20 Feb 2009
Paggie Leung
Secretary for Financial Services and the Treasury Chan Ka-keung is expected to face tough questions over policies and regulation of financial products today when he makes his first appearance at the Legco subcommittee investigating the Lehman Brothers minibonds fiasco.
Professor Chan, who will be the first to face the 22-member subcommittee set up to study issues arising from Lehman Brothers-related products, will attend a three-hour open hearing from 10am.
The chairman of the subcommittee, Raymond Ho Chung-tai, said yesterday that questions would focus mainly on the government's regulatory framework for structured financial products and dealings in securities, the sale of minibonds, and its policies on investor protection.
"The minister will be accompanied by a legal adviser - Department of Justice deputy law officer Cathy Wong Pui-ming - and Cheng Yan-chee, deputy secretary for financial services and the treasury," Dr Ho said. A written statement that had already been submitted by Professor Chan would be made public after the secretary confirmed it as evidence.
Peter Chan Kwong-yue, chairman of Allied Victims of Lehman Products, hoped the investigation would force the government to take responsibility for its role in the debacle. "Until now, the government has not shown accountability," he said. "Why were all these high-risk derivatives allowed to be marketed and sold as low-risk financial products?"
Hong Kong investors lost billions of dollars on minibonds guaranteed by Lehman Brothers when the US investment bank went bankrupt in September 2008. Minibonds are not corporate bonds, but consist of high-risk, credit-linked derivatives. They are marketed as a proxy investment in well-known companies.
Mr Chan said the chief executive and the financial secretary, who urged banks to buy back all the minibonds, should also be summoned.
Professor Chan's deputy, Julia Leung Fung-yee, and the heads of the Monetary Authority and the Securities and Futures Commission will also testify. Witnesses will testify under oath.
Professor Chan, who will be the first to face the 22-member subcommittee set up to study issues arising from Lehman Brothers-related products, will attend a three-hour open hearing from 10am.
The chairman of the subcommittee, Raymond Ho Chung-tai, said yesterday that questions would focus mainly on the government's regulatory framework for structured financial products and dealings in securities, the sale of minibonds, and its policies on investor protection.
"The minister will be accompanied by a legal adviser - Department of Justice deputy law officer Cathy Wong Pui-ming - and Cheng Yan-chee, deputy secretary for financial services and the treasury," Dr Ho said. A written statement that had already been submitted by Professor Chan would be made public after the secretary confirmed it as evidence.
Peter Chan Kwong-yue, chairman of Allied Victims of Lehman Products, hoped the investigation would force the government to take responsibility for its role in the debacle. "Until now, the government has not shown accountability," he said. "Why were all these high-risk derivatives allowed to be marketed and sold as low-risk financial products?"
Hong Kong investors lost billions of dollars on minibonds guaranteed by Lehman Brothers when the US investment bank went bankrupt in September 2008. Minibonds are not corporate bonds, but consist of high-risk, credit-linked derivatives. They are marketed as a proxy investment in well-known companies.
Mr Chan said the chief executive and the financial secretary, who urged banks to buy back all the minibonds, should also be summoned.
Professor Chan's deputy, Julia Leung Fung-yee, and the heads of the Monetary Authority and the Securities and Futures Commission will also testify. Witnesses will testify under oath.
14 comments:
MAS should be similarly be made to face a firing squad for lapses in their oversight or no oversight on the products and the way these products were sold. Also why the laws were not enforced all these times despite being introduced long time ago. The FIs and the salespeople have for a long time breached the laws. If not for the debacle the laws will still be for show and ignored. The FIs will continue to do what they like. Self regulation is about doing what they like to boost their bottomline. The salespeople from RMs to the insurance agents too have a field day doing whatever they like to boost their pockets so that they can buy condos and cars and help in the growth of the industry breaching blatantly section 27 with impunity.
It looks like the industry was created to make the FIs and the salespeople rich and with the help of MAS.But at whose expense? This is NOT the issue as far as they are concerned. The financial hub is the goal and can only be achieved if it is growing and with little or no regulations and at all cost, cost to be paid by investors and consumers.
Is MAS liable for what have happened??????????????????
