Tuesday, November 04, 2008

Market Discipline and Caveat Emptor

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Address by Deputy Prime Minister Lee Hsien Loong,
Chairman, MAS
At MAS Staff Seminar
29 October 2002
Market Discipline and Caveat Emptor

22. Our efforts to promote market discipline and a caveat emptor regime have focussed on enhancing the amount, quality and timeliness of information disclosed by institutions. We have shifted from a merit-based supervisory approach to a disclosure-based approach that emphasises market discipline to incentivise financial institutions to conduct their business in a sound, efficient, and professional manner. The local banks in particular have significantly improved their disclosure practices.

23. We must continue to update our disclosure standards in line with industry developments and international best practice. Furthermore, the mindset change is not yet complete. The public still expects to be protected from downside risks, for example when playing the stock market, but more so when depositing their money in banks. Hence one major motivation for introducing deposit insurance is to change this mindset, and get people to understand that only a limited first tranche of their deposits with a bank is protected should the bank run into trouble.

24. But disclosure by itself is not enough. It must be accompanied by investor education. Investors have to understand and use the information provided to them. They must learn to make sense of this information and use it to look after their own interests. We also need a pool of knowledgeable analysts and journalists who will shine the spotlight on any obscure fine print that the lay investor fails to notice. A more informed and sophisticated investor base will reinforce market discipline and form the basis for a more vibrant and mature financial sector. In all these respects, we have a long way to go.

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


Anonymous said...

You can have an "effective enforcement regime" but when you are so reluctant to use it, it is just as effective as a toothless tiger. The same thing goes for our national reserves.

Anonymous said...

I think the PM will be careful from now on, with people tracking what he says so carefully.

Anonymous said...

At the point of sale, very little time has been made on risk exposure or almost none at all, as the emphasis on gains outstrip.
The spotlights & analysts only shine after troubles appear. Lay investors gave all their trust to FIs, since they've very little time to digest those pages of heavily plotted documents.

There should be instructions for FIs to distribute risk informations at least a day before any sales to a customer, so that the customer can consult someone who can interpret in his own language.

Anonymous said...

I think it is ridiculous to expect people to be responsible for selecting the MAS-regulated local based bank where they put their deposits in.

If you bank with HSBC (like me), SC or a foreign bank, fair enough.

But if you bank with DBS, UOB and OCBC, hey govmin got to be responsible for ensuring deposits are 100% safe. And compensation if not.

This cartoon is vv apt.


Anonymous said...

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

Anonymous said...

The MAS should do what it is empowered to do and help the misled victims recover their money from the FI

zhummmeng said...

You can see there has been NO market discipline and applying caveat emptor only makes the market even worse. The PM was wrong, Alan Greenspan was wrong . Alan Greenspan has admitted that hands off is not a good idea. The market is ill disciplined and is chaotic.The PM must admit that giving too much freedom to FIs to self regulate has led to this fiasco and and many yet to surface. The FIs any oh how rolled products that have only one intent and that is to squeeze as much money out of unwary consumers. The RMs and advisers any ho how 'advised' the consumers into the kelong and slaughtered them.
Although in place some regulations but the authority is reluctant to enforce. The enforcement regime is rubbish. Since 2001, nothing, absolutely nothing was taken to discipline the errant FIs and the intermediaries. The advisers and the RMs were given an open cheque to practice mis-selling and misrepresentation and other malpractices. Malpractices by insurance agents are so rampant and right under your nose and nothing was done.
Is MAS sacrificing the local consumers because of positioning singapore as financial hub? Isn't merit based supervisory approach better than disclosure based ? MAS should know that no matter how much is disclosed the consumers are still unable to understand. So what if you have a 200 page prospectus? Who reads them ? It took me 3 months to complete a 200 page book and I need not understand what i read. It is time for MAS to wake up that to the fact that regulation is very much needed to discipline the FIs and the salespeople.. They had too much going well for them. The holidays for them are over and it is pay back time. The FIs and the intermediaries(RMs and insurance agents) must be heavily fined or have their license revoked and the FIs heavily fined for every case of mis-selling and license revoked for specific class of service.
The consumers are watching the regulators to see how they deal with the fiasco and how much are they protected from these evil ones.
MAS, don't get it wrong. We are NOT asking for a paternalistic regime.We are asking that you enforce the laws proactively and don't sit on your big fat ass

Unknown said...

