Of all the banks in the region affected by
the collapse of Lehman Brothers last September, DBS in Singapore
was perhaps hit the hardest. Now, almost a year after a mis-selling
scandal that rocked the bank to its foundations, DBS has stopped
all sales of structured notes for a limited time and published new
guidelines for the way its bankers sell high-grade investment
products to retail and private clients.
Two other banks and one finance company, as
well as a number of local stockbrokers, have also been embroiled in
the debacle.
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In response to a highly critical report from
the Monetary Authority of Singapore (MAS), DBS issued a statement
highlighting the steps it is has taken since the start of this year
to strengthen its sales process. It said it had:
1. Expanded its fact finding process to obtain
more information on its customers’ investment experience;
2. Introduced a ‘cooling off’ period for
structured deposits;
3. Conducted product suitability checks to
review product suitability for vulnerable customers’ such as the
elderly;
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By GlobalData4. Enhanced risk disclosure by introducing
product summary sheets for all in-house products and some
third-party products. Sheets will disclose ‘what if’ scenarios;
5. Ceased all counter referrals for investment
products from 1 January 2009;
6. Increased staff training in investment
sales. Staff will also be regularly tested on their product
knowledge; and
7. Launched outreach programmes to promote
financial literacy.
Settlements to 67% of
investors
As of 31 May 2009, MAS reported that
the three banks and one finance company (ABN Amro, DBS, MBB and
HLF) had offered settlements to 67 percent of investors at a value
of about S$105 million ($73 million).
Over 50 percent of these have been offered
settlements of 50 percent and above with 26 percent receiving
offers of full settlement. Some 85 percent of settlement offers by
the three banks and one finance company had been accepted, 3
percent have been rejected and the rest had yet to decide.
Although DBS had the second-highest pool of
investment among the banks mentioned in the report (DBS had 1,083
investors and S$84.1 million invested), its value of settlement
offers was the seventh-highest as a percent of amount invested for
cases decided, including the stockbrokers.
At the heart of the scandal is the fact that
many banking customers bought – or were sold – risky investments
that subsequently lost significant capital in the wake of the
collapse of Lehman Brothers in September last year.
In a statement, MAS said: “The financial
institutions’ senior management should have exercised more care in
carrying out their responsibilities to ensure standards were
consistently implemented across the whole organisation, especially
in the sales practices of their front-line staff.
“We intend to intensify our supervisory
scrutiny of how the board and senior management of financial
institutions are implementing the guidelines to deliver these fair
dealing customer outcomes.”
According to DBS, most of its High Notes 5
investors were relatively sophisticated, with two out of three in
its mass affluent segment DBS Treasures. Eighty percent of its
customers were also below the age of 60. The bank also stated that:
“DBS’ compensation levels are commensurate with the findings of the
MAS report and indicate that [the bank’s] sales process was largely
robust”.
Extensive retail market
Nevertheless, the impact of the
structured notes mis-selling has deeply affected DBS’ operations as
it is one of the larger banking groups in Singapore, with an
extensive retail market penetration through its POSB brand.
In a media statement from a lobby group made
up of disgruntled investors, The High Notes Investor Group, the
disappointment was clear: “Many attendees highlighted their
long-standing relationships with POSB/DBS, some stretching over a
period of more than 30 years. They expressed a deeply felt sense of
betrayal by DBS which they said violated their trust in the bank.
Many also spoke of their past willingness to buy products from DBS
because they saw it as ‘the national bank’ they could have complete
trust in.”
The MAS also ordered DBS and the other banks
to cease dealing in and providing financial advisory services for
structured notes for a period of six months with effect from 1 July
2009 or “until there are in place adequate measures to address the
findings, whichever is later”.
Shane Tregillis, deputy managing director,
market conduct at MAS, said: “The [banking] industry as a whole
needs to carefully reflect on these findings, take immediate steps
to win back the trust and confidence of their customers and prevent
similar problems from emerging in the future.”
