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