Jurisdiction - Singapore
Reports and Analysis
Singapore – Consultation On The Recommendations Of The Financial Advisory Industry Review.

24 March, 2013


Legal News & Analysis – Asia Pacific – Singapore – Regulatory & Compliance




On 26 March 2012, the Monetary Authority of Singapore (“MAS”) announced the launch of the Financial Advisory Industry Review (“FAIR”), with the aim of raising standards of practice in the financial advisory (“FA”) industry and improving efficiency in the distribution of life insurance and investment products in Singapore. Subsequently, a panel, chaired by MAS and comprising representatives from industry associations, consumer and investor bodies, academia, media, and other stakeholders (“FAIR Panel”), was formed on 2 April 2012 to conduct the review. 


Following the submission of the FAIR Panels recommendations (“Panel Recommendations”) in early 2013, MAS has agreed in principle to implement the Panel Recommendations, and has now released a consultation paper (“CP”) for interested persons to submit their views on the implementation of the Panel Recommendations. The closing date for the CP is 4 June 2013.




The Panel Recommendations are grouped according to the following five key areas:


(a) Raising the competence of FA representatives;
(b) Raising the quality of FA firms;
(c) Making financial advising a dedicated service;
(d) Lowering distribution costs; and
(e) Promoting a culture of fair dealing.


Raising the competence of FA representatives


Raising the minimum academic entry requirement


The FAIR Panel had recommended raising the minimum academic entry requirement for new financial advisory representatives (“FA representatives”) from the current four GCE ‘O’ Level credit passes to: (i) a full certificate in GCE ‘A’ Level; (ii) an International Baccalaureate Diploma qualification; or (iii) a diploma awarded by a polytechnic in Singapore; or their equivalent.

It was felt that the current minimum academic entry requirements were inadequate, given the increasing complexity of financial products and 
higher expectations from a more literate and sophisticated clientele in the context of Singapore’s rising educational levels. The current requirements are also lagging behind those in other jurisdictions, such as the United Kingdom where the Financial Services Authority requires financial representatives to have tertiary-level qualifications. MAS has estimated that 20% of new entrants to the financial advisory industry will not be able to meet the new entry requirements. To address this, MAS has indicated that it will work with the polytechnics in Singapore to offer a special diploma course in financial advisory services. Individuals with this diploma will be deemed to have met the new academic entry 


To recognise the experience of existing FA representatives, all existing FA representatives will be grandfathered when the new academic entry requirements come into effect. Individuals who are on a temporary career break from the financial advisory industry may also be grandfathered provided that they have left the industry no more than one year prior to the date when such new academic entry requirements take effect and subsequently re-join the industry within a year from such date.


Continuing professional development

The FAIR Panel had recommended that MAS prescribe a minimum of 30 hours per annum of continuing professional development (“CPD”) training for all FA representatives, save for representatives who only advise on mortgage reducing term assurance policies and/or group term life insurance policies. For such representatives, a minimum of 16 hours per annum will be prescribed. For all FA representatives, CPD training will comprise at least four hours of training in ethics and at least eight hours of training in rules and regulations.


Raising the quality of FA firms


Competency and experience requirements



The FAIR Panel had recommended that a Chief Executive Officer (“CEO”) of a licensed FA firm (“LFA”) should have at least ten years of relevant working experience, of which at least five years should be at a managerial level.


A further recommendation is that LFAs will be required to employ a minimum of three full‐time, resident professionals each with at least five years of relevant experience. The management staff of the LFA (including the CEO and Executive Directors) can count toward this requirement. If this is implemented, MAS proposes to provide all existing LFAs a transitional period of six months from the date of implementation to meet this requirement.


The above represents a tightening of requirements for CEOs of LFAs who are currently required to have a minimum of five years of relevant working experience, of which at least three years must bein a managerial capacity. The requirement for Executive Directors remains unchanged at five years of relevant working experience with a least three in a managerial capacity.


