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With 'unintelligible legalese', disclosure not enough in fair dealing: MAS chief

IT is transparency, not disclosure alone, that defines proper fair dealing from financial institutions, said Monetary Authority of Singapore's (MAS) managing director Ravi Menon on Monday, as the top regulator noted as well the "uneven" culture and conduct practices in the financial industry here.

Speaking at the Symposium on Asian Banking and Finance, Mr Menon said financial institutions must make the information they provide to customers more transparent.

"Disclosure alone is not enough. Ask any consumer of financial products having to go through hundreds of pages of product disclosure written in unintelligible legalese," he said.

With that, financial institutions must make the information they provide more transparent in at least three areas: the risk, especially the circumstances under which the customer could lose all or most of his money; the assumptions underlying return projections or estimates; and the fees, charges, and commissions.

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The board and senior management of financial institutions are responsible for setting a clear strategy in fair dealing, he added.

Against this backdrop, Mr Menon said MAS has conducted a stocktake of culture and conduct practices across selected financial institutions, through which supervisors had extensive one-on-one conversations with not just the management of these financial institutions but staff across the ranks.

In doing so, MAS tried to develop a keener sense of whether "the organisational values plastered on the walls of the board room were practised on the ground", he said.

"What have we found? Culture and conduct practices are uneven in the industry. Many financial institutions still struggle to articulate the conduct risks they face," Mr Menon said.

He added that many financial institutions are "only starting" to develop tools and indicators to get a fuller, cross-functional view of the culture within their organisation.

MAS has set up a steering group with the banks to identify emerging trends in conduct and behaviour as well as share best practices in “getting the culture right”.

The regulator has also set up a small behavioural sciences unit to help supervisors with methodologies to get a better understanding of culture and conduct issues in the institutions they supervise, he said.

In Singapore, prospective financial advisory representatives will also in time be tested on their understanding of ethical principles, going beyond just product knowledge and skills to engage their customers to understand their financial needs and risk profiles, said Mr Menon.