knowing that the distributors (who are ignorant) are giving incorrect verbal statements of the product?
We do not know the real yield of the underlying assets and the profit margain made by the product issuer. If the profit margin is excessive, then the intent to cheat is more credible. If the profit margin is fair, the intent is harder to prove.
Only the regulatory authority, with the power to investigate and get evidence, can find out. "Lesser mortals", like the misguided investors and me, do not have this power. So sad.
Tan Kin Lian
1. An investment bank was able to buy several credit default swaps (CDS) and collateralised debt obligations (CDOs) from the market to produce a return of 50% over 5 years.
2. It introduced an "innovative product" that pays an interest rate of 5% a year over 5 years, totalling 25%. It set aside 10% to pay a top legal firm to draft the prospectus and pay distributors to sell the products to its retail customers. The investment bank was able to keep a profit margin of 15% to sell the product. It planned to sell $100 million of the product, yielding a profit of $15 million to the investment bank.
3. The prospectus was drafted to be legally correct, but totally incomprehensible, even to the knowledgable people. The prospetus was "registered" with the regulatory authority, giving the impression that the product has been approved by the regulator.
4. The "genuis" who created this product wrote in the prospectus that the issuer had the right to choose the underlying assets after the launch of the product. This allowed the investment bank to select riskier assets (so long as they fit the credit rating) that produced a higher profit margin for the invsetment bank.
Does this hypothetical product sound familiar to you? Was the investment bank cheating the public?
Are these actions considered as "cheating"?
a) writing a prospectus that does not fairly describe the product or the underlying assets to the retail customer?
b) failing to disclose the expenses and profit margin, which are relevant for an analysis of the product?
c) giving a misleading description of the product in the advertisements?
d) knowing that the distributors (who are ignorant) are giving incorrect verbal statements of the product?
We do not know the real yield of the underlying assets and the profit margain made by the product issuer. If the profit margin is excessive, then the intent to cheat is more credible. If the profit margin is fair, the intent is harder to prove.
Only the regulatory authority, with the power to investigate and get evidence, can find out. "Lesser mortals", like the misguided investors and me, do not have this power. So sad.
Tan Kin Lian
Gathering at Speaker's Corner in August (3)
25 people have replied to the survey mentioned in this blog. Each person indicated that they will ask a small number of people to attend. Only 1 person is willing to speak.
I need more speakers. If you wish to share your story (with particulars removed to protect your confidentiality), I can get someone to speak on your behalf.
If you like the gathering to be organised, please give your reply here. You can also indicate if you wish to share your story for someone to speak on your behalf.
I need more speakers. If you wish to share your story (with particulars removed to protect your confidentiality), I can get someone to speak on your behalf.
If you like the gathering to be organised, please give your reply here. You can also indicate if you wish to share your story for someone to speak on your behalf.
Best use for electric car
What is the best use of an electric car? Here are my views. I believe that it will occur within the next 5 years.
Invest in Singapore Government Securities
Hi Mr Tan,
What is your view on the SGS (Singapore Government Securities)? Is it worth buying the bond for retail investors like me?
REPLY
The interest rate paid on SGS is quite low, less than 1% per year, but it is safe.
If you can get a higher interest rate from bank deposits (which is guaranteed by the Government), it is better to put on bank deposit. The foreign banks offer higher interest rate and are still guaranteed by the Singapore Government.
If you wish to have a higher return, it is better to invest in a ETF (exchange traded fund). The return may be volatile in the short term, but it should give an attractive return over 10 years or longer.
What is your view on the SGS (Singapore Government Securities)? Is it worth buying the bond for retail investors like me?
YS
REPLY
The interest rate paid on SGS is quite low, less than 1% per year, but it is safe.
If you can get a higher interest rate from bank deposits (which is guaranteed by the Government), it is better to put on bank deposit. The foreign banks offer higher interest rate and are still guaranteed by the Singapore Government.
If you wish to have a higher return, it is better to invest in a ETF (exchange traded fund). The return may be volatile in the short term, but it should give an attractive return over 10 years or longer.
Thursday, July 02, 2009
Politics of Fear
Australia: List the names of underlying securities
Dear Mr. Tan,
The monetary authorities of Singapore and Hong Kong were foolish to approve the toxic products to be sold by financial institution and security firms to retail investor. They both wanted to compete to be financial centre, so they approve these products blindly.
