I am frankly a little surprised by this move, and I am not sure whether it is a good thing. You see, the financial services industry is a complex one, and it has always been highly regulated. Singapore already has several statutes which apply specifically to financial institutions. For example, there is the Insurance Act; the Banking Act; the Securities and Futures Act; and the Financial Advisers Act. Apart from these Acts, the Monetary Authority of Singapore (MAS) has also created a huge body of regulations, notices and guidelines telling banks and insurers how to behave - see this and this and this, for example.
ST Nov 12, 2005
Fair Trading Act to cover banks and insurers too
Customers will have new recourse to action against unfair practices
By Lorna Tan
RIPPED-OFF bank and insurance customers are finally being given the teeth to take action against unscrupulous finance-industry bad boys.
Banks and insurers will soon come under the scope of the Consumer Protection Fair Trading Act (CPFTA) - despite initial resistance to the idea by the financial services sector, said sources.
The Act, introduced in March last year, cracks down on a range of unfair practices, ranging from dodgy second-hand car sellers and fly-by-night furniture retailers, to high-pressure sales tactics for boost-your-bust beauty products.
But until now, the likes of dishonest insurance agents, financial advisers flogging inappropriate unit trusts, and bank officers pushing unsuitable investments have usually only encountered their day of reckoning when disgruntled consumers took them to mediation panels.
However, sources said yesterday that the Act would shortly be expanded to include the banking and insurance sectors.
So I don't really see much advantage in imposing yet another layer of law onto the financial services industry. It's not as if it didn't already have several huge, thick layers. But here's what CASE thinks:
By including banks and insurers, consumers will have specific breaches of fair practice they can point to, said the Consumers Association of Singapore (Case).I do agree that if the Fair Trading Act is extended to banks and insurers, CASE will probably receive a huge number of complaints about banks and insurers. However, I actually think this is a bit sad and unfortunate, because it means that CASE will have much less time to devote to, say, the timeshare touts and the beauty salon bunglers - who are currently quite unregulated. Banks and insurers, on the other hand, are already regulated by MAS, which means that unhappy customers already have existing channels to file complaints.
It will give consumers a statutory right to take wrongdoers to court, by filing a civil suit.
It also means banks and insurers will feel the need to smarten up their act, to avoid such potentially costly and embarrassing disputes.
The move is a big victory for Case, which argues that financial institutions come under the Fair Trading Act - although insurers say there are already enough safeguards under present regulations, such as the Financial Advisers Act, and the Insurance Act.
But Case said more was needed, and pointed to the large number of complaints. It received a whopping 707 complaints against financial institutions - mostly involving insurers - for the first 10 months of this year. And for the whole of last year, it received 1,187 complaints.
These involved disputes over such matters as leaving out vital information about a financial product, pressure selling, and taking advantage of consumers such as the elderly, who have not understood the effect of a transaction.
Indeed, if financial institutions were included now, Case reckons they would catapult to be among the top 10 industries attracting complaints under the Act - rubbing shoulders with timeshare touts and beauty salon bunglers.
But why does Singapore need Mr Wang to point that out? Didn't CASE already know about it? Let's take a look:
Case executive director Seah Seng Choon said that including financial services would benefit consumers, as other financial Acts do not cover market conduct, such as the omission of material facts when promoting a product, or using undue pressure to persuade someone to sign on the dotted line.Well, what Mr Seah says here is not quite right. In fact, the relevant laws and statutes specifically relating to the financial services industry already address these issues in detail. Here's just one example (section 25 of the Financial Advisers Act):
Obligation to disclose product information to clientsBut if we already have so many laws, regulations and guidelines for banks and insurers, then how come so many people are still complaining about their banks and insurers? Well, obviously, one reason is that there could be a significant gap between what these laws, regulations and guidelines say, and what bank employees and insurance agents actually do in practice with their customers.
25. —(1) A licensee shall disclose, to every client and prospective client, all material information relating to any designated investment product that the licensee recommends to such person, including —
(a) the terms and conditions of the designated investment product;
(b) the benefits to be, or likely to be, derived from the designated investment product, and the risks that may arise from the designated investment product;
(c) the premium, costs, expenses, fees or other charges that may be imposed in respect of the designated investment product;
(d) where the designated investment product is a unit in a collective investment scheme, the name of the manager of the scheme and the relationship between the licensee and the manager;
(e) where the designated investment product is a life policy, the name of the registered insurer under the life policy and the relationship between the licensee and the insurer; and
(f) such other information as the Authority may prescribe.
(2) The Authority may specify, in written directions, the information required to be disclosed under subsection (1) (a), (b) or (c), and the form or manner in which information relating to any designated investment product may be disclosed to any client of a licensee.
(3) The Authority may, in writing, require a licensee to submit to it —
(a) all written communication which sets out information relating to any designated investment product for the time being in use by the licensee; and
(b) where any written communication referred to in paragraph (a) is not in English, a translation of such written communication in English.
(4) If it appears to the Authority, after affording the licensee an opportunity to make representations orally or in writing, that any written communication submitted under subsection (3) contravenes any provision of this Act, or is in any respect likely to mislead, the Authority may, in writing, direct the licensee to discontinue the use, in Singapore, of the written communication immediately or from a specified date.
(5) Any licensee who —
(a) contravenes subsection (1);
(b) fails to comply with a requirement imposed by the Authority under subsection (3); or
(c) fails to comply with a direction of the Authority under subsection (4),
shall be guilty of an offence and shall be liable on conviction to a fine not exceeding $25,000 or to imprisonment for a term not exceeding 12 months or to both.
And if there is a significant gap, then obviously we must take steps to address that gap. But I don't think that the gap will be addressed by adding yet another piece of law (the Fair Trading Act) to the already-huge body of law which governs financial institutions.
After all, the real issue is not that the necessary laws do not exist for banks and insurers - they already do exist - the real issue is more likely that these laws are not being sufficiently followed, and not being sufficiently enforced.
If I have described the situation correctly, then the logical next step is that MAS must do more monitoring and enforcing, rather than pass on that duty (or part of it) to CASE. And CASE should focus its efforts where its efforts are most needed - on people like the timeshare touts and the beauty saloon bunglers - people who currently aren't regulated by any government body or statutory board at all.