What You Need to Know: MAS’ Response to Feedback on Enhancing Pre and Post-Transaction Safeguards for Retail Clients

On 24 August 2023, the Monetary Authority of Singapore (MAS) published a paper on its response to the feedback they received from their consultation paper on proposals to enhance pre and post-transaction safeguards for retail clients1.

The consultation paper was released on 22 June 2021 and outlined proposals to improve safeguards for retail clients2. This was prompted by MAS’ review of the effectiveness of the Balanced Scorecard (BSC) framework and findings from a mystery shopping exercise (MSE) to assess the standards of financial advisory (FA) representatives’ sales and advisory processes, which revealed shortcomings in the implemented of safeguards for Selected Clients (SC).

MAS defines an SC as someone who meets any two of the following criteria:

  1. Is 62 years old or older
  2. Is not proficient in spoken or written English
  3. Has below GCE “O” or “N” level certifications, or equivalent academic qualifications

Key takeaways from MAS’ response

1. Enhanced requirements to check for and document whether a client is an SC
  • FA representatives should assess a client’s English proficiency and ability to understand English during a sales advisory process. FAs can rely on information provided by clients during the fact-finding process.
  • FAs should document the assessment of clients' SC status, make a formal declaration, and keep clients informed of their SC status.
  • For joint accounts involving an Accredited Investor (AI) and an SC, pre-transaction check requirements will apply unless both account holders have opted for AI status.
2. Proposed requirement for a Trusted Individual to be present when investment recommendations are made to the SCs
  • A Trusted Individual (TI) has to be present throughout the entire sales and advisory process for SCs, except in cases where the SC does not identify a TI or refuses their presence.
  • Criteria for qualification as a TI have been set to the following to ensure maturity and the ability to convey information effectively to the SC:
    • At least aged 21
    • Possess at least GCE “O” or “N” level certifications or equivalent academic qualification
    • Proficient in spoken and written English
    • Be a person whom the SC trusts to be privy to the SC’s personal information and be able to assist the SC in understanding the SC’s financial decision
  • TI should not have potential conflicts of interest, such as being the FA representative's supervisor or a beneficiary of the SC's investment decision.
3. Proposed requirements on type of information to be covered during the pre-transaction client call-backs performed by FA firms, and the requirement for call-backs
  • FA firms to cover key areas of information during the client call-backs only for SC and clients of Selected Representatives (SRs) (i.e., representatives who have been assigned a balanced scorecard grade B or worse under the BSC framework for two calendar quarters consecutively). This aims to provide essential information to clients purchasing investment products, ensuring that they understand the products they are buying and enhancing the effectiveness of the call-backs.
  • Questions on the FA representative's professionalism and ethics will remain relevant for call-backs as post-transaction client surveys are conducted on a sample basis. On the other hand, call-backs would apply to all SC transactions, providing a broader scope for assessment.
  • An additional question should be asked during call-backs to confirm that the SC was offered the option to have a TI present but chose not to, reaffirming their ability to make decisions independently without a TI, which serves as an additional safeguard.
4. Proposed requirement to require FA firms to audio record call-backs to SCs and clients of SRs
  • Implement audio recording for call-backs to SCs and clients of SRs to enhance oversight of call-back quality, safeguard client interests, and enable FA firms to conduct more robust investigations in cases of disputes or complaints.
  • Call-backs can also be done in audio or video format, with face-to-face meetings allowed as an alternative when recording is not possible, provided proper controls are in place.
  • For non-recorded call-backs or meetings, MAS will require FA firms to implement several controls, including asking the SCs to have a TI present, documenting key discussion points in a summary document, having both the client and supervisor sign an acknowledgment, and monitoring to prevent circumvention of recording requirements.
  • Training FA representatives to inform clients about call-backs and their purpose to facilitate compliance.
5. Proposed requirement to provide a copy of the audio recording to clients, and whether this should be proactively provided or on clients’ request
  • FA firms are to furnish a copy of the audio recording upon client request, regardless of their SC or SR status. This is to ensure adequate client protection, particularly in cases of disputes or complaints.
  • FA firms should not introduce measures that hinder clients from listening to the audio recordings, such as charging fees for copies or restricting access to recordings only at their premises.
  • FA firms are encouraged to conduct regular reviews of the recordings for training purposes and use them to enhance the training and skill development of their representatives. This approach aligns with MAS' expectation that FA firms treat their clients fairly and prioritise their interests.
6. Proposed requirement to set up an independent panel to review all product recommendations made to SCs
  • The Independent Sales Audit (ISA) unit will be required to review product recommendations made to SCs on a post-transaction basis.
  • MAS plans to consult on the proposed sampling requirements for SC transactions through a separate consultation paper, allowing for stakeholder input and ensuring transparency in the decision-making process.
7. Proposed requirement for the ISA Unit to sample and review transactions involving higher risk clients
  • MAS may impose additional sampling requirements in future on entities with significant weaknesses or recurrent compliance issues as part of their ongoing supervision efforts.
8. Transitional period
  • MAS will provide a transitional period of nine months.
  • FA firms are strongly encouraged to consider early implementation of the proposed requirements where possible.

1 Response to Feedback Received on Enhancing Pre and Post-Transaction Safeguards for Retail Clients (MAS, 24 August 2023)

2 Enhancing Pre and Post-Transaction Safeguards for Retail Clients (MAS, 22 June 2023)

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