26 July 2018
The Monetary Authority of Singapore (“MAS”) is seeking feedback on proposals to revise the requirements for financial institutions (“FIs”) to report misconduct by their representatives and to require FIs to conduct and respond to reference checks on representatives. The proposals are set out in the consultation document entitled “Public Consultation on Revisions to Misconduct Reporting Requirements and Proposals to Mandate Reference Checks for Representatives” issued by MAS on 6 July 2018 (“Consultation Paper”). The consultation closes on 6 August 2018.
FIs are currently required under the Securities and Futures Act (“SFA”), Financial Advisers Act (“FAA”) and Insurance Act (“IA”) to lodge a report with MAS when they become aware of any misconduct committed by their representatives or broking staff (collectively, “representatives”), such as acts involving fraud, dishonesty, inappropriate advice, misrepresentation, or inadequate disclosure of information to customers. FIs are also expected to have in place a robust and transparent process to investigate possible wrongdoings by their representatives, and take appropriate disciplinary actions against their representatives for any misconduct committed. The details on complying with these requirements are set out in the MAS Notices on Reporting of Misconduct of Representatives applicable to holders of a capital markets services licence under the SFA, financial advisers under the FAA, insurance brokers under the IA, and exempt FIs (banks, merchant banks, insurance companies and finance companies) conducting regulated activities under the SFA, FAA and IA (collectively, “MAS Notices”).
The Consultation Paper seeks comments on the following key proposed revisions to the MAS Notices and a new requirement for FIs to conduct and respond to reference checks on their representatives:
- Extending the scope of the MAS Notice to registered fund management companies: MAS proposes to require registered fund management companies (“RFMC”) to comply with the MAS Notice issued under the SFA and the proposed new reference checks requirement as an RFMC is currently required to notify MAS if there are issues that may impinge on the fitness and propriety of the RFMC, its shareholders, directors and/or representatives, including any misconduct or pending investigation of possible misconduct by its representatives.
- Fine-tuning the categories of reportable misconduct: MAS proposes to revise the categories of misconduct that should be reported to MAS to provide greater clarity on the intended types of reportable misconduct and to reduce overlap between the different categories of misconduct.
- Requiring FIs to update MAS on outcome of police investigations: The MAS Notices require FIs to lodge a police report and submit a copy of the police report to MAS when they have reasons to suspect that any of their representatives have committed an offence involving cheating, dishonesty, fraud, forgery, misappropriation of monies or criminal breach of trust. It is proposed that FIs should be required to update MAS no later than 14 days after they become aware of the outcome of the police investigations.
- Requiring FIs to notify representatives that they are under investigation by FIs and provide them with misconduct reports filed with MAS: MAS proposes to require FIs to notify a representative when he/she is under investigation. Where an FI lodges a misconduct report with MAS, MAS also proposes to require the FI to provide the representative concerned with a copy of the misconduct report (including any subsequent updates), regardless of whether the representative is still appointed with the company. The only exception to this is when a disclosure would tip off the representative or compromise the quality of the FI’s investigation.
- Requiring FIs to submit their investigation reports to MAS in a prescribed format: MAS proposes to provide in the MAS Notices steps FIs should take when conducting an investigation, such as performing customer call-backs, transaction reviews, and interviews with the representatives and customers involved, as well as ensuring proper documentation of the evidence collected and interviews conducted. FIs would be required to submit their investigation reports in a prescribed format to ensure that consistent and sufficient information is provided to MAS.
- Mandating FIs to conduct reference checks on prospective representatives and to provide prescribed information on their representatives in response to reference check requests: MAS proposes to mandate (1) recruiting FIs to conduct reference checks on their prospective representatives; and (2) FIs to provide a set of prescribed information on their representatives in response to reference check requests from the representatives’ prospective principal companies which are FIs regulated by MAS.
The following materials are available on the MAS website www.mas.gov.sg:
- Consultation Paper and Annex A
- Annex B Misconduct Report Template
- Annex C Investigation Report Template
- Template for Response to Consultation Paper
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