Corporate track record


An applicant for a financial adviser’s licence (“Licence Applicant”) is required to have a proven track record in the financial advisory industry. MAS is proposing to raise this track record requirement to five years from the current requirement of three years. For Licence Applicants who do not meet the track record requirement, the CEO is required to hold at least 20% of the shares of the Licence Applicant. The CEO and Executive Directors should also, in aggregate, hold at least 50% of the shares of the Licence Applicant. This minimum shareholding requirement is to indicate that the CEO and Executive Directors are committed to the Licence Applicant and the financial advisory business it will operate in Singapore.


In addition, MAS proposes to formalise the current practice of having the parent entity of an existing LFA or Licence Applicant provide a Letter of Responsibility to MAS to demonstrate their support for the entity’s operations in Singapore. A transitional period of six months from the date of implementation is proposed to be provided to meet this requirement.


Compliance arrangements


The FAIR Panel has recommended that MAS require that all LFAs put in place a compliance function that is independent of their sales and advisory functions. For example, compliance officers should not be appointed as FA representatives, or have any front‐officeresponsibilities. For LFAs with more than 20 FA representatives or annual gross revenue of more than S$5 million, a more stringent requirement of having dedicated compliance officers would apply. It is proposed that a transitional period of six months from the date of implementation would be allowed for LFAs to put into place such compliance arrangements.


Financial requirements


Minimum financial requirementsCurrently, under Regulation 15 of the Financial Advisers Regulations (“FAR”), LFAs are required to have a minimum paid‐up capital of:


(a) S$300,000 if they advise on futures contracts, foreign exchange contracts or 
leveraged foreign exchange contracts; or

(b) S$150,000 if they undertake other FA activities.


The FAIR Panel had noted that the current concept of paid-up capital does not take into account capital erosion due to operational losses and dividends. As such, the FAIR Panel has recommended imposing a “base capital” requirement on LFAs which will be defined as the sum of:


(a) Paid‐up ordinary share capital;
(b) Irredeemable and non‐cumulative preference share capital; and
(c) Any unappropriated profit or loss in the latest audited accounts of the LFA, less where applicable, any interim loss in the latest accounts of the LFA, and/or, any dividend that has been declared since the last audited accounts of the LFA.


Limb (c) of the proposed definition seeks to address operational losses and dividends.


Currently, LFAs advising on futures contracts, foreign exchange contracts or leveraged foreign exchange contracts are subject to a higher minimum paid-up capital requirement. This stems from the traditional view of such financial products as being riskier. Given the recent trend where the demarcation between types of financial products becomes increasingly blurred, the FAIR Panel had recommended that it may be more appropriate to consider the type of service being provided by the LFA instead of the type of financial product.Taking into account the risk exposure of LFAs during the global financial crisis as well as the 
coverage provided by professional indemnity insurance, the FAIR Panel had recommended that LFAs which are pure research houses be subject to a lower “base capital” requirement of S$250,000 given the lower market and legal risks that such LFAs are exposed to. On the other hand, it is recommended that LFAs which conduct all other types of FA activities be subject to a “base capital” requirement of S$500,000, or, in the alternative, be subject to a “base capital” requirement of S$300,000 provided that such LFA has professional indemnity insurance coverage of at least S$500,000.


Continuing financial requirements


Currently, under Section 10(1)(a) of the Financial Advisers Act (“FAA”), read with Regulation 16(1) of the FAR, LFAs are required to maintain a net asset value (“NAV”) of not less than the higher of:


(a) One‐quarter of their relevant annual expenditure of the immediate preceding financial year; or
(b) Three quarters of the required minimum paid‐up capital.


The FAIR Panel had noted that the current NAV requirement does not take into account the extent to which LFAs hold illiquid assets, which may adversely affect their ability to meet short term financial obligations. The FAIR Panel therefore recommended that MAS require LFAs to maintainminimum “financial resources”. “Financial resources” will be defined as the sum of:


(a) Paid‐up ordinary and preference share capital;
(b) Subordinated loans with not less than two years to maturity;
(c) Revaluation reserves;
(d) Other reserves;
(e) Unappropriated profit or loss in the latest audited and interim accounts, less any dividend that has been declared since the last audited accounts of the LFA; and
(f) General provision,


less the sum of the illiquid items in the latest available accounts of the LFA which would include:


