Singapore wants to be the most important private banking and wealth management centre in the world. To this end, the Monetary Authority of Singapore has undertaken a battery of inspections at selected private banks to assess their selling and advisory practices in 2018-19.

The inspections were, to use the British term that the MAS always employs for exercises specific to this-or-that sector or activity of finance, 'thematic.' They concentrated on:

• governance, i.e. the way in which managers oversaw the sales and advice that their firms were giving HNW customers, taking in the extent to which people referred problems to their superiors and the way in which those superiors dealt with them, plus the establishment of good controls and the strict delineation of jobs;
• 'investment suitability,' i.e. the processes by which the firms made sure to give clients suitable financial advice, taking their appetites for risk and investment profiles into account;
• pricing controls and disclosures; and
• culture and conduct, which dwelt on staff members’ perceptions of front office culture.

The British FCA has long been obsessed with pay scales at banks, so it was only a matter of time before the MAS followed suit. In the private banking review its inspectors looked at 'incentive structures,' as it calls them, at financial institutions which were not subject to a thematic review that it performed in 2018 of incentives throughout Singapore's financial sector. These structures were to do with remuneration, compensation, methods of evaluating performance, disciplinary actions and consequence management.

The code and the guidance

The MAS observed that private banks had largely adopted the investment suitability and pricing disclosure standards set out in the Private Banking Code of  Conduct (evolved by its associates, under its guidance) and its own "Guidance on Private Banking Controls."

The code is being updated, with the effective date set for 1st September this year. Paragraphs 6.4.10 to 6.4.12 are now to contain more stringent governance and disclosure standards in relation to bilaterally-agreed pricing arrangements and the allocation of benefits from price improvements. Paragraph 7.1.7 is to improve standards to do with remuneration and the evaluation of performance, while paragraph 7.1.17 contains higher standards to govern controls that detect over-charging.

No new rules

As the MAS carried out its inspections, it ordered the firms that it visited to make changes wherever it found faults and they have largely done so.

The good news to emerge from the thematic review is that the regulator is nowhere near the point of planning to impose new rules on private banks. It does, however, make suggestions in a way that invites no reply.

On the subject of 'suitability' for investments, the MAS thinks that private banks generally have the right controls in place, although there is room to improve the effectiveness of surveillance checks and to make them cover more products.

Pricing controls and disclosures

The regulator noted some instances where banks charged clients more than the amounts that they had agreed in fee schedules or in bilateral pricing arrangements. There were also instances where banks did not tell clients about improvements in the prices of trades that arose from those clients' transactions. The regulator has made them contact and reimburse those HNW people.

(A 'price improvement' - a term of the regulator's invention - happens when a private bank executes a trade at a better price than the one it has quoted to the client when taking his order. This means that if the bank is buying/selling a product on behalf of the client, it manages to buy/sell it at a lower/higher price than that quoted to the client with a spread. The bank either retains the benefit from price improvements, or passes the benefit to the client partially or in full.)

The MAS wants private banks to pay attention to the following observations.