The legislation, on which the regulator is asking for industry feedback, will amend the Financial Advisers Act and Insurance Act.
One of the most radical changes which will be brought into law by this legislation is the MAS’s proposed “commission deferral”. Under the law, which the MAS refers to as “specified commission”, payments must be paid to a financial adviser over a period of six years or over the premium term of the policy – whichever is shorter.
In the draft legislation, the MAS stipulates that failure to abide by this, by either the financial adviser or the insurance company, will be deemed an offence and could result in a conviction or fine. The maximum fine has not yet been defined.
The draft legislation also stipulates the commission payable in the first year should not exceed 55% of the total commissions payable and that a payment must be made at least once a year during the relevant period.
Another section contained within Annex 17 of the Financial Advisers Act, which is called the New Financial Advisers Remuneration and Incentive Regulations, deals with incentives.
Under the proposed rules, no financial adviser advising retail clients will be able to accept incentives or provide them to other advisers or representatives. The intention is to prevent managers within financial advisory firms from providing their staff with short term incentives to sell specific products.
Again, contravention of this will be deemed an offence and could result in a conviction and fine.
In an accompanying press statement, the MAS said it has “made good progress” with its initiatives so far and confirmed that it plans to implement “the full suite of FAIR initiatives in 2015”. It did however add it will provide “one a year grace period” on its “balanced scorecard” initiative, under which advisers must meet key performance indicators not related to sales or see their pay altered.
Opening the consultation Lee Boon Ngiap, assistant managing director (capital markets), at the MAS said: “MAS will look to the Board and Senior Management of financial institutions to set the right tone and promote a culture of fair dealing in their companies.
“Through the FAIR initiatives, consumers can look forward to a financial advisory industry that puts their interests first, delivers quality advice, and enables them to better meet their financial and life goals.”