(a) Assets that cannot be converted to cash within 30 days;
(b) Non‐current assets;
(c) Pre‐paid expenses;
(d) Deposits other than qualifying deposits;
(e) Unsecured amounts due from directors of the LFA and its connected persons that are included as current assets;
(f) Unsecured loans and advances made by the LFA and its connected persons that are included as current assets;
(g) Any unsecured amount owed by a related corporation;
(h) Intangible assets;
(i) Charged assets, except to the extent that the LFA has not drawn down on the credit facility if the charge is created to secure a credit facility, or as permitted by MAS;
(j) Future income tax benefits included as current assets; and
(k) An amount equal to 8% of the value of any contingent liability, which includes any letter of credit or guarantee issued on behalf of the LFA.


The above definition is aimed at better reflecting the resources that the LFA has available to cover short term operational risks.


Based upon the above definition of “financial resources”, LFAs will be required to maintain minimum “financial resources” that are the higher of:


(a) 10% of the average audited gross revenue in the immediate three precedingfinancial years; or
(b) S$150,000.


“Gross revenue” will be used as the proxy for measuring operational risk since as the current use of “gross expenditure” may discourage spending on middle and back office activities such as risk management and compliance as such activities inflate the “gross expenditure” number. 


Professional indemnity insurance


The FAIR Panel had recommended that the minimum professional indemnity insurance (“PII”) coverage required of LFAs be calibrated according to the type of customer they serve, the type of activity they engage in and the amount of their gross revenue.


The MAS proposal is that only LFAs which serve retail customers be subject to a minimum PII coverage requirement. For LFAs which are pure research houses serving retail customers, the minimum PII coverage is proposed to be set at S$500,000. For LFAs which serve retail customers in respect of all other types of FA activities, the proposal is that LFAs with annual revenue of up to S$5 million be subject to a minimum PII coverage of S$1 million whilst LFAs with annual revenue of more that S$5 million be subject to a minimum PII coverage equivalent to 20% of their audited gross revenue for the immediate preceding financial 


MAS is also proposing to cap the deductible for the PII policy at 10% of the LFA’s base capital. This is to prevent LFAs from purchasing PII policies with very high deductibles in order to pay lower premiums. In the event where a claim is made, the LFA may face difficulty in paying the high deductible.


All existing LFAs will be given a transitional period of one year from the date of implementation of the new rules to meet the above enhanced financial requirements.


Non-financial advisory activities conducted by LFAs


Recognising that LFAs play a key role in helping their customers make sound financial decisions, the FAIR Panel had made recommendations aimed at encouraging LFAs to focus on their core business and to avoid situations of conflict.

The MAS proposal is that the non‐FA activities of LFAs would be restricted to the following:



  • (a) Acting as introducers or making referrals in respect of non‐FA activities to financial institutions licensed by MAS, subject to the following conditions:

    • (i) LFAs should not provide customers with advice or product information;
    • (ii) The revenue generated from referrals should not be tied to successful referrals or a percentage of customers’ spending arising from thereferral; and
    • (iii) LFAs should disclose to customers the following; that they cannot and have not given advice in respect of the referred business, whether there are potential conflicts of interest arising from their referral activity, and the amount and basis of remuneration the LFA will receive for carrying out the referral activity.
  • (b) Providing training and consultancy in respect of financial planning or financial literacy aimed at educating and empowering consumers, subject to the following conditions:

    • (i) Where financial products are covered in the scope of such training and consultancy, limiting these to investment products as defined in Section 2(1) of the FAA; and
    • (ii) Disclosing to consumers as towhether financial advice will be provided in the course of the training or consultancy.


In addition, the gross revenue generated by LFAs from their non‐FA activities must be capped at 5% of the total annual revenue derived from their FA business.


All existing LFAs will be given a transitional period of six months from the date of implementation of the new rules to meet the above requirements.


