MAS raps AIA, Prudential, Aviva entities for misconduct on sales-related bonuses

THE Monetary Authority of Singapore (MAS) on Tuesday rapped major insurers for failing to meet rules that set out how supervisors should have been paid as part of sales of investment products and life policies.

These standards, among other things, set out how commissions should be capped for the sale of regular premium life policies.

The financial institutions (FIs) that had breached requirements in this area are AIA Financial Advisers (FA), Prudential Assurance Company Singapore, Aviva Ltd, and Aviva FA.

MAS said a reprimand registers the regulator's "serious concerns" regarding the misconduct. "The FIs and individuals are required to remediate the issues promptly. MAS may also take the reprimands into account when considering actions to be taken against the FIs or individuals for any future contraventions,” it said.

In the course of its ongoing supervision, the regulator said there were "indications" that the FIs may have breached regulatory requirements on remuneration practices.

The Business Times understands that such indications included whistleblowing reports, complaints, as well as on-site inspections.

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MAS had conducted an investigation and found "numerous instances" where remuneration was paid to supervisors that was in contravention of requirements under the Financial Advisers Act (FAA) from 2017 to 2018.

These related to the Balanced Scorecard requirements (BSC) for the sale of investment products, and the Spreading and Capping of Commissions requirements (SCC) for the sale of regular premium life policies.

Under the BSC, supervisors' and representatives' variable income are determined with reference to the fulfilment of non-sales key performance indicators.

Under the SCC, insurers and FA firms are required to cap the variable income payable to representatives and supervisors in the first year and spread the remaining variable income payable over a prescribed period.

In a statement, MAS said it has reprimanded Peter Tan, a consultant engaged by Aviva, for accepting remuneration that breached regulatory requirements.

MAS also reprimanded and Aviva FA's CEO and director Lionel Chee for his failure to discharge the duties of his office.

Aviva had engaged Mr Tan as a consultant from July 2016 to March 2020, to provide strategic advice on Aviva FA's business. During this period, Mr Tan "went beyond" providing strategic advice and acted as a supervisor to Aviva FA's representatives.

He had frequent and direct interactions with Aviva FA's representatives, including discussions on sales and compliance issues, said MAS.

Neither Aviva nor Aviva FA had put in place compliance arrangements to monitor Mr Tan's activities in Aviva FA during this period.

For failing to do so, Aviva and Aviva FA contravened the Guidelines on Risk Management Practices - Internal Controls (RM Guidelines) and the Financial Advisers Regulations respectively.

MAS added that Mr Tan had acted as a supervisor of Aviva FA by virtue of his roles and responsibilities in the firm.

Yet, Aviva FA failed to review and assess his performance, assign a BSC grade to him, and determine and pay his remuneration in accordance with the BSC.

Aviva also failed to cap and spread his variable income in accordance with the SCC. In accepting such remuneration, Mr Tan also breached the SCC.

In addition, Aviva FA's CEO Mr Chee "did not properly address" the issue of poor conduct of the firm's representatives, which included misrepresentations to customers regarding the nature and features of certain insurance products.

MAS said despite its "repeated supervisory engagements" with Aviva FA between August 2017 and September 2018 over the sales conduct of its representatives, measures put in place by the firm to address these issues "remained inadequate".

MAS therefore directed Aviva FA to appoint independent external persons to conduct a holistic review of the company's internal control processes, and to perform call-backs to all customers before any sales are completed. These measures are still in place.

Mr Tan had separately been sued by Prudential Assurance, and went to court with the insurer in 2019 over the poaching of more than 220 agents for rival Aviva.

Prudential won the case, with the court in 2021 finding Mr Tan liable for breach of his contractual obligation to conduct his insurance business with integrity and honesty. Mr Tan could still appeal against the decision.

Court reports showed that in mid-2016, Mr Tan orchestrated and executed the en masse migration of the agency leaders and agents from Prudential to Aviva FA. The judge held that of the 244 agency leaders and agents who left Prudential, Mr Tan was liable for the profits that the insurer could have earned for only 227 of them.

Prudential had, by contrast, sought compensation of between S$103 million and S$2.3 billion as a result of the en masse resignation of the 244 agency leaders and agents.

The high-stakes case highlighted that Mr Tan was dangled a S$15.3 million sign-on bonus by Aviva.

Over at Prudential, three individuals - known as master group agency manager (MGAM) leaders - and a consultant had acted as supervisors of the firm.

MAS said Prudential failed to review and assess the performance of the MGAM leaders and consultant, assign BSC grades to them, as well as determine and pay their remuneration in accordance with the BSC requirements.

The firm also breached the RM Guidelines, with no adequate risk mitigation procedures and compliance arrangements in place to monitor the MGAM leaders' and consultant's activities, said MAS.

MAS also said three AIA FA managing directors (MDs) had acted as supervisors of the firm.

They were responsible for the supervision of the conduct and performance of the representatives in their respective agency groups, including sales and compliance standards.

However, AIA FA failed to review and assess the performance of these MDs, assign BSC grades as well as determine and pay their remuneration in accordance with the BSC.

The firm also failed to cap and spread the MDs' variable income in accordance with the SCC, said MAS.

MAS did not disclose any impact on consumers that resulted from these breaches. But BT understands there may be some indirect harm to consumers.

The BSC and SCC - which the FIs' remuneration practices had breached - seek to align the incentives of FAs with their customers' interests to promote a culture of fair dealing.

Ho Hern Shin, MAS deputy managing director of financial supervision, said: "We have dealt firmly with these financial institutions and individuals who have breached our regulations, to send a clear message to the industry on the importance of upholding high ethical standards."

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