Consultation Paper on Enhancing Pre and Post-Transaction Safeguards for Retail Clients

Finally, more than two years following the launch of a consultation on enhanced (due diligence) requirements of financial advisers (FAs) with respect to „selected clients (SCs)“ (those 62 years old or older, clients with little proficiency in English, or clients with low academic qualifications, or a combination thereof), the Monetary Authority of Singapore (MAS) has now published a corresponding response paper. In this paper, the regulator describes the feedback it has received to its proposed new requirements and outlines the final requirements as they will be implemented via the creation of a new regulatory notice FAA-N16 which enables MAS to impose penalties for non-compliance.
#### Background
In 2021, following several mystery shopping activities of the regulator, MAS concluded that there’s a need to further protect vulnerable clients in the sales process of financial products and to create a new high-level standard for financial advisory services in Singapore. In this context, MAS launched above noted consultation proposing several measures to enhance the obligations of financial advisors and advisory firms, particularly with respect to SCs. The proposed measures thereby ranged from requiring the confirmation of SC status ahead of the sales process, to requiring the presence of a trusted individual, aged 22 or older with suitable academic qualifications, when advising SCs on financial investments, to mandating FA firms to establish an independent panel to review all investment recommendations for SCs. Details on the proposed measures may be found in EventID 11309.
#### Responses and the way forward
Overall, respondents agreed with MAS‘ proposals, although there were diverging views on several aspects of the consultation primarily due to firms‘ expectations of rising costs once the requirements are implemented or their concerns about the adequacy of the proposed measures. Specific concerns were raised about, among others
– the application of the SC confirmation requirement on digital advisers;
– the presence requirements pertaining to trusted individuals;
– the call-back requirement following financial advise pertaining to ALL customers;
– the provision of a copy of the audio recording to clients; or
– the requirement to set up an independent panel to review all product recommendations made to SCs.
Based on this feedback, MAS has made several revisions to the draft version, including the following, among others:
– Digital advisers will continue to be exempt from the SC confirmation requirement and pre-transaction call-back requirements.
– MAS will include an additional question in the pre-transaction call-back requirements which will oblige FAs to confirm that the SC was offered an opportunity to bring along a trusted individual, but declined to do so.
– The obligation for a trusted individual to be present when investment recommendations are made to SCs will not apply to digital advisers.
– MAS will refrain from requiring firms to provide post-transaction call-backs to ALL clients.
– Accordingly, MAS will also not go ahead with the proposed post-transaction audio recording requirement for ALL clients.
– Firms will not have to proactively offer audio recordings to clients, but instead upon request only. This requirement applies to all clients, if client tapes are available.
– MAS will not require firms to set up independent panels to review product recommendations.
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As these are only the key changes to the draft, please refer to the original document for more detailed, comprehensive information. To conclude, it is worth noting that MAS will implement an extended transitional period of 9 months to provide sufficient time to financial advisory firms to adapt to the new requirements.