Financial advisory activities of insurance broking firms


Currently, insurance broking firms registered under the Insurance Act are allowed to conduct FA activities without the need to hold an FA licence once they have filed a notification with MAS. MAS has noted that in the last few years, an increasing number of insurance broking firms have branched out into FA activities such as marketing of collective investment schemes (“CIS”) but may not have adequate management expertise and resources to support such activities, and this has resulted in poor market conduct practices.


In respect of such related FA activities, the FAIR Panel was of the view that where an insurance broking firm provides FA services, they must be fully capable of managing this part of their business. Accordingly, insurance broking firms should meet the same management expertise, financial and compliance requirements applicable to LFAs before they are allowed to commence such FA activities. Otherwise, their FA activities would be limited only to advising on and arranging group or individual life insurance policies.


To ensure that insurance broking remains as the core business of such firms, MAS is also proposing that the total revenue from FA activities be capped at 25% of the insurance broking firm’s annual total revenue, and that the brokerage income from the sale of incidental individual life policies be capped at S$200,000 per annum. 


All existing insurance broking firms will be given a transitional period of six months from the date of implementation of the new rules to meet the above requirements.


Making financial advising a dedicated service


Non‐FA activities conducted by FA representatives


The conduct of non‐FA activities by FA representatives can potentially undermine the quality of FA services received by customers, particularly in situations where there are clear conflicts of interest. The FAIR Panel has recommended that the onus be placed on FA firms to assess the conduct of non-FA activities by their representatives. FA firms are to ensure that the such non-FA activities do not conflict with the FA business of the firm, that the non-FA activities do not tarnish the image of the FA industry, and that the representative will not neglect his/her FA role in the conduct of such non-FA activities. 


Examples of non-FA activities have been identified and are proposed to be excluded from what would be permitted to FA firms. These include licensed moneylending activities, junket promotion activities, real estate agency activities and making investments not regulated under the FAA.


The FAIR Panel has also recommended that FA firms require prospective representatives who have other gainful employment to obtain the approval of their other employers prior to appointing them as FA representatives. For existing FA representatives with other gainful employment, FA firms would be required to ensure that they disclose their representative status to their other employers. 


MAS had further stated they would expect FA firms to put in place proper systems and controls to monitor their representatives’ conduct of such nonFA activities. A transitional period of six months from the date of implementation of the new rules will be given for existing FA firms and FA representatives to meet the above requirements.


Use of introducers by FA firms


The MAS has reiterated that it is not their policy intent to regulate introducer arrangements that are passive or ad hoc in nature, such as personal or friendly referrals where no reward is received, or the passive placement of brochures at third party premises. However, the FAIR Panel had noted that the current introducer framework poses two key concerns – namely, (a) that there were no restrictions on the types of individuals or entities that can be appoint as an introducer; and (b) the line between introducing and FA activity can be easily blurred. 


Given the above concerns, MAS has proposed to tighten the existing introducer regime in the following areas:


(a) Persons permitted to act as introducers;
(b) Scope of introducing activity;
(c) Remuneration structure for introducers; and
(d) Additional disclosure requirements for introducers.


Persons permitted to act as introducers


FA firms must adhere to two principles in appointing introducers. First, that no conflicts of interest must arise in the appointment of any introducer, and second, that the appointment of any introducer must not tarnish the image of the FA firm or the FA industry. Thus, the appointment of a person with a criminal record for fraud, dishonesty or misrepresentation, or one who has been suspended or struck off by a professional body or a regulator would not be appropriate. 


MAS is also proposing that introducer agreements can only be entered into with corporations only (and not individuals), so that FA firms are better placed to ensure that the introducer complies with applicable laws and regulations.


Scope of introducing activity


Introducers are currently allowed to perform the following activities on behalf of FA firms:


(a) Arranging for customers to meet with or speak to the FA firm;
(b) Forwarding the particulars of customers to the FA firm; or
(c) Providing customers with factual information on the products distributed by
the FA firm.


The FAIR Panel had noted that provision of factual information by the introducer can lead to confusion on the part of the customer as to the entity they are dealing with as the FA firm would provide the same factual information to the customer during the advisory process. As such, MAS is proposing that introducers be prohibited from providing such factual product information to customers. For FA firms, the MAS is proposing that the FA firms be prohibited from acting as introducers in respect of products that they themselves are licensed to advise on. This is so that there is no confusion on the part of the customer as to whether the customer is dealing with an FA firm acting as an introducer or as an adviser.


