I've been expecting this since 2010. MAS, the governing body, has generally left banks to their own devices in order to create more banking jobs. But it has led to excesses, the same problems as in the west between 2000 - 2008. For important institutions like the financial industry, regulation must be just right. Too little regulations, there will be long periods of excesses, where mortgages of around 110% were granted in Spain, the US and pretty much everywhere in the west from 1995 - 2008. Too much regulation, financial institutions begin to shed jobs. Bankers' services will fall. They will not be motivated to provide any level of service at all. Post 2009, one should try getting a mortgage from RBS. The officers practically could not care less if your application is approved and will not update you.
While disclosure of fees is important, MAS must provide direction and avenues for banks to grow other streams of revenue. Banks must be allowed to charge advisory fee, e.g. 1% of asset under management every year for advice, and performance fees, e.g. 10 - 20% of the profit will accrue to the banks, above a highwater mark like the LIBOR + 1% rate. This will ensure that the better advisers survive, while the pure sales person will go the way of the Dodo bird.
The public needs better quality advice, and remuneration that is in line with clients' needs. The MAS needs to lead the way and regulate.
ABS to private banks: Be upfront about charges in bond sales
Several bonds have defaulted, and investors are estimated to have lost about S$1.1b, or 0.74% of Singdollar bonds
Singapore
THE Association of Banks in Singapore (ABS) has reminded private banks to disclose all fees, charges and rebates in bond sales, following an outcry by investors who lost money in recent defaults.
Private banks have been under a cloud over their selling tactics, with several bonds having defaulted; investors' losses amount to about S$1.1 billion, representing about 0.74 per cent of the S$149 billion outstanding Singdollar bonds.
The number of bondholders who have lost money is not known, but it could be up to 4,400, based on a S$250,000 minimum; the number could be fewer, given that some investors might have bought more than one lot.
The ABS said in a statement on Tuesday: "Private banks have enhanced disclosure standards in the Private Banking Code of Conduct (PB Code)."
It noted that these enhanced standards have expanded on previous requirements for private banks to ensure that their clients are informed of the key terms of transactions.
The enhanced-disclosure standards regarding rebates kicked in on Oct 1; those covering fees and other benefits take effect in March 2017.
The statement said: "Private banks will provide clients with a fee schedule at account opening, which sets out fees, charges and other quantifiable benefits (including commissions, rebates and retrocessions) for all investment products and services.
"Private banks will also disclose any rebates received from selling new bond issuances to clients prior to each transaction."
Tan Su Shan, co-chair of the Private Banking Industry Group (PBIG) and group head of Consumer Banking & Wealth Management at DBS Bank, described the PB code as an industry code setting the benchmark of market conduct and staff-competency standards.
"The recent changes to enhance the transparency of fees and disclosure of bond placement fees is welcomed and fully supported by banks here, as this is good practice in light of the growing demand for bonds by private clients," she said.
"For Singapore to continue to build a sustainable and strong wealth management hub here, it is important for industry players and stakeholders to continue to evolve and enhance these standards, so this is a move in the right direction," she added.
In response to media enquiries, the Monetary Authority of Singapore (MAS) said private banks are expected to exercise care and have a reasonable basis for recommending products and leverage to their clients.
It noted that the PBIG was exploring a balanced-scorecard framework that will assess relationship managers on non-financial metrics, in addition to how well they meet their financial targets.
On investors' recourse when a bond defaults, the MAS said that more can be done, in addition to the various efforts of individual bondholders organising themselves. It noted that the Securities Investors' Association (Singapore) has stepped in to facilitate talks between the bondholders and the issuers concerned.
"We have also seen some banks providing support to investors who are their customers, including helping them to obtain the necessary legal and financial advice," said MAS.
"We think this is an area where more can be done, for instance, in terms of enabling bond holders to reach out to other bond holders more efficiently and giving greater clarity to bond holders upfront (for example, at the point of purchase) on their rights in a default situation. We are studying the matter, and will also engage the relevant industry players."
In the last few years, private bank clients here have bought the bulk of high-yield bonds, sometimes accounting for as much as 90 per cent of investors in a deal. This is unlike in the west, where most bonds are sold to institutional investors, who are better organised if defaults happen.
