As Singapore sees an increasing spate of defaults, the city-state’s private banks are coming under the microscope for earning bonuses by selling the risky debt. The regulator claims an industry group is looking into the actions.
In a report by financial news provider Bloomberg bond issuers are said to be offering banks rebates of as much as 1 percent as incentive to sell unrated securities, according to a Bloomberg News analysis of figures from bond-sale arrangers and compiled by analysts.
Conflict of interest concerns have been raised as the «rebate» payments are not always explained to the bank clients.
Clients Interests First
One of the world's largest investment managers, Fidelity International has called for the practice to be abolished. At least half the $650 million of bonds that have failed since November 2015 were sold by private banks earning rebates.
Mak Yuen Teen, a Co-Director of the Corporate Governance and Financial Reporting Centre at the National University of Singapore, commented that, «private bankers are supposed to look after their clients’ interests but this may cause them to put the issuers’ interest and their own interest first, speaking of the rebates, it poses a conflict.»
Regulator Watching
Tan Su Shan, co-chair of the Monetary Authority of Singapore (MAS) Private Banking Industry Group and Group head of Consumer Banking and Wealth Management at DBS said «The practice of sales concessions is not unique to Singapore but is also practiced in other global financial centers, There is no explicit requirement currently for distributors to declare the amount of sales concessions received. Some distributors do and others do not.»
«The industry group is reviewing the code to require private banks to disclose fees and charges on investment products and services, including bond sales concessions,» she added.
The Monetary Authority of Singapore noted that there is scope for disclosure on rebates to be clarified.