Remuneration structure for introducers


The FAIR Panel had noted that remuneration structure for introducers are frequently volumebased, such as remunerating introducers based on a percentage of the first year premiums paid by customers. Such remuneration structures may incentivise introducers to cross the line into advisory activities so as to increase the likelihood of a customer signing up for a financial product hence increasing their remuneration.


The MAS is therefore proposing that volume‐based remuneration models would be prohibited for introducers. What would however be permitted would be a model whereby the introducer receives a fixed fee per introduction irrespective of whether the customer eventually signs up for a financial product.


Additional disclosure requirements for introducers


Introducers are currently required to disclose to customers the following, based on a script provided by the FA firm:


(a) That the introducer is carrying out introducing activities for the FA firm;

(b) That the introducer is not allowed to give advice or provide recommendations on any investment product to the customer, market any CIS , or arrange any contract of insurance in respect of life policies, other than to the extent of carrying out introducing activities;

(c) Whether or not the introducer will be remunerated by the FA firm for carryingout introducing activities; and

(d) Where the introducer will be remunerated 
by the FA firm, the amount of remuneration if so requested by the customer.


The proposal is to enhance the disclosure 
requirements as follows:


(a) To add to the disclosure under paragraph 
(b) above, by also requiring the introducer to disclose to the customer that the introducer has not given advice or provided recommendations in respect ofthe service or product that is provided or sold by the FA firm;
(b) To abolish the disclosure requirement in paragraph (c) and (d) above, and replace this with a requirement for the introducer to disclose to the customer the amount and basis of remuneration received by the introducer for carrying out the introducing activity; and
(c) To impose a new requirement that the introducer is to disclose whether the introducer, its directors and/or shareholders have any direct or indirect stake in the FA firm, or whether the introducer has any other relationship with the FA firm or any of its representatives.


Lowering distribution costs


The FAIR Panel had proposed the following measures to enhance market efficiency for the distribution of FA products and with a view toward lowering distribution costs:


(a) Facilitating comparability of products;
(b) Improving accessibility of “basic insurance” products through a direct
channel; and
(c) Enhancing transparency of products.


Facilitating comparability of products


The FAIR Panel had noted that whilst comparison portals and websites exist for CIS in Singapore, no portal yet exists for insurance products to allow customers to easily compare pricing, benefits and other features of life insurance products from various insurance companies. The FAIR Panel proposed that MAS and the Life Insurance Association of Singapore should collaborate to develop a web portal that would shortlist for a customer various life insurance products available, based on demographic data and desired product preferences entered by the customer. MAS is accordingly seeking feedback for the concept of developing such a web aggregator portal in phases, initially starting with simpler products such as term life insurance products. To address concerns by FA representatives, such a web aggregator portal will not be capable of actually 
executing product sales. 


Improving accessibility of “basic insurance” products through a direct channel


The FAIR Panel had noted that under the current commission based model, the price paid by customers of insurance products reflects the sum of the cost of benefits provided to the customer and the distribution costs for such a product. The price would be the same irrespective of the distribution channel through which the insurance product was bought. Cost efficiencies of one distribution channel over another are not reflected in the price paid by the customer. Currently, there would be no alternative channel for “self-directed” customers, who may wish to buy life insurance products directly from life insurance companies without receiving any advice and thus not have to pay commissions. Another group of customers who are disadvantaged by the current model are those who wish to seek advice from an independent FA on their entire portfolio. Such customers may have to pay an advisory fee to the independent FA as well as pay commissions on the insurance products.


The FAIR Panel had therefore recommended that life insurance companies should make available a set of basic insurance products to be sold via a direct channel without any accompanying dispensation of advice. The accompanying fees for such products should be a nominal administrative fee only. Existing distribution models will co-exist with the new direct channel.


