Singapore in ‘mis-selling’ ban

July 8, 2009
Singapore Democrats

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John Burton in Singapore
Financial Times

Singapore has banned 10 local and foreign banks and financial institutions from selling structured notes to retail investors for up to two years. The move follows an uproar over the “mis-selling” of similar products that were rendered worthless by the collapse of Lehman Brothers.

The tough action by the Monetary Authority of Singapore, the city-state’s central bank, followed an investigation that concluded that the financial institutions failed to follow guidelines on the sale of structured products, including training financial advisers in the marketing of the notes.

The 10 institutions hit by the ban, which took effect from July 1, include three banks, DBS, ABN Amro and Maybank. Six regional brokerages – CIMB-GK Securities, DMG and Partners, Kim Eng Securities, OCBC Securities, Phillip Securities and UOB Kay Hian – have also been banned, as has finance company Hong Leong Finance.

Angry investors who bought what were known as Lehman “mini-bonds” last year claimed they were misled about the financial safety of the products, which were a form of credit default swap linked to several foreign financial institutions, including Lehman.

Nearly 10,000 people in Singapore bought the Lehman-linked notes, but saw their investments wiped out after the collapse of the US investment bank last September.

Similar products were sold in Hong Kong, Indonesia and Taiwan, but Singapore’s action is the strongest to date.

The MAS said that the ratings for some of the Lehman-linked products “were inconsistent with risk warnings stated in the prospectus and pricing statements”. Internal controls to ensure compliance with sales procedures were not followed in some cases, it said.

About 4,000 customers have already been compensated by the financial institutions for their losses, MAS said. Last month, the government said the investors had received about S$105m (US$72m), with Hong Leong paying S$58bn [sic].

ABN Amro, DBS, Maybank, DMG and UOB Kay Hian received the lightest ban of six months, while Hong Leong received the heaviest at two years. The rest received a one-year ban.

The bans, however, could be extended if MAS is not satisfied that adequate measures to improve controls have been adapted.

Additional reporting by Justine Lau in Hong Kong