When Australia approved these products to be sold, they insisted that the investment bank list out the names of the underlying securities. If people don't recognized these companies, they will not buy.
The monetary authorities of Singapore and Hong Kong were foolish to approve the toxic products to be sold by financial institution and security firms to retail investor. They both wanted to compete to be financial centre, so they approve these products blindly.
When Australia approved these products to be sold, they insisted that the investment bank list out the names of the underlying securities. If people don't recognized these companies, they will not buy.
ST
Best fixed deposit rates
A reader asked me to post the best fixed deposit rates available in Singapore. As I do not have the time to be doing this research, I have to engage someone to do this research and to pay this person for the time spent.
I hope that FISCA can do this work at a later date. FISCA will also have to pay people to do the work.
I enourage Singaporeans to join FISCA and pay $36 a year as membership fee for FISCA to meet its expenses. Please support FISCA, so that it can take care of your interest. FISCA will be calling for membership in August, when its website is ready.
I hope that FISCA can do this work at a later date. FISCA will also have to pay people to do the work.
I enourage Singaporeans to join FISCA and pay $36 a year as membership fee for FISCA to meet its expenses. Please support FISCA, so that it can take care of your interest. FISCA will be calling for membership in August, when its website is ready.
SCMP:Minibond victims try to storm bank in protest
2 July 2009
Thousands of investors who lost money on Lehman Brothers minibonds held a noisy and sometimes emotional rally yesterday, calling on the chief executive to step down, and saying the fiasco had yet to be resolved.
Waving black banners with the slogans "Lehman [saga] unresolved" and "[Chief Executive Donald] Tsang Yam-kuen step down", the group marched from Victoria Park to the Bank of China tower in Central.
However, protesters became emotional outside the bank, and several tried to storm it. "Give me back the money, Bank of China!" shouted protester Peter Lee as he tried to break through the police line and pull away metal barriers. The 47-year-old had bought more than HK$1 million of minibonds from the bank, the biggest seller of Lehman Brothers-linked investment products in Hong Kong.
"A 100 per cent buy-back!" shouted another protester.
Trying to calm protesters, Peter Chan Kwong-yue, chairman of the Alliance of Lehman Brothers Victims, organiser of the rally, called on them to gather at the building again on National Day, October 1, if the bank had failed to settle the dispute.
Organisers said 25,000 took part in the march, but police said about 4,000 left Victoria Park for Central.
About 48,000 Hongkongers lost most of the HK$20 billion they invested in credit-linked derivatives, such as minibonds, issued or guaranteed by Lehman Brothers, when the American investment bank collapsed in September. Minibonds are not corporate bonds, but consist of high-risk credit-linked derivatives. They are marketed as a proxy investment in well-known companies.
The protesters said they took to the streets because Mr Tsang and the regulators failed to force financial institutions to offer a 100 per cent buy-back of the minibonds. "I'm here today because the bank has cheated me of all my money. I want my money back," Yu Shing, 79, said. Mr Yu insisted on joining the march even though he had difficulty walking after a stroke in November.
Sandra Chow, 45, said she wanted to show her support for other victims although she had already settled her case with the bank.
A government spokesman said that the administration recognised the difficult circumstances faced by minibond investors, and expressed the hope "that the institutions involved will expedite the proper handling of the matter".
He said banks and trustees had been urged to safeguard the interests of holders.
Thousands of investors who lost money on Lehman Brothers minibonds held a noisy and sometimes emotional rally yesterday, calling on the chief executive to step down, and saying the fiasco had yet to be resolved.
Waving black banners with the slogans "Lehman [saga] unresolved" and "[Chief Executive Donald] Tsang Yam-kuen step down", the group marched from Victoria Park to the Bank of China tower in Central.
However, protesters became emotional outside the bank, and several tried to storm it. "Give me back the money, Bank of China!" shouted protester Peter Lee as he tried to break through the police line and pull away metal barriers. The 47-year-old had bought more than HK$1 million of minibonds from the bank, the biggest seller of Lehman Brothers-linked investment products in Hong Kong.
