INSITE - Singapore - June 2024
- sukhwinder21
- Jul 17, 2024
- 3 min read
MAS updates Guidelines on Fair Dealings
Summary: On May 30, 2024, the Monetary Authority of Singapore (MAS) issued revised Fair Dealing Guidelines for all financial institutions. In today's competitive financial market, fair dealing is crucial for building trust and integrity. Financial institutions must ensure customers trust their services. The new guidelines offer a framework to maintain fairness, transparency, and a customer-focused approach in all operations, covering all financial products and services.
In Detail: The MAS has updated its fair dealing guidelines to cover all financial Institutions (FIs) and their products and services.
FIs must now apply fair dealing principles throughout a product's life cycle and in the services they provide.
Originally introduced in 2009 under the Financial Advisers Act, these guidelines initially focused on the selection, marketing, and distribution of investment products.
The Guidelines set out five fair dealing outcomes that FIs should deliver to their customers, namely:
Outcome 1: Customers have confidence that they deal with FIs where fair dealing is central to the corporate culture.
Outcome 2: FIs offer products and services that are suitable for their target customer segments.
Outcome 3: Customers are served by competent representatives.
Outcome 4: Customers receive clear, relevant and timely information that accurately represents the products and services offered and delivered.
Outcome 5: FIs handle customer complaints in an independent, effective and prompt manner.
The Guidelines offer detailed advice and expectations for boards and senior management of FIs on achieving each fair dealing outcome. They include self-assessment questions for FIs to check their compliance. Below are key changes from the earlier version that FIs need to address promptly.
Key Changes to Guidelines
The updated Guidelines include:
1. Assessment and Differential Treatment: FIs must use fair and objective processes when assessing applications for financial products and services. Any differential treatment of customers must be justified with relevant and reliable information.
2. Product Design: FIs designing financial products and services must rigorously test them to ensure they meet the needs, characteristics, and financial goals of their target customer groups.
3. Information Accuracy: FIs must clearly describe what customers can expect from their products and services, ensuring they don't create unrealistic expectations. Disclosures should:
Be easy to find
Use simple language without technical terms
Present key features and risks clearly
Be easy to read and understand
4. Use of Right of Review (RoR) Clauses: FIs must clearly inform customers about RoR clauses, which allow them to change product or service terms unilaterally. During the sales process, FIs must disclose:
When the RoR clause may be used
How much notice customers will receive, and
Customers’ rights if the RoR clause is activated.
FIs should establish a framework, overseen by an independent control unit approved by senior management, to manage RoR clause use. This includes assessing how changes may affect customer rights, obligations, or interests.
The Guidelines stress that FIs should:
1. Product and Service Design: Evaluate product performance in different market conditions and test if it meets the needs and financial goals of the target customer segment.
2. Product Due Diligence: Conduct thorough due diligence on financial products before distribution to understand features and assess suitability for different customer segments.
3. Targeted Marketing: Adjust marketing strategies based on customer profiles, financial goals, and overall financial knowledge of the target segments.
Conclusion: The updated Guidelines underscore MAS’ dedication to safeguarding customers’ interests and bolstering their trust in the financial industry.
With the enhanced guidance in place, FIs must assess their current policies, systems, processes, and business practices. This review ensures alignment with the Guidelines and prompts necessary adjustments where enhancements are required. FIs should prioritize implementing changes to address specific areas outlined in the updated Guidelines, ensuring compliance and fostering a customer-centric approach in their operations. This proactive approach will not only enhance regulatory compliance but also strengthen customer confidence and satisfaction in the financial services offered by FIs.
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