The Monetary Authority of Singapore (MAS) has reprimanded four financial institutions for breaching requirements relating to risk management arrangements and the remuneration of supervisors, according to a media release issued on Tuesday (June 15).

The four institutions are AIA Financial Advisers Private Limited (AIA FA), Prudential Assurance Company Singapore (Pte) Limited (Prudential), Aviva Ltd (Aviva) and Aviva Financial Advisers Pte Ltd (Aviva FA).

What regulations were breached?

The financial regulatory authority said its ongoing supervision indicated that these financial institutions may have breached regulatory requirements on remuneration practices.

They conducted an investigation and found numerous instances where remuneration was paid to supervisors, who are responsible, directly or indirectly, for the supervision or management of a financial adviser, violating requirements under the Financial Advisers Act (FAA).

These are in relation to the Balanced Scorecard (BSC) and the Spreading and Capping of Commissions requirements (SCC) that seek to align the incentives of financial adviser (FA) firms, representatives and supervisors with their customers’ interests, to promote a culture of fair dealing.

BSC requirements is for the sale of investment products and SCC requirements is for the sale of regular premium life policies.

Under the BSC, supervisors’ and representatives’ variable income are determined with reference to the fulfilment of non-sales key performance indicators.

Under the SCC, insurers and FA firms are required to cap the variable income payable to representatives and supervisors in the first year and spread the remaining variable income payable over a prescribed period.

Consultant and CEO from Aviva FA reprimanded

In addition, MAS reprimanded Peter Tan Shou Yi, Aviva consultant, and Chee Boon Chai Lionel, Aviva FA’s Chief Executive Officer (CEO) and Director.

Aviva engaged Tan as a consultant from 2016 to 2020. During this period, he also acted as a supervisor to Aviva FA’s representatives.

He had frequent and direct interactions with Aviva FA’s representatives, including discussions on sales and compliance issues which neither Aviva nor Aviva FA made compliance arrangements to monitor.

For failing to do so, Aviva and Aviva FA contravened the Guidelines on Risk Management Practices -- Internal Controls (RM Guidelines) and the Financial Advisers Regulations respectively.

MAS said that Tan acted as a supervisor of Aviva FA by virtue of his roles and responsibilities in the firm, but the company failed to review and assess Tan’s performance, assign a BSC grade to him, and determine and pay his remuneration in accordance with the BSC.

Aviva also failed to cap and spread his variable income in accordance with the SCC.

Tan breached the SCC as well by accepting such remuneration.

Aviva FA’s CEO and Director, Chee, had also been reprimanded for failing to "discharge the duties of his office," said MAS.

In addition, Chee had failed to properly address the issue of poor conduct of Aviva FA’s representatives, which included misrepresentations regarding the nature and features of certain insurance products to customers.

MAS said that despite their repeated supervisory engagements with Aviva FA between 2017 and 2018 over the sales conduct of its representatives, the measures put in place remained inadequate.

As a result, it directed Aviva FA to appoint independent external persons to conduct a holistic review of the company’s internal control processes, and to perform call-backs to all customers before any sales are completed.

These measures are still in place, according to MAS.

Reprimand against AIA FA's Managing Directors

MAS said that three of AIA FA’s Managing Directors (MDs) had acted as supervisors.

However, AIA FA failed to review and assess the performance of these MDs, assign BSC grades, and determine and pay their remuneration in accordance with the BSC.

They also failed to cap and spread the MDs’ variable income in accordance with the SCC.

Reprimand against Prudential

Three individuals appointed by Prudential, who are two Master Group Agency Manager (MGAM) Leaders and a consultant, had acted as supervisors of Prudential.

However, the firm had failed to review and assess their performances, assign BSC grades to them, as well as determine and pay their remuneration in accordance with the BSC requirements.

Prudential also breached the RM Guidelines as it failed to put in place adequate risk mitigation procedures and compliance arrangements to monitor the individuals' activities.

Deputy Managing Director of Financial Supervision at MAS, Ho Hern Shin, said the central bank expects financial institutions to have "robust arrangements" to ensure that their representatives place their customers' interests first. She added:

"We have dealt firmly with these financial institutions and individuals who have breached our regulations, to send a clear message to the industry on the importance of upholding high ethical standards.”

Top image via AIA Alexandra Facebook, Aviva, Aviva Financial Advisors LinkedIn and Aviva plc.