4. Case Studies
4.3 Investigation Report of Foreign Governmental Bodies on
4.3.1 MAS Findings on Individual Distributor
4.3.1.2 DBS Bank Ltd( DBS)
國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
score indicates that the client has a lower risk tolerance level. The Authority had found that there was error in the risk profiling questionnaire, and as a result a higher score was being given to clients with a higher risks appetite and a lower score was being given for lower risk appetites, when it should have been the other way round. In consequence, MAS determine that ABN failed to meet the standards to act with due care and diligence in conducting its business activities and therefore RMs failed to comply with the requirements that where a recommendation is made there should be a reasonable basis for making the recommendation.
4.3.1.2 DBS Bank Ltd (DBS)24
(1). High Note 5(“HN5”) was issued and arranged by DBS and sold to 1,083 retail customers between 30 March and 30 April 2007. DBS had conducted a formal assessment and product due diligence on HN5 and determine that it carried a
“Growth” risk rating on the basis that it is non-principal protected. DBS targeted at”
Treasures” and “Emerging Affluence” clients. DBS has communicated to it‟s RM on the product risk rating and target client segments.
24MAS Monetary Authority of Singapore, 7 July 2009. Investigation Report on the Sale and Marketing of Structured Notes linked to Lehman Brothers, page 30-37
‧
Profile Profile Description in Financial Needs Analysis Form Conservative I prefer to take very little investment risk such that when the time
comes to access my investments, I will not experience a sudden fall in its value. I am able to take small short term price changes to my investments in exchange for a return that is slightly higher than time deposits.
Moderate I would like the returns on my savings and investments to keep pace with rises in the cost of living. I am able to take some short term price changes to my investments in exchange for potential returns that are moderately higher than time deposits.
Balanced I would like to balance having stable savings and investments with the aim of achieving some capital growth over a longer period. I am able to accept price changes to my investments over 2 to 3 years in exchange for potential returns that are higher than time deposits.
Growth I would like my savings and investments to grow over a medium time horizon. I am able to accept price fluctuations to some of my investments within a time frame of 3 years or more, in exchange for a potential return that is much higher than time deposits.
Aggressive I would like to achieve a high level of returns on my investments. I am able to accept sharp fluctuations in the value of my investments over 3 years or more, in order to increase the potential of high returns.
I recognize that there is potential risk of capital loss for some of the investments I undertake.
(2) DBS conducted training and briefed HN5 product features and communicated to its RM the fact that HN5 carried higher risk compared to investments in a single bond/credit linked note or bond fund/basket of bonds because of exposure to the worst credit in the basket. Apart of the training, DBS also required RMs to pass the test before being allowed to advise and sell HN5. However, despite the training and testing
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
requirements which were in place, there are 28 RMs who did not attend or take the required test, and 21 RMS attended training but did not sit for the test. The aforesaid 49 RMs were nevertheless permitted to sell the HN5 and sold the products to 303 clients. In additionally, to ensure compliance of the RM on the sales guidance, which include monitoring RM‟s attendance at compulsory product training and passing of the required test, the RM‟s training attendance and test results should be disseminated to the Business Manager. However, the relevant reports did not appear to have been disseminated to the BMs.
(3) MAS therefore determined that DBS failed to meet regulatory requirements which states that FI should ensure that any person it employs to conduct business with clients is suitably qualified and competent and possess the relevant professional training, and provide its representative with relevant training to enhance their competence, knowledge and skills.
(4) To access customer risk profile to find out investor suitability, DBS employed a fact finding document “Financial Needs Analysis-Form A” (“FNA”). This FNA contained risk profile questionnaire to enable RMs to determine the investment risk profile of each client. A higher score indicates the client has a higher risk tolerance level and the risk profile determined by the FNA determined which investments would be recommended to client. As revealed in MAS report, HN5‟s pricing statement and prospectus stated that HN5 was not suitable for inexperienced investors, however according to the MAS investigation, HN5 were sold to 41 client with risks profiles rated below “Growth” and 54 clients with no investment experience. The Authority pointed out that DBS should
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
explicitly communicated to its RM the important information and therefore considered that DBS had failed to meet the standards to act with due care and diligence and not taking reasonable steps to ensure RM complied with the regulatory requirement. MAS was of the view that due to DBS failure to act in due diligence, its RM had also failed to comply with the regulatory requirements which states that the warning and important information such as nature and risks of the product should be prominently presented and clearly explained to the client. And RMs should draw client‟s attention to warnings, exclusions and disclaimers in all documents, advertising materials and literature relating to an investment product it is recommending to its customer.