First up, the role of the MAS, while being the regulatory authority of the financial system, is not here to be a dictator telling what the fiancial institutions should do or should not do, and should not interfere with how the various financial instutitions go about their business decisions.
Many people would like to think of the MAS as a policeman, but in reality, all central banks are more like advisors, albeit advisors whose words hold a lot of clout.
Regulation does not equate with control, and in the workings of the free market system, entrepreneurial and commercial pursuits should not be curtailed by over-regulation-- that would actually hurt, not help the business of the financial institutions.
I understand there is a lot of anger and resentment over misrepresentations by relationship managers, financial advisors and agents, but understand that it is the people, not the system, that is at fault. It's like saying a few corrupt government officials necessarily means an inefficient and ineffective government system: we should look at who or what is really at fault before jumping to push the blame.
Are we to say that the buyers of the financial products are themselves not to be blamed for being "conned"? No one forced them to buy anything, and even with hard-selling or bullying tactics, one can still walk away unscathed if you had the resilience to say no.
I mentioned that with every investment comes risk. The problem is that people like to think they are savvy and give in to their greed-- how many people actually sit and ask if they can afford to bear the risks of the investments they make?
In my opinion, many of these so-called "investors" are just gamblers-- I won't even call them speculators. You can push the blame to the sellers for giving misinformation and upselling their products, but I think the buyers should bear the brunt of the blame because they gave in to their greed and taking things for granted-- there are enough resources these days for one to find out more about the investment products, but do these people actually take the trouble to?
Yet when all hell breaks loose, they start pointing fingers and shifting the blame to others and fail to see it is they themselves who made the conscious decision to buy the products in the first place.
If you talk about opportunistic behaviour, then I would say where once the RMs and the financial advisors were the ones who took advantage of the consumers, at this point in time, it is the lawyers who vie for the class action suits who will be busy buying condos and lavish cars-- everything in this world comes with a price, and there is always a hidden agenda.
For all the progress we've made as a nation, I'm sad to say the average Singaporean still has a long way to go to becoming a truly sophisticated and savvy global citizen.
Mr Tan KL, you may want to publish this in your main blog. Thanks.
Chan admits being caught off guard over minibonds
From "The Standard" 20 Feb 09
Secretary for Financial Services and the Treasury Ceajer Chan Ka-keung has admitted never having heard of minibonds until the collapse of Lehman Brothers in the United States sent shock waves through the local investment scene.
Speaking at the first hearing of the Legislative Council subcommittee looking into the minibonds debacle, Chan said the Hong Kong exposure to products linked to the failed investment bank amounted to HK$20 billion.
To give an idea of the number of people affected, he said 43,000 investment accounts were involved.
Chan said he sympathizes with those who may have been misled into buying Lehman Brothers-related products.
Chan said he questioned regulatory authorities over the sale of structured financial products and the regulatory framework governing their sale early last year.
He said he was given the impression that the Hong Kong Monetary Authority and the Securities and Futures Commission was in command of the situation and that the number of complaints were not significant.
This is one of the biggest financial debacle in Singapore involving millions of Town Council's and ordinary citizens money. There must be transparency and accountability similar to what is happening to Hong Kong. Our Finance Ministry and the MAS must also openly testify so that all Singaporeans know one way or another if they are in any way responsible for this debacle. If they don't do that, it will be worst for them because silence will be taken to mean that they are guilty and hiding something.
The dude,
that is exactly what happened to the US markets. There were a lot of admission of no regulation, under regulation by the industry, even Alan Greenspan.EG, the derivatives are not regulated.
I am not saying that over regulation is good. Over regulation can stifle and restrict. In a disciplined market under regulation is good because the players play by the rules and self regulate. But do you think the players can be trusted after what happened? From the banks to the insurance companies they are putting out dubious products with little risk disclosure and the salesmen cooked up their own sales pitch, anything that sells is the right pitch. It is 'bo chen hu". The FIs only care for bottom line; the salesmen by whatever titles go for the highest paid commission products and the poor consumers' interest takes a back seat. Hells breaks loose and it is free for all to fleece the UNWARY AND CLUELESS consumers. Up till today there are consumers who don't even know what hit them
To say the consumers are greedy means they went in with their eyes wide open; they knew the products and very financially savvy.Are consumers savvy and they all have CFA or CFP qualifications? that they knew the products offered free lunch? Let me tell you , 95% of consumers are as clueless as sotong.
