Thursday, December 18, 2008

Encourage bank relationship managers to do the right thing by confessing to mis-selling

Written by Ng E-Jay (sent by e-mail to Tan Kin Lian)
18 Dec 2008

Mr Tan Kin Lian has revealed on his blog that he was approached by a bank relationship manager who wishes to confess to giving wrong information to investors of failed credit linked notes due to his ignorance about the risks of the product.


According to Mr Tan, this relationship manager has agreed to sign a statement, and will be approaching other relationship managers who are in a similar position to do likewise.

This relationship manager should be applauded for doing the right thing.


However, Mr Tan Kin Lian also revealed that the bank had, in Mr Tan’s words, “put pressure on him (the RM) by stating that he would be held personally responsible to compensate the customers, if he admitted to giving the wrong information.”
Such a threat by the bank is in clear contravention of the Financial Adviser’s Act (Chapter 110).

Under the Financial Adviser’s Act, the Financial Adviser (in this case, the bank) is responsible for the conduct of the Representative (the relationship manager) in respect of providing financial advisory services. If the Representative has mis-sold a product, whether out of ignorance or willfully, the Financial Adviser must take responsibility for it, and also decide whether or not to take action against the Representative. In the case of criminal activity, the Financial Adviser is obliged to lodge a police report, or give an explanation to MAS why a police report is not lodged. These rules are found in the Financial Adviser’s Regulations, which is subsidiary legislation enacted by MAS in support of the Financial Adviser’s Act.
A wrongful act cannot be covered up by telling the Representative to keep quiet about it. That would be outright fraud, the most serious offence under the Financial Adviser’s Act.

Furthermore, Section 68(1) of the Financial Adviser’s Act states that “A person is not excused from disclosing information to the (Monetary Authority of Singapore), pursuant to a requirement made of him under this Part, on the ground that the disclosure of the information might tend to incriminate him.”
Hence, it is not only morally right for the relationship manager to disclose that he has mis-sold a product, he is in fact required to do so under the Act.
We should encourage all Represenatives in similar situations to do the right thing by confessing to mis-selling the structured products and credit linked notes.
In my opinion, MAS should issue a blanket amnesty for all Representatives who mis-sold the credit linked notes due to ignorance. This would encourage more of them to come forward.

It is also very clear to anyone who is an industry practitioner that banks have high sales quotas for their relationship managers and exert tremendous pressure on them to meet those sales quotas.

Furthermore, the Financial Adviser’s Regulations make it clear that Representatives should only sell products in which they have competence. Since the Lehman-linked structured products deal heavily in arcane instruments like Credit Default Swaps (CDS) and Collaterialized Debt Obligations (CDO), it is not likely that the majority of Representatives would have the competence of explaining these underlying instruments to clients and appropriately advising them on the risks involved.
It is the banks and other financial institutions which should take full responsibility for the structured products fiasco.

12 comments:

Anonymous said...

I appreciate this relationship manager coming forward. I think he is brave... which understandably is not the case for most other relationship managers. Thank you and I hope he will not be disadvantaged /penalised personally.

Chan J C said...

Once perspective in this whole RM issue is that were they being well trained or were they also being mis-led during the training of the product by the Issuers?

Maybe this question should be seriously considered?

Anonymous said...

I asked my RM to sign a statement about the meeting we had when the product was sold to me, and that none of the underlying riskswere explained, and I was told the product was a safe investment. She said she can't as there is a clause in her contract with the bank that states she cannot give out any information with regards to internal banking procedures, or say anything against the bank so she can't come forward and say anything.

Anonymous said...

I wonder, even at this moment, if many of the financial representatives will be able to explain clearly these structured products.

Anonymous said...

It is a shame that MAS, a govt regulatory body and the highest authority in financial affairs in Singapore, has lost its moral authority in this minibond saga. This is testimony to the weak management that is often touted as talents. A mediocre organisation or just a mere individual can so easily surpass it in terms of efficiency and efficacy surely requires our govt to relook into its talent allocation program. It is also reflective of the state of leadership or the lack of it in our present govt.

Anonymous said...

It needs a lot of courage to make a confession, especially the issue is of public interest. It depends very much on one's conscience to do so, after perhaps lots of internal struggle. A person who can overcome his fear and worries and decides to confess, in whatever form, should command our admiration and not condemnation.

Anonymous said...

Mr Tan,

I think it is good to pressure MAS to start looking into the training provided by FI to the RMs...

Unknown said...

"Anonymous Anonymous said...

Mr Tan,

I think it is good to pressure MAS to start looking into the training provided by FI to the RMs...

2:19 PM"


Theres 2 possible replies to that

1. "We would STILL be in the process of finding out if ANYTHING further EVEN needed to be addressed"

2. REGARDLESS whether there is OR NOT, Training is a 'customized' matter BEST looked into and managed by the RESPECTIVE ENTITIES


There, out goes the 'burden of responsibility' once again ..Cheers!

Anonymous said...

MAS is evasive. It has conflict of interest.

Anonymous said...

FRIENDS,

While the RM was the one who mis-sold, however, they are only a small flies to take the blame of the big bully.

I really feel sorry for them, who are like us trying to make a living.

If the RM tell lies and the FI wins, that will blemish their conscience for the rest of their live. If the FI loses, even the RM tell lies, then the RI will take all the blame.

We should tell the RM that they are just like the investors who are in the losing side of the coins. The RMs are really "cornered" by the FIs.

Anonymous said...

If MAS read this and does not conduct an investigation, then I really have no more respect for this authority as an watchdog.

How can the bank threaten the RM that is willing to speak out?

Anonymous said...

E-Jay,

A very commendable post. And I fully concur with your views, especially this part: "It is the banks and other financial institutions which should take full responsibility for the structured products fiasco."

MAS, too, has to take responsibility; relevant documentation had presumably been submitted to them but had anyone in MAS reviewed such doc? If they had they would have noticed the high risk nature of these products and should then have issued a public statement warning the public. Maybe MAS officials just left the prospectuses or related literature lying stacked on the floor in their office. Maybe MAS officials just slept thru all this, until they were woken up from their slumber.

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