Monetary Authority of Singapore has reprimanded AIA Financial Advisers Private (AIA FA), Prudential Assurance Company Singapore (Prudential), Aviva (Aviva) and Aviva Financial Advisers (Aviva FA) for breaches of requirements relating to risk management arrangements and the remuneration of supervisors.
The regulator also reprimanded Peter Tan Shou Yi, a consultant engaged by Aviva, for accepting remuneration in breach of regulatory requirements, and Aviva FA's CEO and director, Chee Boon Chai Lionel, for his failure to discharge the duties of his office.
Ho Hern Shin, deputy managing director (financial supervision), MAS said, "MAS expects financial institutions to have robust arrangements to ensure that their representatives place their customers' interests first.
MAS expects financial institutions to have robust arrangements to ensure that their representatives place their customers’ interests first."
Our requirements on remuneration practices relating to the sale of investment and life insurance products aim to promote good sales conduct in the financial advisory industry. We have dealt firmly with these financial institutions and individuals who have breached our regulations, to send a clear message to the industry on the importance of upholding high ethical standards."
MAS conducted an investigation and found numerous instances where remuneration was paid to supervisors in contravention of requirements under the Financial Advisers Act (FAA). These related to the Balanced Scorecard requirements (BSC) for the sale of investment products, and the Spreading and Capping of Commissions requirements (SCC) for the sale of regular premium life policies.
The BSC and SCC seek to align the incentives of financial adviser (FA) firms, representatives and supervisors with their customers' interests, to promote a culture of fair dealing. Under the BSC, supervisors' and representatives' variable income are determined with reference to the fulfilment of non-sales key performance indicators (KPIs).
Under the SCC, insurers and FA firms are required to cap the variable income payable to representatives and supervisors in the first year and spread the remaining variable income payable over a prescribed period.
Three of AIA FA's managing directors (MDs) had acted as supervisors of AIA FA. They were responsible for the supervision of the conduct and performance of the representatives in their respective agency groups, including sales and compliance standards.
However, AIA FA failed to review and assess the performance of these MDs, assign BSC grades as well as determine and pay their remuneration in accordance with the BSC. AIA FA also failed to cap and spread the MDs' variable income in accordance with the SCC.
The regulator said Aviva engaged Peter Tan as a consultant from July 2016 to March 2020, to provide strategic advice on Aviva FA's business. During this period, however, Tan went beyond providing strategic advice and acted as a supervisor to Aviva FA's representatives. He had frequent and direct interactions with Aviva FA's representatives, including discussions on sales and compliance issues.
However, from July 2016 to April 2019, neither Aviva nor Aviva FA had put in place compliance arrangements to monitor Mr Tan's activities in Aviva FA. For failing to put in place such arrangements, Aviva and Aviva FA contravened the Guidelines on Risk Management Practices - Internal Controls (RM Guidelines) and the Financial Advisers Regulations respectively.
Tan had acted as a supervisor of Aviva FA by virtue of his roles and responsibilities in the firm, but Aviva FA failed to review and assess Mr Tan's performance, assign a BSC grade to him, and determine and pay his remuneration in accordance with the BSC. Aviva also failed to cap and spread his variable income in accordance with the SCC. In accepting such remuneration, Mr Tan also breached the SCC.
MAS also reprimanded Aviva FA's CEO and director, Lionel Chee, for his failure to discharge the duties of his office. In addition to failing to ensure that Aviva FA put in place arrangements to monitor Tan's activities, Chee did not properly address the issue of poor conduct of Aviva FA's representatives, which included misrepresentations to customers regarding the nature and features of certain insurance products.
Despite MAS' repeated supervisory engagements with Aviva FA between August 2017 and September 2018 over the sales conduct of its representatives, the measures put in place by Aviva FA to address these issues remained inadequate.
As a result, MAS directed Aviva FA to appoint independent external persons to conduct a holistic review of the company's internal control processes, and to perform call-backs to all customers before any sales are completed. These measures are still in place.
Regarding the reprimand against Prudential, the MAS said three individuals referred to as master group agency manager (MGAM) leaders and a consultant appointed by Prudential had acted as supervisors of Prudential. However, Prudential failed to review and assess the performance of the MGAM Leaders and Consultant, assign BSC grades to them, as well as determine and pay their remuneration in accordance with the BSC requirements.
Prudential also failed to put in place adequate risk mitigation procedures and compliance arrangements to monitor the MGAM Leaders' and consultant's activities.