"A 100 per cent buy-back!" shouted another protester.
Trying to calm protesters, Peter Chan Kwong-yue, chairman of the Alliance of Lehman Brothers Victims, organiser of the rally, called on them to gather at the building again on National Day, October 1, if the bank had failed to settle the dispute.
Organisers said 25,000 took part in the march, but police said about 4,000 left Victoria Park for Central.
About 48,000 Hongkongers lost most of the HK$20 billion they invested in credit-linked derivatives, such as minibonds, issued or guaranteed by Lehman Brothers, when the American investment bank collapsed in September. Minibonds are not corporate bonds, but consist of high-risk credit-linked derivatives. They are marketed as a proxy investment in well-known companies.
The protesters said they took to the streets because Mr Tsang and the regulators failed to force financial institutions to offer a 100 per cent buy-back of the minibonds. "I'm here today because the bank has cheated me of all my money. I want my money back," Yu Shing, 79, said. Mr Yu insisted on joining the march even though he had difficulty walking after a stroke in November.
Sandra Chow, 45, said she wanted to show her support for other victims although she had already settled her case with the bank.
A government spokesman said that the administration recognised the difficult circumstances faced by minibond investors, and expressed the hope "that the institutions involved will expedite the proper handling of the matter".
He said banks and trustees had been urged to safeguard the interests of holders.
MRT train lines to come under a single operator
There are advantages for all the MRT train lines to come under a single operator. However, there is a snag. How can this be overcomed? Read my suggestion here.
Cheating and negligence
What is cheating? What is negligence? Why are these points relevant to the investors of the credit linked notes? What can be done to address these weaknesses? I am writing on these matters over the next four days. Tell your friends to visit this blog.
Vista Plan (from Zurich)
Only 3 policyholders replied to my survey on the Vista plan. I have given the contact details to these respondents to contact each other, and decide on their action.
Administration of Justice (2)
On the issue of the credit linked notes, someone made a comment in my blog that, under the law, if you agree to a disclaimer to absolve the distributor from liability, you do not have any case - even if the distributor is negligent or fraudalent. He quoted with a purported knowledge of the law, as applied in Singapore.
I disagree with his comment. I believe that fraudalent acts, including the intent to cheat, cannot be covered by such disclaimers. I also believe that negligent acts, cannot be covered by such disclaimer, if they cover matters that the distributor, as a financial adviser, ought to know.
For example, if I see a doctor, I expect that the doctor ought to know that certain drugs are dangerous and unsuitable to be prescribed to a patient. The doctor cannot get away by asking the patient to agree a general disclaimer to absolve the doctor from liability.
The challenge to the consumer, in the case of the credit linked notes, is in finding the money to take a legal case against the distributor who gave wrong advice. The consumer does not have the means to challenge a financial institution, who has access to the top lawyers in town.
In many countries, the consumers can depend on the following avenues to uphold justice:
a) The regulator - who has the duty to enforce the law
b) The consumer association - who takes up the matter to protect the interest of consumers.
c) The politicians - who speak and act for the ordinary people to win their votes
d) Lawyers - who takes the risk under a contingency fee system
Take a look at what happens to similar cases in America or Hong Kong. Action has been taken by some of these parties.
Unfortunately, these channels are not available to consumers in Singapore. It is a sad state of affairs here.
Tan Kin Lian
I disagree with his comment. I believe that fraudalent acts, including the intent to cheat, cannot be covered by such disclaimers. I also believe that negligent acts, cannot be covered by such disclaimer, if they cover matters that the distributor, as a financial adviser, ought to know.
For example, if I see a doctor, I expect that the doctor ought to know that certain drugs are dangerous and unsuitable to be prescribed to a patient. The doctor cannot get away by asking the patient to agree a general disclaimer to absolve the doctor from liability.
The challenge to the consumer, in the case of the credit linked notes, is in finding the money to take a legal case against the distributor who gave wrong advice. The consumer does not have the means to challenge a financial institution, who has access to the top lawyers in town.
In many countries, the consumers can depend on the following avenues to uphold justice:
a) The regulator - who has the duty to enforce the law
b) The consumer association - who takes up the matter to protect the interest of consumers.
c) The politicians - who speak and act for the ordinary people to win their votes
d) Lawyers - who takes the risk under a contingency fee system
Take a look at what happens to similar cases in America or Hong Kong. Action has been taken by some of these parties.
