Banks and other financial institutions have been advised that they may need to change their behaviour fundamentally as a post-crisis industry landscape emerges.
For instance, they must ensure that investment advice dished out is ‘fair, objective and in the best interest of clients’. Having pay structures that rely mainly on commissions or are biased towards recommending specific products is ‘untenable’.
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Finance industry may need to change: MAS
Alvin Foo
29 April 2009
Banks and other financial institutions have been advised that they may need to change their behaviour fundamentally as a post-crisis industry landscape emerges.
Monetary Authority of Singapore executive director Ng Nam Sin yesterday listed three main areas where change is blowing.
These include moving away from pay structures for staff which rely mainly on commissions, and creating a corporate culture that asks what is ‘right’, not just what is ‘legal’.
Staff may also require retraining to cope with a changing investment climate.
Mr. Ng outlined these points during his opening address at the Shorex Wealth Management Forum at Suntec Convention Centre.
He said: ‘One potential driver of change is the shift in investor mindset.’
Investors are adopting a ‘more holistic view’ of their wealth protection needs, and are asking for ‘even more transparency’ on account management, he said.
‘These suggest the renewed emphasis on building trust, enhancing transparency and proper risk management and market conduct.’
Thus, financial bodies will have to review the way in which they deal with clients to ’provide real value and restore confidence’.
For instance, they must ensure that investment advice dished out is ‘fair, objective and in the best interest of clients’. Having pay structures that rely mainly on commissions or are biased towards recommending specific products is ‘untenable’.
‘It will inevitably elicit a culture where the institution and its representatives are more concerned about their own revenue interests, as opposed to having clients’ interests at heart,’ he said.
The industry must also move a greater emphasis on the safekeeping and handling of client funds, especially in the wake of the Madoff and Stanford frauds.
That means financial institutions must have proper systems and processes to safeguard clients’ interests and keep abreast of new regulations.
Those in senior management must recognise their role in instilling an ‘ethics-based’ corporate culture built on integrity, noted Mr. Ng.
‘Directors and management must recognise their responsibilities in setting the right tone at the top, and putting in place a corporate culture that looks beyond the question of ‘is this legal?’, to the broader question, ‘is this right?’ ‘
Those institutions that are able to do so will be ‘well-positioned to strengthen their reputation for integrity and reliability’, he added.
Financial bodies must also focus on continuous skill upgrading, as the need for a high level of competence has become more acute, given the industry’s current challenges, he said.
‘Financial sector professionals who have learnt their skills during the boom years may now need avery different skill-set to manage risks brought about by this unprecedented financial crisis.’
The downturn could also provide a good chance for this to take place.
Mr. Ng also said Singapore has been sheltered from the storm because its financial institutions have ‘very low’ non-performing loans, ‘minimal’ exposure to toxic assets and are ‘well-capitalised’.
He added: ‘Our regulators are alert and pro-active, and have always upheld high standards of supervision and risk management.’
However, there is a need to remain vigilant as there is still substantial risk in the world financial system.
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