20 December 2022
On 14 December 2022, the Monetary Authority of Singapore (“MAS”) issued a consultation paper seeking feedback on proposed revisions to the Guidelines on Fair Dealing - Board and Senior Management Responsibilities for Delivering Fair Dealing Outcomes to Customers (“Guidelines”). MAS proposes to widen the scope of application of the Guidelines to explicitly include all financial institutions (“FIs”) and the corresponding products and services that they offer to their customers. MAS also proposes to incorporate key principles and guidance on the fair treatment of customers at various stages of the product life cycle or provision of service by FIs. The consultation closes on 8 February 2023.
The Guidelines were first introduced in 2009 under the Financial Advisers Act 2001 to promote fair dealing by FIs with a deliberate focus on customer outcomes. Currently, the Guidelines set out five fair dealing outcomes, which apply to the selection, marketing and distribution of investment products and the provision of advice for these products, and cover responsibilities for after-sales services and complaints handling. These outcomes are:
- Outcome 1: Customers have confidence that they deal with FIs where fair dealing is central to the corporate culture.
- Outcome 2: FIs offer products and services that are suitable for their target customer segments.
- Outcome 3: FIs have competent representatives who provide customers with quality advice and appropriate recommendations.
- Outcome 4: Customers receive clear, relevant and timely information to make informed financial decisions.
- Outcome 5: FIs handle customer complaints in an independent, effective and prompt manner.
Scope of Guidelines
The Guidelines currently apply to the marketing and distribution of investment products, and the provision of financial advisory services.
MAS states that the fair dealing outcomes in the Guidelines are relevant to all FIs, as it is fundamental that FIs demonstrate that they deal fairly with customers. MAS therefore proposes to expand the scope of the Guidelines to explicitly apply to (1) all FIs, (2) all financial products and services offered by them, and (3) all their customers. As FIs offer a wide range of services which differ in the need for information, advice and recommendations, MAS states that FIs should assess how they can work to achieve fair dealing outcomes in the context of each financial product or service.
Sound and objective process to assess applications received for financial products and services
Under Outcome 1, MAS proposes to include guidance for FIs to adopt sound and objective practices in the assessment of applications for financial products and services. In this regard, when FIs provide financial products and services, differential treatment should not be accorded to any individual or groups of individuals unless there are justifications supported by relevant and reliable information or data. An example of inappropriate differentiated treatment would be to reject a prospective customer’s application for insurance based on declaration of personal information without having done a proper substantiated risk-based assessment.
Fair treatment of customers at various stages of the product life cycle
Designing products and services that are suitable for target customer segments
As FIs are expected to deal with their customers fairly across various stages of the product life cycle or provision of service, MAS proposes to apply the Guidelines to product manufacturers, and not just distributors. Under Outcome 2, MAS proposes to include additional expectations that are applicable to product manufacturers. In particular, FIs should establish policies and procedures that support the appropriate design of products and services to meet the needs of their target customer segments, taking into consideration the potential impact on customers. FIs should also have systems and controls in place to manage the risks posed by the design of the product or service.
Providing information that accurately represents the products and services offered and delivered
MAS identified the following three key principles to strengthen FIs’ fair dealing practices following its thematic inspections from 2020 to 2021:
- Transparency: Providing adequate and clear disclosures on the product/service features, fees, and terms and conditions in marketing materials, fact sheets and contracts.
- Consideration of customer interests: Not engaging in practices that disadvantage individuals or groups of individuals without good justifications, and the product/service performs as explained and as customers are led to expect.
- Accountability and product governance: Having a comprehensive approval and governance framework, with adequate management oversight of product/service pricing and sales practices to monitor compliance with regulations.
These principles are applicable to all products and services offered by FIs. MAS plans to incorporate, within Outcome 4, the principles and outcome of providing customers with information that accurately represents the products and services offered and delivered.
Revising terms and conditions
Some FIs have sales contracts that include a contractual right to revise the terms and conditions of a product or service (also known as the right of review or “RoR” clause). MAS observes that while RoR clauses afford FIs flexibility in extraordinary and unforeseen circumstances, it also gives FIs wide discretion to revise terms unilaterally, which may be disadvantageous to customers and seen as unfair.
MAS states that an FI should ensure that customers are aware of RoR clauses in their contractual agreements and what their rights may be in the event that the FI exercises the clause. FIs should refrain from exercising such RoR clauses except in extraordinary and unforeseen circumstances. Should FIs exercise the RoR clause in such circumstances, MAS expects FIs to minimally:
- develop and maintain a robust governance process to approve the exercise of the RoR clause;
- provide customers with a waiver of any lock-in mechanisms and fees to allow them to switch out of the financial products without penalties and, as far as possible, offer other alternative arrangements; and
- provide customers with sufficient advance notice before the changes take effect by disclosing these changes early and in writing.
MAS plans to include these expectations within Outcome 4.