Enhancing transparency of products


The FAIR Panel had reviewed the current disclosure requirements and industry practices for the sale of investment and life insurance products and had made the following general observations:


(a) There has been insufficient disclosure of the fees earned by FA firms for the sale of CIS;
(b) Consumers might not have been aware that some life insurance products (such as endowment plans and whole life insurance policies) bundle both protectionand savings/investment elements; and
(c) The Benefit Illustration (“BI”) for life insurance products could be enhanced so that it would be easier for consumers to understand the costs and features of life insurance products.


Collective Investment Schemes


Disclosures made by FA firms to their customers currently do not contain information on trailer fees paid by fund managers to the FA firms.


The FAIR Panel was of the view that it would be useful for consumers to know that their FA firms receive a portion of the management fees they pay to the fund managers, as this may spur customersto seek on-going quality advice or service from their FA firm. Accordingly, the MAS is proposing to require fund managers of CIS to disclose the trailer fees paid to FA firms in the Product Highlights Sheet.


Life insurance products


To aid consumers’ understanding of the information in the BI and Product Summary of insurance products and investment-linked policies (“ILPs”), the MAS is proposing to require life insurance companies to add a cover page to the BI and Product Summary to highlight the following key information:


(a) Total distribution costs of the life insurance product and the number of years over which policyholders have to pay these costs;

(b) The illustrative rates of return of the life insurance product and a warning that these returns are not guaranteed, do not take into account management, distribution and other expenses, and that the actual returns will depend on the performance of the sub‐fund(s) (in the case of ILPs) or the participating fund (in the case of participating products);

(c) The average expense (investment, management, distribution and other expenses) ratio of the participating fund over the last three years;

(d) A warning that if the policyholder surrenders his or her policy before a certain year, the amount received (based on the guaranteed return) would be lowerthan the premiums paid;

(e) 14‐day free‐look period; and

(f) A brief description and the website address of the proposed web portal for insurance products as discussed above under the paragraph “Facilitating comparability of products”.


The above information is to be presented in a font size of at least 10‐points Times New Roman and FA firms are to obtain their customers’ signed acknowledgement on the cover page. 


Participating life insurance products


Currently, customers who wish to buy participating products are not provided with information on management expenses and distribution expenses charged to the participating fund in prior years.The FAIR Panel was of the view that this was pertinent information for the customer as it would affect the amount of return on the customer’s policy.


Accordingly, the MAS is proposing that life insurance companies will be required to disclose in the Product Summary, the management, distribution and other expenses for participating products, as a combined total expense ratio, averaged over the last three years.


Bundled life insurance products


The FAIR Panel had observed that consumers may not be clear as to the protection, savings or investment components that make up a bundled life insurance product. For example, for ILPs, many consumers might not have been aware that a large portion of the premium had been channelled towards the investment element as compared to the protection element. For whole life and endowment plans, the FAIR Panel had observed that consumers might not have been aware that such plans comprise both a protection component and a savings or investment component.


The MAS is accordingly proposing to require FA representatives to disclose to customers the option of purchasing an unbundled term life insurance product (with similar coverage) and placing the difference in premiums (between the bundled life insurance product and the term life insurance product) in a fixed deposit. This proposal seeks to make customers more aware of the option of purchasing a term life insurance product which has a protection component and coupling this with another financial product or instrument which provides a savings or investment component.


The MAS is further proposing that the salient features of bundled life insurance products vis‐a‐vis term life insurance products must be highlighted to customers so that a meaningful comparison of the two products can be made. Specifically:


(a) For term life insurance products, it must be disclosed that there is no surrender value and the death benefit is guaranteed and fixed throughout the policy term; and

(b) For whole life insurance products, it must be disclosed that policyholders may receive bonuses (which are non‐guaranteed) and as such, the death benefit for whole life insurance products may be more than the guaranteed amount at the inception of the policy as compared to term life insurance products.


Promoting a culture of fair dealing

Commission payout structure of regular premium life insurance products

Period of commission payout


The FAIR Panel had noted that a longer commission payout period would better align the interests of FA firms and representatives with those of the customer. This would be because a short commission payout period generally incentivises the FA representative toward the conclusion of sales as opposed to the provision of quality after sales service.