Is this the 911 in PM's office?

Anonymous said...

If MAS did not find any market misconduct, how can you expect MAS to enforce?

Raymond T said...

So for now... it is still....

Caveat Emptor! =)

Anonymous said...

In economical terms,

If Talk is Cheap

then Talk more is Cheaper :)

Anonymous said...

Politicians need slogans. Eg "More Good Years", "Golden Period", "Division 1". Or Malaysia Anwar's "Take over by Sep 16". And latest Obama's "We need change". But whether these will become reality later is another matter. Sometimes need to take it with a pinch of salt.

Unknown said...

oh come on. they have the regulatory power, but not using it.

Use it on local banks? why would they? the chinese saying. The front of the palm, and back, all belongs to the same owner of the hand.

well said, a poster above, not using the power, is like a toothless tiger.

Anonymous said...

Hey hey thats a wrong concept ok, theres no such thing as a toothless tiger on the Little Red Dot

Theres only Tiger with SELECTIVE BITING habits

Anonymous said...

PM had expressed his take.


To preserve investor confidence, penalties for transgressions must be swift and appropriate. MAS now has the power to investigate and bring a court action for market misconduct under the new civil penalty regime.


Let see what action MAS will take to bring these culprits to task.

MAS - pls do not just listen to the robbers (FIs) but do understand the victims (investors). One person can be wrong but not hundreds and thousands.

The RM selling strategy is:

- Convince/persuade or coerce investors into buying the "no risk/low risk alternative to FD" products 1st

- Do a risk profile cos MAS says must do as a formality. Tick Tick and get investor to sign. (maybe take 5 to 10 mins to complete).

- Maybe, maybe send the prospectus to his house later. (another formality)

A question - after reading the prospectus and the investor found that the product is not what he was told, can he rescind the contract and get back his full principal?? Can any FIs and RMs answer that?

Anonymous said...

Hello Mr Tan,

DBS estimate that the total customer compensation in Singapore and Hong Kong will be in the range of SGD 70 - 80 million.

DBS also says that they will review all 1400 cases and will complete by end of the year.


If DBS has not completed the review of all 1400 cases in Singapore, how does DBS knows that the compensation in Singapore and Hong Kong will be in the range of SGD 70 - 80 million?

DBS also mentioned in the press that they have started compensating some investor and Mr Gerald Ee is glad that DBS has started to do so.
Is there any evidence that they have started to compensate or Mr Gerald Ee just believe what DBS tells him? There are a lot of investors in the vulnerable group saying that no compensating has begun.
DBS did not compensate to the vulnerable group as promised.
Instead, most of the non-vulnerable investor also receive a letter to say that DBS will not be compensating them.

Anonymous said...

To Sanity, I wish to differ your blame on RM's only on the misselling though some of the RMs do, like selling to ah mah and ah pek, I term it unscroupulous selling.
Most of the RMs I believe also has the interest of the customer at heart. I ever asked my RM (DBS Bank) why she did not mentioned to me about ELN while RM from other FI's all talked to me about ELN. She simply said, the product is not suitable to you. Why than she sold me HN5 ? The only explanation is she is ignorant about the danger of this product, she is not informed about the potential danger of the product. Even after the bankrupcy of Lehman, she informed me that all my capital may lost, but could not offer any explanation why ALL. She mentioned if I wanted to know, she could get the TECHNICAL personnel to explain to me - further proof of her innocent. To see how those RM's are trained, it is better to go through the product training materials, One of Mr. Tan proposal is to urge MAS chech through the materials.

Who is to blame :
1. The teams in the FI that design the product.
2. The one in authority in the FI to approve the product to be marketted.
3. Those who design the training materials which may only stress on the benefit of the product.
4. Those unscrupulous RM's that target whoever they come across.