To aggravate things there is a human being in between the product and buyer, the sneaky, cunning , liar, conscienceless, buaya, wolf, greedy and unethical, stoop to anyhting or whatever to screw up everyhting. They are the salespeople.
After what happened you need a POLICEMAN to police the industry.The FIs and their salespeople cannot be trusted anymore.Or remove what can give rise to conflict of interest... COMMISSION is the greatest culprit.It has changed an angel into a monster. A nice young lady into a witch. Conscience is obsolete and irrelevant in this business any more and has been flushed into the toilet bowl each morning, leaving the greed and dishonesty as guilding principles for the day.The mission is to fleece as many consumers as possible. Vision is to enrich oneself and impoverish others, the consumers. The FIs mission is to pay out more performance bonuses to oneself and to retire rich.
MAS can take a holiday. The laws only good to be hung up in the customer service lounge together with the mission and vision statements.Give more MONEY SENSE talks and we can relax, wine and dine at the Pinacle.
WE BELIEVE IN CAVEAT EMPTOR. CUSTOMERS ARE OUR GREATEST PATRONS OF THIS PRINCIPLE WHICH HAS BEEN TIME TESTED AND PROVEN TO WORK IN OUR FAVOUR.IT HAS NOT FAILED US SO FAR, A VERY RELIABLE BUSINESS PRINCIPLE. WE MUST PROTECT WITH OUR LIVES LEST OUR IRON BOWLS TURN TO CLAY BOWLS.LONG LIVE CAVEAT EMPTOR THE GREAT.
PM again said that the disclosure based regime is enough for the AH Peks and Ah Sohs. Ah Sohs must read the small prints, must understand high return means high risk. Wow!!! must send Ah Peks and Ah Mmm to school to learn about the investment. I think they will be better off buying online with the salespeople who are bad influence.
If investment or insurance is about buying from the salespeople on caveat emptor basis then we are better off buying direct without having to pay commission.
Why pay commission when you get NO advice or lousy advice and you are still responsible for it.The salespeople are not liable.It it better without the salespeople to distort your buying decision. We use our own judgement and knwoledge since we are supposed to have the knowledge..
Well, I hope Mr. Tan's FISCA will change it and help us beat the salespeople.
Insurance agents or advisers must be made liable for advice or recommendation given otherwise no point appointing them.
MAS should enforce this too.
FISCA will be the straw to break the insurance agents' back. They will have to look over their shoulders before engaging in unethical practices and recommendations.
A new twist, bank is now returning investment which is found not suitable for the investor according to their criteria of risk profiling.
This should have been done before and not until hell broke loose. Hope that this vetting is not for show to regain public confidence and they get back to old ways as soon as it is forgotten or the heat cools.
This should also apply to the insurance industry practice and not just on ILPs but also on traditional products and whole life
MAS should monitor the situation and audit the agents and the companies.
MAS must enforce the need based approach to clients' needs NOW. The CEDLI recommendation in 2001 was a sham and is still a dead letter. No insurance company follows the guidelines. The guidelines are good as pin ups in the toilets or pantry. This is the failure of MAS.
DEAR friend
I like to add to the statement made earlier "PM again said that the disclosure based regime is enough ... must understand high return means high risk ...". I think the writer is merely repeating govt position, and may not mean supporting it. Do you think govt really practice DISCLOSURE REGIME sacredly ?
If FINANCIAL MARKET DISCLOSURE REGIME is such a sacred principle, then it should also be practiced in other ministries. For example:
(1) CHEW GUM: Sell chewing gum and let Singaporeans read the fine print [ie don't litter]
(2) VIAGRA: Sell viagra at retail shops and ask Singaporeans read the find print.
(3) CONTACT LENS: Sell contact lens via internet but ask Singaporeans to read the fine print.