Given the above, the MAS is proposing the following:


(a) For regular premium life insurance products with a period of six years or more, the commission payouts be spreadover a minimum of six years; and
(b) For regular premium life insurance products with a period of less than six years, the commission payouts occur throughout the duration of the product.


Re-distribution of commissions


To further incentivise FA firms and representatives toward the provision of quality after sales service, the MAS is proposing a cap on the percentage of commissions to be paid in the first policy year, to be progressively implemented in phases. For the first year after the implementation of this new measure, commission payouts for the first policy year will be capped at 50% of total commissions. Subsequently, commission payouts for the first policy year will be capped at 40% of total commissions. The remaining commissions apart from those paid during the first policy year are to be distributed evenly over the remaining years of the policy.


Balanced scorecard framework for remuneration of FA representatives


The Guidelines on Fair Dealing – Board and Senior Management Responsibilities for Delivering Fair Dealing Outcomes to Customers (“MAS Fair Dealing Guidelines”) issued by MAS had articulated the general principle that FA firms should remunerate their representatives in a manner that encourages them to act in the best interests of customers.


The FAIR Panel had observed that whilst there had been improvement in remuneration structures after the issuance of the MAS Fair Dealing Guidelines, FA representatives continued to be remunerated primarily based on sales performance. In addition, supervisors of FA representatives were in turn remunerated based upon the sales performance of their representatives and would typically receive a percentage of the overriding commission for each product sold by FA representatives whom they supervise. 


To better align the interests of FA representatives and their customers, the MAS is proposing that FA firms adopt a balanced scorecard (“BSC”) framework incorporating non‐sales key performance indicators (“KPIs”) in the remuneration structure for FA representatives and their supervisors. MAS will work with the industry associations to design an industry‐wide BSC framework, with common parameters on the types, measurement methods and weights of non‐sales KPIs.


Types of non-sales KPIs


The initial proposal as to non‐sales KPIs will be in the following four areas:


(a) Quality of advisory and sales process ‐whether there is sufficient fact‐find conducted to understand the circumstances and needs of the customer;

(b) Suitability of recommendations ‐ whether the product recommended is suitable for the customer based on his or her financial objectives, investment horizon, risk profile, financial situation and particular needs;(c) Adequacy of information disclosure ‐whether the representative has highlighted and explained all material information to the customer; and

(d) Customer complaints ‐the number, nature and severity of substantiated complaints against the FA representative for misconduct relating to the provision of financial advice and poor after‐sale services.


Methods for measuring non‐sales KPIs


In order to measure whether representatives have met the non‐sales KPIs, MAS proposes that all FA firms put in place pre‐transaction documentation reviews and customer call‐backs by supervisors for all sales conducted by their FA representatives.


In addition, MAS proposes that all FA firms establish an Independent Sales Audit Unit (“ISAU”) to perform another level of post‐sale checks on the quality of the advisory and sales process and as to whether the recommendations made suit the customer. Such checks may be done on a sample basis and include customer surveys. MAS has noted that it may not be adequate to rely solely on checks done by supervisors as the remuneration of supervisors tends to be correlated with the sales performance of their FA representatives. To ensure independence, the ISAU should be staffed by personnel who are not involved in the sales process and should have access to board and senior management of the FA firm.


Proportion of remuneration to be subject to deductions under the BSC framework


The FAIR Panel had recommended that the weights assigned to non-sales KPIs should reflect the primary role of FA representatives in providing customers with good quality advice and suitable recommendations, and that the proportion of remuneration subject to deduction under the BSC framework be set accordingly.


In addition, where FA representatives have failed to meet the non-sales KPIs, their supervisors and managers should incur heavier penalties in the form of larger deductions from their own remuneration. This is to take into account the fact that supervisors and managers have an important role to play in supervising the provision of FA services by their representatives. This principle would apply unless the FA firm is able to demonstrate that the failure of the FA representatives to meet non-sales KPIs has not been due to poor supervisory oversight.