Unfortunately, these channels are not available to consumers in Singapore. It is a sad state of affairs here.
Tan Kin Lian
Gathering in Speakers Corner
Compensation should not solely be based on vulnerability
Dear Mr Tan:
1 I fully agree with you that compensation for loss in relation to the defaulted high risk structured product to retail investors should not be solely based on consideration on "vulnerability", standard of education, age or other factors at the expense of the principle of fairness and justice.
2 In their 3-steps guide for investors, MAS clearly state that FIs should take responsibility for cases where (a) there are sufficient indications that the product was mis-sold, or (b) it was clearly inappropriate given the investor's profile and circumstances. It is clear that investor's profile and circumstances (i.e. vulnerability, standard of education, age or other factors) should be taken into consideration only for cases where there is no clear evidence of mis-selling. This is to help the vulnerable and needy group of customers and should be given the priority.
3 The approach adopted by the FIs on consideration merely based on investor's profile and circumstances is against and not abiding by the MAS's guiding principles. Instead, we can see how smart the FIs are in turning these guiding principles into their favor. These principles were actually meant for fairness and justice to be given to all retail investors but utilized by the FIs to reject complaints from probably all the non-vulnerable group of customers, and this non-vulnerable group of investors have the major portion of the total investment
4 The existing Financial Adviser Act (FAA), though incomplete, are rather stringent for the sale of financial products to customers. Section 27 of the FAA requires FIs to pay damage or loss for inappropriate sale of high risk financial product to vulnerable customers. Under Section 25 of the FAA, it is an offence for not disclosing the complete product material information to customer during the process of sale and the contravener is liable to a fine and imprisonment. We all know that the true nature and risks of the product were not or fully disclosed to retail investors. As such, ones can see that mis-selling of financial product mainly occurred as a result of breach of laws by the FIs. The mis-selling of financial products here is not much different from that in Hong Kong but the Hong Kong SFC has taken the pro-active approach in the administration of fairness and justice to be given to their citizens and this has been seen by majority of the Hong Kong people and our Singaporeans as well.
5 It is timely that you have called upon MAS, who is the regulator, to exercise their authority to maintain the principle of fairness and justice in the spirit of law. MAS has the responsibility to ensure that laws are adhered to by the FIs. MAS play a decisive role on this matter.
RK
1 I fully agree with you that compensation for loss in relation to the defaulted high risk structured product to retail investors should not be solely based on consideration on "vulnerability", standard of education, age or other factors at the expense of the principle of fairness and justice.
2 In their 3-steps guide for investors, MAS clearly state that FIs should take responsibility for cases where (a) there are sufficient indications that the product was mis-sold, or (b) it was clearly inappropriate given the investor's profile and circumstances. It is clear that investor's profile and circumstances (i.e. vulnerability, standard of education, age or other factors) should be taken into consideration only for cases where there is no clear evidence of mis-selling. This is to help the vulnerable and needy group of customers and should be given the priority.
3 The approach adopted by the FIs on consideration merely based on investor's profile and circumstances is against and not abiding by the MAS's guiding principles. Instead, we can see how smart the FIs are in turning these guiding principles into their favor. These principles were actually meant for fairness and justice to be given to all retail investors but utilized by the FIs to reject complaints from probably all the non-vulnerable group of customers, and this non-vulnerable group of investors have the major portion of the total investment
4 The existing Financial Adviser Act (FAA), though incomplete, are rather stringent for the sale of financial products to customers. Section 27 of the FAA requires FIs to pay damage or loss for inappropriate sale of high risk financial product to vulnerable customers. Under Section 25 of the FAA, it is an offence for not disclosing the complete product material information to customer during the process of sale and the contravener is liable to a fine and imprisonment. We all know that the true nature and risks of the product were not or fully disclosed to retail investors. As such, ones can see that mis-selling of financial product mainly occurred as a result of breach of laws by the FIs. The mis-selling of financial products here is not much different from that in Hong Kong but the Hong Kong SFC has taken the pro-active approach in the administration of fairness and justice to be given to their citizens and this has been seen by majority of the Hong Kong people and our Singaporeans as well.