You know I met an RM who tried to sell me fund linked to indices of Tokyo, Korea, Hongkong and Singapore. where any drop of 25% or more of any of those index will affect the loss of capital. He said this product is very safe, example how can Tokyo (Nikkei) drop by 25%, he said it is like a quarter of Japan goes under the sea!!! The Nikkei at that time is around 17000. I asked him whether he realise that in the 1980's Nikkei hit a high of more than 38000 and according to him analogy, more than half of Japan should now be under the sea!!?? He is dump folded.

Anonymous said...

Talking cock , MAS. Penalties for transgression must be swift and appropriate...Where got? No enforcement, how to be swift and appropriate. MAS is 7 years behind time. For 7 years MAS has been sleeping. MAS is supposed to be the referee. Referee went missing and the FIs and RMs , insurance agents, the FAs, all of them had free time doing what is best for their pockets, robbing the clueless consumers.
Markets where got discipline. It is telling a thief in charge of your bank to be discipline. Real, shit MAS. For 7 long years mis-selling and misrepresentation have been so rampant and blatant among the insurance agents and nothing was done to discipline them. It is an industry where thieves, robbers, conman, scammers have a field day because the regulator is sleeping and in coma.

Anonymous said...

So far those senior management at the FIs are still collecting their fat pay checks despite all the uproar. From what our elites have said so far, the FIs have not done anything wrong, it's only a bunch of cry babies throwing their tantrum.

All of us seems to have forgotten that the chinese character for government officials has got "two mouths".

Anonymous said...

Hi Mr. Tan ,

Please initiate another Petition directly to PM.

Anonymous said...

These are some of the words I don't quite understand or agree with wat the authority when interpreting its meaning

More good years
Caveat Emptor
HDB / Medical heavily subsidised
CPF retirement funds
Base on justice and equalities
First World
No sense of propotion

Our interpretation may be v different from them.

Anonymous said...

Anonymous 5.11 PM, RMs are the people we interact with in the FIs. By virtue of their positions, they should be knowledgeable in the products they advocate to the investors.

If they are not, they shouldn't be selling them. There are basic aspects that they need to be aware and communicate to the investors:

- product is invested in what or used for what
- benefits
- risks and its level.

From my personal experience and communication with various investors at Hong Lim Park, the processes were what I said earlier.

Am sure there are some RMs with their customers's interest at heart but maybe those are not the ones selling those toxic products as no/low risk alternative to FD.

It is sad that your RM is ignorant of the risks. Perhaps the pricing statement and prospectus are too difficult for her to comprehend or ... maybe her management did not provide her with adequate information to provide the investors to allow them to make informed decisions.

Either way, the RMs and FI management are equally responsible. Am sure you will not buy the HN5 if u know the risk involved.

BTW - my earlier note is refering to the RM's selling strategy of these toxics.

zhummmeng said...

You guys, I got news that MAS wouldn't change its stand about product pushing. It is allowing product selling alongside need based selling. This means The RMs and the insurance agents can continue to push products to consumers and claim Caveat Emptor. As the deputy chairman said need based approach to clients' needs is ENCOURAGED but if they choose for product advice it is ok.In other words it is anything the RMs and the insurance agents can use to suit themselves.
Market discipline ??????If there is market discipline this fiasco wouldn't have happened. There has been no discipline plus no enforcement that sent the wrong signal to the industry that they can do as they like. There will mis -selling and misrepresentation and they won't go away as long product selling or pushing is allowed and not banned. Section 27 is but a sham. If need based approach is not made compulsory change won't happen even for the next 20 years.Consumers will continue to be at the mercy of the RMs and the insurance agents and FIs. If the laws are not enforced no point talking about swift and effective enforcement to preserve the confidence of the consumers. It is just another pulling the wool over our eyes. It is bullshit. It is misrepresenting to the public.

Anonymous said...

I think you are forgetting.

Money EARNED makes the world goes round.

Even if its earned off your world.

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