MAS had noted that the remuneration structures for FA representatives and their supervisors vary across different sectors and firms. MAS will work with the industry on the appropriate proportion of remuneration to be subject to the BSC for representatives and their supervisors, taking into account the different remuneration structures in the industry.


Banning of product-specific incentives for FA representatives


The FAIR Panel had noted that product-specific incentives, which reward FA representatives for promoting and selling certain financial products,may encourage pressure selling or the improper switching of products. Such practices are detrimental to the customer as they may result in the customer receiving biased advice or in the customer signing up for products which are unsuitable.


Accordingly, the MAS is proposing that FA firms be prohibited from paying their FA representatives cash and non‐cash incentives which are tied to sales volumes of a specific product, or which are over and above typical commissions paid for selling that product.

Accountability for fair dealing responsibilities in FA firms


The MAS Fair Dealing Guidelines had articulated five fair dealing outcomes:


(a) Customers have confidence that they deal with financial institutions where fair dealing is central to the corporate culture;

(b) Financial institutions offer products and services that are suitable for their target customer segments;

(c) Financial institutions have competent representatives who provide customers with quality advice and appropriate recommendations;

(d) Customers receive clear, relevant and timely information to make informed financial decisions; and

(e) Financial institutions handle customer complaints in an independent, effective and prompt manner.


Since the introduction of the MAS Fair Dealing Guidelines, MAS has been assessing FA firms on their ability to produce fair dealing outcomes.


Shortcomings have been noted in several areas such as a failure to conduct comprehensive fact‐finds, inadequate disclosures on products recommended and inappropriate recommendations of products that did not match customers’ financial objectives.


MAS is accordingly proposing to incorporate into its risk assessment and review of FA firms the degree to which FA firms’ boards and senior management promote a culture of fair dealing within their organisations. The supervisory intensity with which MAS oversees FA firms will vary in part according to this assessment.


Complaints handling and resolution process


MAS had also noted that there have been varying standards of Complaints Handling and Resolution (“CHR”) processes among FA firms.


To address such issues and to ensure consistent minimum standards in the handling of customer complaints, the FAIR Panel has recommended 
strengthening existing requirements in respect of CHR processes of FA firms. This would be in line with other jurisdictions such as the United Kingdom and Australia where statutory provisions relating to CHR processes have been implemented to safeguard consumer interests.


Accordingly, MAS is considering the issuance of Regulations under the FAA to enhance the CHR processes of FA firms dealing with retail customers by requiring such FA firms to:


(a) Establish a CHR process for retail customers, which would be independent of the business unit complained against, and which would be prompt in responding to and resolving the complaint;

(b) Designate a person or committee responsible for oversight of the FA firms’ compliance with the regulatory requirements on CHR;

(c) Make information on their CHR process available at their place of business or on their website (if any); and 

(d) Track and manage complaints data and 
report such data to MAS on a biannual 


Involvement of industry associations in promoting fair dealing


The FAIR Panel had also recognised that industry associations play a useful role in assessing and monitoring the implementation of fair dealing outcomes by their members, and accordingly, MAS is also inviting comment on what initiatives industry associations could undertake to promote a culture of fair dealing within the FA industry.




It will not be an overstatement to describe the FAIR Panel’s recommendations as a massive overhaul of the regulatory regime for the FA industry. This is so, notwithstanding that the most controversial suggestion for a ban on commission payouts has now been withdrawn. This present CP continues to retain several proposals which some within the FA industry will be expected to continue to oppose strongly. As is the case in any reform of a regulatory framework, the devil would very much be in the details, and so one should expect further debate when the actual statutory provisions and amendment are released for further comment. At this stage, one can only hope that MAS will continue to retain an open mind and be receptive to feedback from all quarters as it pursues the laudable objective of improving the regulatory framework for FA services, keeping firmly in mind not only the interest of consumers but also the broader interest of the FA industry




Please click on the links below to refer to the relevant documents:


1. Consultation Paper on the Recommendations of the FAIR Panel
2. Report on Recommendations of the FAIR Panel



For further information, please contact:


Eric Chan, Director, Drew & Napier 

[email protected]


Regulatory & Compliance International Law Firms in Singapore



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