MAS 'mystery shopping' plans for advisory firms amid misconduct concerns

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The Monetary Authority of Singapore is set to introduce a raft of new measures to quell the rise of misconduct cases in the the financial advisory market.

Speaking at last week’s Association of Financial Advisers annual conference, Merlyn Ee, executive director at MAS, said that the regulator will be introducing a series of enforcement actions, including new mystery shopping plans for the industry in 2017.

The Singapore regulator has more than 500 financial institutions and over 38,000 representatives under the Financial Advisers Act, with financial services ranging from insurance and retirement planning to independent financial advisory, and robo-advisory services more recently.

MAS last conducted mystery shopping exercises in 2011, but, as Ee explained, the time is right to re-introduce random clients into the marketplace in a bid to curb the rising number of misconduct cases.

“We have found mystery shopping to be a useful complement to our suite of supervisory tools to identify conduct issues,’ said Ee. “When customer complaints are lodged, it is often difficult to tell which party is right or wrong as many cases involve one person’s words against the other.’

“[Financial advisory] firms should also conduct mystery shopping and on-site visits to ensure that the marketing activities of their representatives comply with the Guidelines on Standards of Conduct for Marketing and Distribution Activities,” she said.

‘Inappropriate advice’

MAS said that it will also be stepping up investigation into misrepresentation, mis-selling and inappropriate advice, and will “take enforcement actions where necessary”.

The regulator’s new enforcement department was established in August 2016 and recently began conducting on-site inspections and found cases where its ‘balanced scorecard framework’ used to determine remuneration of sales personnel and supervisors was not implemented properly, it said.

It also identified marketing malpractices and lapses in the behaviour of supervisors, who “were not up to the mark” in identifying misrepresentation and dealing with customer call-backs.

In her speech Ee warned that as financial firms grow their business, they must ensure that their controls and processes “keep pace”.

“The financial advisory business is one that is centred on customers,” she said. “It is thus crucial to instil confidence that FA firms and their representatives put customers at the centre of everything they do.

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Industry practices

Based on MAS’ supervision of the industry, Ee added that the organisation sees a mix of “good and undesirable” practices.

On the positive front, MAS said that many FA firms are now tapping on technology to help their representatives in the advisory process including electronic fact-find forms with built-in system controls and most firms have internal guidelines on the types of products deemed suitable for different customers.

The four areas MAS highlighted that is room for the industry to do better:

(i)       Implementation of the Balanced Scorecard framework, or BSC in short;
(ii)      Marketing practices at roadshows and public places;
(iii)     Identifying emerging trends and risks; and
(iv)     Supervisory oversight.

MAS stats that firms should train their representatives to avoid the use of terms which may convey “a false sense of security”.  It has also received several complaints over the last few months about individuals soliciting customers shopping malls in an “aggressive manner”.

“Based on the feedback, these individuals would approach members of the public on the pretext of conducting surveys and lead them to representatives stationed at retail establishments,” added Ee.

Supervisory issues

“Last year, I spoke about how supervisors were not up to mark in a number of firms. We continue to see instances of supervisors validating the sales of their representatives despite inadequacies in the basis of recommendation documented in the fact-find forms. Some supervisors are not well-versed in their company’s controls and fail to pick up cases where representatives do not adhere to the firm’s policies and procedures.”

Going forward, Ee said, MAS will be “stepping up our efforts” to investigate misconduct and will not hesitate to take “strong enforcement actions” where there is evidence of serious wrongdoing or blatant disregard of the rules.

Despite concerns over some practices, EE predicted that “exciting times” lie ahead for the industry.

“Undeniably, industry practitioners who offer quality advice will be well-positioned to compete in this growing market,” she said. “As FA firms grow their business, they must ensure that their controls and processes keep pace. FA firms must also continue to maintain high standards of conduct and put the interests of their customers first.

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Gary Robinson

Commercial Director, Head of Video at International Investment.

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