Private banks to disclose all charges in bond sales

PRIVATE banks will have to disclose all fees, charges and rebates in bond sales in a bid to be more transparent following outcries from investors who have lost money in recent defaults.

Private banks have been under a cloud over their selling tactics since several bonds have defaulted amounting to about S$1.1 billion which represents about 0.74 per cent of the S$149 billion outstanding Singdollar bonds.

The number of bondholders who have lost money is not known but it could be up to 4,400 based on the S$250,000 minimum though it is likely to be less given that some investors might have bought more than one lot.

"Private banks have enhanced disclosure standards in the Private Banking Code of Conduct (PB Code)," said a statement from The Association of Banks in Singapore on Tuesday.

It said the enhanced standards expand on the existing requirement for private banks to ensure that a client is informed of the key terms of transactions.

"Private banks will provide clients with a fee schedule at account opening, which sets out fees, charges and other quantifiable benefits (including commissions, rebates and retrocessions) for all investment products and services.

Private banks will also disclose any rebates received from selling new bond issuances to clients prior to each transaction."

Tan Su Shan, co-chair of the Private Banking Industry Group (PBIG) and group head of consumer banking & wealth Management, DBS Bank, said the PB code is an industry code that sets the benchmark of market conduct and staff competency standards for the industry.

"The recent changes to enhance the transparency of fees and disclosure of bond placement fees is welcomed and fully supported by banks here as this is good practice in light of the growing demand for bonds by private clients," she said.

"For Singapore to continue to build a sustainable and strong wealth management hub here, it is important for industry players and stakeholders to continue to evolve and enhance these standards, so this is a move in the right direction," said Ms Tan.

In response to media enquiries, the Monetary Authority of Singapore (MAS) said private banks are expected to exercise care and have reasonable basis in recommending products and leverage to clients.

It noted that the PBIG is also exploring a balanced scorecard framework to assess relationship managers' performance based on non-financial metrics, in addition to financial targets.

On investors' recourse when a bond defaults, the MAS said that more can be done, in addition to the various efforts of individual bondholders organising themselves. It also noted that the Securities Investors' Association (Singapore) has stepped in to help play an aggregator role to facilitate discussions between the bondholders and the issuers concerned.

"We have also seen some banks providing support to investors who are their customers including helping them to obtain the necessary legal and financial advice," said MAS.

"We think this is an area where more could be done - for instance, in terms of enabling bondholders to reach out to other bondholders more efficiently and giving greater clarity to bondholders upfront, for example at the point of purchase) on their rights in a default situation," it said.

"We are carefully studying the matter, and will also engage the relevant industry players."