5 It is timely that you have called upon MAS, who is the regulator, to exercise their authority to maintain the principle of fairness and justice in the spirit of law. MAS has the responsibility to ensure that laws are adhered to by the FIs. MAS play a decisive role on this matter.
RK
Wednesday, July 01, 2009
SCMP:Policy chief expects march to reflect increasing civil discontent
1 July 2009
The government's top adviser expects the turnout for today's march to surpass last year's 47,000 because of the economic downturn and growing discontent with the administration's handling of controversial issues.
Lau Siu-kai, head of the Central Policy Unit, yesterday said that regardless of the turnout, the government should strive to improve its governance and restore people's confidence in the economic outlook.
Professor Lau said it was not sensible to use the turnout for a single march as the only yardstick to gauge changes in the political climate. He said economic indicators such as the jobless rate and the number of personal bankruptcy petitions should also be taken into account.
Professor Lau, who predicted shortly before the July 1 march in 2003 that only 30,000 would join the protest, declined to give an exact estimate for today's rally. Half a million turned out for the 2003 march.
He said he expected the number of people at today's march to be higher than last year.
He said the Central Policy Unit had conducted surveys recently on whether people intended to take part in the rally, but declined to reveal the outcome.
The Civil Human Rights Front, which organises the annual prodemocracy march, estimated that 47,000 people protested last year. But the police estimated last year's turnout at 15,500. A government source said earlier that the turnout for this year's march was expected to reach 100,000 or more.
Professor Lau admitted that Hong Kong's economy was facing hard times and many people were worried about the prospects for the economy.
"The government's handling of several issues in the past year has aroused dissatisfaction among many people," he said.
The top adviser cited the controversy over the appointment of deputy ministers and political assistants, the public outcry over the government's approval of an application by former housing chief Leung Chin-man to work with property developer New World China Land, and the administration's perceived failure to monitor the sale of minibonds issued by Lehman Brothers. Minibonds are not corporate bonds, but consist of high-risk credit-linked derivatives.
Professor Lau noted that young people were increasingly dissatisfied as the jobless rate for this sector of the community was higher than for other age groups.
"Many young people feel their expectations can't be realised, as social mobility in recent years is lower than for previous generations," he said, "A considerable number of young people have developed an anti-establishment mentality."
Professor Lau said economic development ranked much higher than democratic progress among the concerns of Hong Kong people.
Ivan Choy Chi-keung, a political scientist at Chinese University, said Professor Lau's assessment of public discontent was sensible. Mr Choy predicted a turnout of around 100,000 for today's march.
The government's top adviser expects the turnout for today's march to surpass last year's 47,000 because of the economic downturn and growing discontent with the administration's handling of controversial issues.
Lau Siu-kai, head of the Central Policy Unit, yesterday said that regardless of the turnout, the government should strive to improve its governance and restore people's confidence in the economic outlook.
Professor Lau said it was not sensible to use the turnout for a single march as the only yardstick to gauge changes in the political climate. He said economic indicators such as the jobless rate and the number of personal bankruptcy petitions should also be taken into account.
Professor Lau, who predicted shortly before the July 1 march in 2003 that only 30,000 would join the protest, declined to give an exact estimate for today's rally. Half a million turned out for the 2003 march.
He said he expected the number of people at today's march to be higher than last year.
He said the Central Policy Unit had conducted surveys recently on whether people intended to take part in the rally, but declined to reveal the outcome.
The Civil Human Rights Front, which organises the annual prodemocracy march, estimated that 47,000 people protested last year. But the police estimated last year's turnout at 15,500. A government source said earlier that the turnout for this year's march was expected to reach 100,000 or more.
Professor Lau admitted that Hong Kong's economy was facing hard times and many people were worried about the prospects for the economy.
"The government's handling of several issues in the past year has aroused dissatisfaction among many people," he said.
The top adviser cited the controversy over the appointment of deputy ministers and political assistants, the public outcry over the government's approval of an application by former housing chief Leung Chin-man to work with property developer New World China Land, and the administration's perceived failure to monitor the sale of minibonds issued by Lehman Brothers. Minibonds are not corporate bonds, but consist of high-risk credit-linked derivatives.