(4) NEWSPAPER and TV: Have more independent newspapers and TV stations, and let Singaporeans read the fine print and decide for themselves what it good or bad.
Well, seems that only FINANCE MINISTRY practices DISCLOSURE REGIME. I am not here to say what is right or wrong. I am trying to find consistency in value, speech and actions of the policy makers.
Your sincerely,
"Under-exposed grown-up-kid"
Free market does not mean a cow-boy market. It may mean more freedom of choice and action. But the basic laws and regulations for the protection of all stakeholders involved should be there.
MAS has been protecting local banks for decades from foreign competition in the Sinagpore market through regulations and licensing. Why? This is to give the local FIs time to grow in scale, knowledge and skill to counter the competitive advantages the foreign banks have. Likewise, while the financial industry and the local FIs have grown somewhat, there is still significant reliance on the skills and reach of foereign FIs to stay abreast of the global financial industry. Hence protection is still in place though relaxed. Hence products like Minbonds and Pinnacle notes are the offsprings of international FIs like Lehman Brothers, Merril Lynch and Morgan Stanley. Local banks will not be hatched these by themselves.
If local FIs still need protection, even more so do local retail investors, especially in new derivative products which require high technical and risk management knowledge and skills found only with FIs and practising professional. So private investors, like toddlers, ought to be protected from tumbling out of the main door into the streets and risk getting hit by traffic. Yes, the toddler has the freedom of movement. but with a somewhat misplaced sense of security after having learnt how to toddle. But without cushioning of sharp corners and barriers to "no'go areas" and without a guiding hand or supervision, can his parent and the salesman who sold them an inefective child-proof barrier for the main door disclaim responsibilty or accountability for the child's death on the ground that the toddler went out with his eyes open? The answer is obvious, as far as it concerns the part played by MAS the regulator, FIs the distributors and FIs the issuers, that they should collectively shoulder all or some of the losses.
So when MAS moves away from tight regulatory control to an oversight type of control, it should have at least instituted a guidance of some kind (risk rating)for the industry similar to what the risk-rating companies such as S&P do on bonds and other investments to justly facilitate Caveat Emptor to prevail - a rating that covers the level of risk, probability of default and degree of losses at default. That way, investors will truly have an INFORMED freedom of choice. So if Minibonds and Pinnacle Notes had been rated as high risk with low to medium risk of default but high (or absolute) degree of losses at default, then those who bought the investments can truly be said to have done so with their eyes wide open and sholud take full responsibility for their investment decisions.
I note that so far complaints, petitions and potential class actions are aimed at FI distributors. In view of the above, I would urge aggrieved investors in their complaints and anticipated legal actions to lay some blame on all the 3 institutional parties. The biggest blame may not be the with the FI distributors alone. If you get food poisoning, who is the most suspected culprit? The health inspector,the waiter who delivers the food or the chef who cooks the dish?
Feb. 24, 2009 (China Knowledge) - Joseph Yam Chi-kwong, the chief executive of Hong Kong Monetary Authority (HKMA), the city's de facto central bank, said he feels distressed that the reputation of Hong Kong banks has been hurt by the unsettled issue on Lehman Brothers minibond, the Standard reported.
Yam said, early last year, some banks failed to follow the HKMA's guidance to adjust the ratings of investment products when they turned more risky.
Yam also said what the banks are doing in their banking business has been acceptable and the banking system is rather robust.
Meanwhile, the banking regulator was accused of failing to warn investors who expected to buy the Lehman Brothers-guaranteed minibond. Yam said, as a regulator, it is impossible to warn that a specific product or a specific financial organization is not doing well and ask investors to sell their products right away.
Yes , but there is another safeguard which is overlooked and that is the advisory process. If the advisory process is conducted and followed as in the FAA section 27(for Singapore)
the unsuitable investors would have been identified and suitable investors would have known the risk and advised appropriately according to the needs and circumstances.It is here that miss-selling and misrepresentation happened.
If everybody followed the rules then nobody would be blamed.
However, the FIs and the salespeople never followed the rules, the investors were idiotic and 'greedy' who didn't know that return higher than a fixed deposit required them to take certain amount risk but of course , not the disproportionate risk of 100%.
Post a Comment