MAS expands application of fair dealing guidelines to all financial institutions and all products and services

13 June 2024

On 30 May 2024, the Monetary Authority of Singapore (“MAS”) published an updated set of Guidelines on Fair Dealing - Board and Senior Management Responsibilities for Delivering Fair Dealing Outcomes to Customers (“Guidelines”). A key change is that the scope of the Guidelines has been expanded to apply to all financial institutions (“FIs”), and all products and services they offer to their customers. The updated Guidelines, which took immediate effect, aim to raise standards of fair dealing and improve the experience of customers dealing with FIs. FIs will be expected to incorporate key principles of fair dealing at various stages of a product’s life cycle, or services rendered.

Background

The Guidelines were first introduced in 2009 under the Financial Advisers Act 2001 to promote fair dealing by FIs with a deliberate focus on five customer outcomes. On 14 December 2022, MAS published a consultation paper seeking feedback on proposed revisions to the Guidelines, including:

• widening the scope of application of the Guidelines to explicitly include all FIs and the corresponding products and services that they offer to their customers;
• putting in place sound and objective processes to assess applications received for financial products and services (under Outcome 1);
• designing and manufacturing products and services that are suitable for target customer segments (under Outcome 2); and
• delivering products and services to customers as they have been led to expect, and exercising right of review clauses judiciously (under Outcome 4).

More information on the fair dealing outcomes and the MAS consultation paper is provided in our article “MAS consults on revisions to guidelines on implementing fair dealing outcomes to customers”.

On 30 May 2024, MAS published its response to feedback received from the consultation (“Response”), stating that it has incorporated feedback received on the consultation where appropriate.

Expansion of scope to all FIs, financial products and services, and customers

The updated Guidelines apply across all FIs, financial products and services (including incidental services), and customers. Each FI should consider how best to achieve the outcomes in the Guidelines in a manner that is proportionate to its business model, the types of products and services it provides, and the potential harm to customers. As a general principle, FIs should take into consideration their customers’ needs and interests, and factor in the circumstances of those who may be more vulnerable.

In the Response, MAS clarified that in the case of foreign offices (“FOs”) and foreign related corporations (“FRCs”), the principles and outcomes in the Guidelines apply except where the FO and FRC are exempted from specific conduct requirements under the exemption frameworks for cross-border business arrangements. MAS also clarified that for FIs with head offices outside Singapore, and FIs’ dealings with customers located outside Singapore, MAS considers that the fair dealing principles and outcomes are expectations and standards which FIs’ operations should be aligned with, regardless of where FIs are incorporated, or where their customers are located.

Sound and objective process to assess applications

Under the updated Guidelines, FIs are expected to adopt sound and objective processes to assess applications received for the purchase of financial products and services. When providing financial products and services, FIs should be able to justify differential treatment to any customer or groups of customers on the basis of relevant and reliable information or data. FIs are also expected to explain the basis of assessment with reference to relevant information or data where an application is rejected or accepted with additional conditions.

In the Response, MAS said that it had carefully considered a proposal, suggested by some respondents, to prescribe standardised assessment criteria for insurance underwriting, but decided not to do so due to potential unintended adverse consequences for both insurers and customers. MAS said that prescribing a one-size-fits-all assessment criteria for underwriting would limit insurers’ ability to adjust coverage and premiums for higher-risk individuals. This could lead to policyholders who pose lower risk having to pay higher premiums, or insurers taking on risks that exceed their underwriting expertise and capacity, potentially impacting their financial soundness.

Expectations on manufacturers

MAS has refined the expectations and guidance for product manufacturers initially proposed in the consultation paper. In addition to aligning the design of a product or service to the needs and financial interests of the target segment, FIs should also assess its performance under different market conditions or scenarios and therefore its likely benefit or value to customers. For example, in the case of an investment-related product, an FI should also consider whether the product contains features where the likely benefit is low relative to the associated costs or fees.

The updated Guidelines also provide additional guidance on how manufacturers can operationally assess that their product or service design is suitable for the target customer segment(s) through measures such as product testing and feedback gathering.

Provision of information that accurately represents products and services

MAS proposed to enhance Outcome 4 of the Guidelines, with expectations on providing information that accurately represents the products and services offered and delivered. Following feedback on the practical challenges that FIs would face, MAS has refined some aspects of the original proposals.

FIs should exercise due care in the design and content of advertisements that are published. FIs should also account for the differing characteristics and possible limitations of the medium used, including possible risks posed when using a particular medium. For example, where space or character limitations exist in the chosen medium, FIs should factor in these constraints when designing their advertisements to ensure that the content remains clear, fair, and balanced, and not false or misleading, when published. To strengthen the governance of the quality of advertisements, all advertisements should be approved by the FI’s senior management or designated person(s).

Following feedback, instead of illustrating expected investment returns net of fees, FIs will be expected to explain to customers how the various fees and market conditions impact the customers’ net returns on the investment. This includes explaining how customers can monitor and track market conditions and returns respectively. This would enable customers to assess if the investment meets their financial objectives.

Safeguards relating to unilateral revision of terms and conditions

Some contracts include clauses that allow FIs to unilaterally revise the terms and conditions of a product or service (i.e. a right of review or “RoR” clause). The updated Guidelines provide that an FI should clearly disclose an RoR clause to customers during the sales process, and describe the circumstances under which the RoR clause may be exercised, the prior notice that will be given, and customers’ rights or available options when the clause is exercised.

Notwithstanding the disclosure, and even if an FI expects RoR clauses to be exercised over the normal course of the contractual arrangement, they should not be exercised lightly. FIs should institute a framework, involving representatives from a control unit independent from the relevant business line and approved by senior management, to govern the exercise of the RoR clause. This should include assessing how exercising the RoR clause may impact the rights, obligations, or interests of the customer.

In particular, where there is potentially an adverse or material impact to customers from exercising an RoR clause, FIs should:

• seek the appropriate management forum’s approval to exercise the RoR clause, including considering measures to mitigate potential detriment to customers; and
• disclose the changes to customers early and in writing.

Reference materials

The following materials are available from the MAS website www.mas.gov.sg:

• Press release: MAS Expands Application of Fair Dealing Guidelines to All Financial Institutions and All Products and Services
• Guidelines on Fair Dealing - Board and Senior Management Responsibilities for Delivering Fair Dealing Outcomes to Customers [FSG-G04]
• Infographic - Fair Dealing Guidelines
• Response to Feedback Received: Revisions to Guidelines on Fair Dealing - Board and Senior Management Responsibilities for Delivering Fair Dealing Outcomes to Customers