Better protection for retail investors

Better protection for retail investors

SINGAPORE - Parliament passed two Bills last Thursday to give greater protection to Singapore retail investors and tighten the rules for the trading of complex over-the-counter derivatives that led to the 2009 global financial crisis.

But three MPs cautioned that too much regulation could stunt the growth of the financial industry and also prevent some retail investors from getting the advice and products they needed.

The Financial Adviser's (Amendment) Bill increases the Monetary Authority of Singapore's (MAS) supervision of financial advisory firms here and also extends their civil liability so that investors can take them to court to seek compensation.

The changes are prompted by the mis-selling of products like the Lehman Minibonds that led to vulnerable retail investors losing their life savings during the financial crisis.

At the same time, the Government is leading a Financial Advisory Industry Review (Fair) to improve the industry's practices.

Ms Foo Mee Har (West Coast GRC) and Mr Gan Thiam Poh (Pasir Ris-Punggol GRC), both senior banking executives, warned against "overly onerous requirements" that could stifle the industry and lead to higher costs.

Ms Foo said reforms in the British financial advisory industry led one bank to stop offering financial advice to retail customers.

Mr Gan asked whether civil liability was necessary as global financial markets are becoming more volatile and can lead to investments going wrong "through no fault of the local distributor or financial adviser".

Replying, Finance Minister Tharman Shanmugaratnam said the aim of the MAS was to improve the financial advisory process so that it better serves the investor and develops a culture of advice over the long term that will particularly benefit retail investors.

He urged industry players and investors to view the documentation process and the compliance cost "not merely as regulatory requirements but as part and parcel of a process that enables FA firms to carry out their duties in the best interest of their clients".

Mr Ong Teng Koon (Sembawang GRC), a trader at investment bank Morgan Stanley, urged caution in implementing the changes to the Securities and Futures Act.

He said Singapore should avoid being too strict in its definition of the firms that it has to regulate as it could lead to the departure of global financial companies.

The new law gives greater supervisory powers to the MAS and requires mandatory reporting of over-the-counter derivatives trades and central clearing of the trades.

This is to improve transparency and reduce the overall risk of these complex trades.

The changes are in line with financial reforms taking place around the world.

Said Mr Ong: "We can regulate such global firms with an iron fist and create impractical rules, but they will just leave and we would have tried for nothing."

Mr Tharman assured the House the MAS was "keenly aware of Singapore's positioning as a hub for global financial institutions".

He added: "It is, and will continue to align its regulatory approach so as to relieve global market participants of undue compliance burden, while at the same time ensuring that the objectives of the Financial Stability Board recommendations are met."

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