Is MAS at fault?

Dear Mr. Tan,
You are a bold person. Please tell me frankly. Is MAS at fault for approving the sale of the Minibonds? Is this why MAS is reluctant to take action now? Are they trying to hide their mistake?

REPLY
I think that you should send this question to your Member of Parliament and ask your MP to bring this question up in Parliament.

The approach taken by MAS in the past was to require the risks to be stated in the prospectus and the advertisement. I was able to see the fine print in the advertisement that said, "In the event of a credit default, you could lose a substantial part or all of your investment". It is difficult for anyone, even an expert, to know what is the extent of this risk. This is why I had recommended against making such an investment.

Sadly, many retail investors relied on the advice of their financial institution representative to explain what this statement meant. The representative did not give them the right explanation and misled the investor into believing that the risk is very remote (when the real situation is quite different).

A better approach, which can only be done in the future, is to ban these types of risky products from being sold to the retail investors. It is difficult for a retail investor to know if a product is risky. This has to be the responsibility of the regulator in approving the product for sale. If the regulator is not able to make an assessment of the risk, how can they expect the retail investor to make this assessment?

The Hong Kong Monetary Authority also took a similar approach in the past and allowed the sale of the structured products. This is why so many investors in Hong Kong have been misled into investing in these products. But the HKMA is now quite pro-active in helping the investors to seek redress. They are now considering a ban on the sale of such products to retail investors in the future.