The Singapore regulator of private banks recently conducted a two-year review of compliance with its suitability rules, finding that there is significant room for improvement.
Singapore’s private banks are expected to:
- Have controls and checks in place to prevent inappropriate advice and product sales
- Update clients’ risk-profiles and financial needs regularly
- Implement checks to identify mismatches between product features and clients’ risk-profiles
- Assess investment suitability at both transaction and portfolio levels
- Have a holistic approach to toward assessing suitability of portfolios against their investment objectives and risk tolerance
The review found that most banks had controls in place, but also identified several key problems including:
- Inadequate and untimely checks and review processes
- Some staff attempted to manipulate a client’s risk-tolerance to make them eligible for higher-risk products than their true tolerance may allow
- Lack of understanding of the duty to act in the client’s interest
Singaporean private banks are required to complete a risk profile for all new clients which considers their investment objectives, liquidity requirements and investment experience. The profile must be updated a least biennially or whenever there is a material change to the client’s circumstances.
Under Singapore’s rules the risk-profiling process must identify ‘vulnerable clients’ and have safeguards in place for them. These safeguards could include third-party companionship during meetings, restricting access to higher-risk products or supervisors conducting call-backs to confirm the client’s understanding.
Singapore describes a potentially vulnerable client as anyone over the age of 62! Other factors to be considered include fluency in English; illness; disability and education level. Generally, vulnerability is judged holistically rather than on any single factor.
Private bank customers are, by definition, high net-worth customers. This serves as a valuable reminder that wealth and vulnerability can exist side-by-side and Singapore is vigilant that the vulnerable not be exploited. In 2018 the Monetary Authority of Singapore barred six investment advisors from the industry for the mis-selling of investment products.