Key takeaways
- Guidelines on Fair Dealing – Board and Senior Management Responsibilities for Delivering Fair Dealing Outcomes to Customers updated to apply to all financial institutions, the financial products and services offered by them, and their customers, effective from 30 May 2024
- New guidance on differential treatment, product design, information accuracy, the use of right of review clauses and extra consideration for those who are more vulnerable
- Updated guidelines came into effect on 30 May 2024, all financial institutions should ensure policies and practices are in line with the guidelines and monitor effectiveness
Introduction
On 30 May 2024, the Monetary Authority of Singapore (MAS) issued the updated Guidelines on Fair Dealing – Board and Senior Management Responsibilities for Delivering Fair Dealing Outcomes to Customers (Guidelines), which articulate MAS’ expectations on the role of the boards and senior management of financial institutions (FIs) in ensuring fair dealing outcomes for customers. The Guidelines came into effect on 30 May 2024 and are applicable to all FIs, the financial products and services offered by them, and their customers.
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 represent the products and services offered and delivered.
- Outcome 5: FIs handle customer complaints in an independent, effective and prompt manner.
For each fair dealing outcome, the Guidelines provide guidance and supervisory expectations for the boards and senior management of FIs to embrace, as well as self-assessment questions to help FIs evaluate their adherence to the Guidelines. We highlight below significant changes to the earlier version of the Guidelines that, in our view, require attention and prompt action by FIs as necessary.
Key changes to Guidelines
The Guidelines contain additional guidance on:
- Assessing applications and providing differential treatments: FIs should adopt sound and objective processes to assess applications for financial products and services and be able to justify any differential treatment to any customer or group of customers on the basis of relevant and reliable information or data.
- Product design: FIs that design and manufacture financial products and services should appropriately test if the product or service meets the needs, characteristics and financial objectives of the target customer segments.
- Information accuracy: FIs should accurately state what customers can expect of the products and services provided and not lead customers into having unrealistic expectations of the product or the level of service they will receive. Disclosures should be:
- Readily accessible;
- Written in plain language that avoids the use of technical jargon;
- Presented in a balanced format that highlights key features and risks without obscuring important terms and conditions; and
- Presented in a format that facilitates ease of reading and understanding.
- Use of RoR clauses: FIs should clearly disclose the existence of right of review (RoR) clauses (which provide them the unilateral right to revise the terms and conditions of a product or service) to customers during the sales process and the circumstances that would trigger the use of the RoR clause, the prior notice that will be given, and the customer’s rights in the event that the RoR clause is exercised. In addition to disclosing RoR clauses, FIs should institute a framework, involving representatives from a control unit independent from the relevant business line and approved by senior management, to oversee 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.
The Guidelines also emphasise that FIs should consider the needs and interests of various customer segments, especially those who are more vulnerable, as follows:
- Design and governance of products and services: FIs should assess the performance of a product or service under different market conditions and appropriately test if the product or service meets the needs, characteristics and financial objectives of the target customer segment.
- Conducting product due diligence: FIs should undertake formal due diligence on any financial product they intend to distribute, in order to fully understand its features and assess the implications for each customer segment, thereby identifying suitable customer segments and those for which the product is clearly unsuitable.
- Marketing to target customer segments: FIs should adjust their marketing approach to suit the profiles, financial objectives and general financial literacy of their target customer segments.
Conclusion
The updated Guidelines reflect MAS’ commitment to protecting customers’ interests and enhancing their confidence in the financial sector.
Given the additional guidance provided under the Guidelines, FIs should review their existing policies, systems, processes and business practices to ensure that they are aligned with the Guidelines and take action to effect necessary changes where system or process enhancements are needed to meet specific areas of the updated Guidelines.
Client Alert 2024-128