Professor Lau noted that young people were increasingly dissatisfied as the jobless rate for this sector of the community was higher than for other age groups.
"Many young people feel their expectations can't be realised, as social mobility in recent years is lower than for previous generations," he said, "A considerable number of young people have developed an anti-establishment mentality."
Professor Lau said economic development ranked much higher than democratic progress among the concerns of Hong Kong people.
Ivan Choy Chi-keung, a political scientist at Chinese University, said Professor Lau's assessment of public discontent was sensible. Mr Choy predicted a turnout of around 100,000 for today's march.
Administration of Justice (1)
Singapore has built a strong reputation for observing the rule of law and having a fair and efficient administration of justice. It has won high international recognition for a transparency, consistency and justice in handling of commercial affairs.
Under the rule of law, all parties can look towards the law to be applied in a consistent and fair manner, as it is written, and that the law can be interpreted in the right spirit, to serve justice and fairness to all parties.
In the saga involving the Lehman Minibonds and other credit linked notes, the letter of the law are clearly spelled in the Securities and Futures Act and the Financial Advisers Act. These law requires the financial institutions to make proper disclosure about the financial product and imposes a duty on financial advisers to give appropriate advice to consumers.
I could not find any part of these law that define that people should be treated differently according to their "vulnerability", standard of education or age or other factors.
I do not quarrel with the generous decision of the financial institutions to give full compensation to the "vulnerable" investors. I also accept that it is within their prerogative to take the commercial approach to reject the complaints from the "non-vulnerable" investors.
However, I believe that the aggrieved investors, being ordinary people, have the right to expect justice to be administered according to the rule of law, especially from the following parties:
a) The regulator, who has the duty to investigate and prosecute any party that is found to have breached the law
b) The judges, who have the duty to decide in accordance to the letter and spirit of the law. This duty also falls on the Financial Industry Dispute Resolution Center (FIDReC).
I hope that FIDReC will adjudicate according to the law, and not principles of “vulnerability” as this is not stated in the law.
I believe that the investors and the distributors have to share the blame equally for the disastrous mistake. It would be most unfair, if FIDReC were to rule that the investors are fully responsible and that the distributors are not culpable (as they have failed in their duty to give proper advice to the investors).
Although the distributors have asked the investors to sign a disclaimer, this does not absolve the distributors from their legal duty under the Financial Advisers Act. I hope that FIDREC will take a similar view, in the interest of justice.
Tan Kin Lian
Under the rule of law, all parties can look towards the law to be applied in a consistent and fair manner, as it is written, and that the law can be interpreted in the right spirit, to serve justice and fairness to all parties.
In the saga involving the Lehman Minibonds and other credit linked notes, the letter of the law are clearly spelled in the Securities and Futures Act and the Financial Advisers Act. These law requires the financial institutions to make proper disclosure about the financial product and imposes a duty on financial advisers to give appropriate advice to consumers.
I could not find any part of these law that define that people should be treated differently according to their "vulnerability", standard of education or age or other factors.
I do not quarrel with the generous decision of the financial institutions to give full compensation to the "vulnerable" investors. I also accept that it is within their prerogative to take the commercial approach to reject the complaints from the "non-vulnerable" investors.
However, I believe that the aggrieved investors, being ordinary people, have the right to expect justice to be administered according to the rule of law, especially from the following parties:
a) The regulator, who has the duty to investigate and prosecute any party that is found to have breached the law
b) The judges, who have the duty to decide in accordance to the letter and spirit of the law. This duty also falls on the Financial Industry Dispute Resolution Center (FIDReC).
I hope that FIDReC will adjudicate according to the law, and not principles of “vulnerability” as this is not stated in the law.
I believe that the investors and the distributors have to share the blame equally for the disastrous mistake. It would be most unfair, if FIDReC were to rule that the investors are fully responsible and that the distributors are not culpable (as they have failed in their duty to give proper advice to the investors).
Although the distributors have asked the investors to sign a disclaimer, this does not absolve the distributors from their legal duty under the Financial Advisers Act. I hope that FIDREC will take a similar view, in the interest of justice.
Tan Kin Lian
Subscribe to:
Posts (Atom)