Banks must ensure that they deal fairly with their customers and act in their best interests, to repair the damage caused during the global financial crisis of a decade ago, said Monetary Authority of Singapore (MAS) managing director Ravi Menon yesterday.
He added that while the global financial system is safer and stronger today, it is not enough. "Finance needs to be a positive force for good," he said.
Speaking at the Symposium on Asian Banking and Finance, Mr Menon urged banks and financial institutions to be more transparent - especially with customers at risk of losing money.
They also need to be more forthcoming about fees, charges, commissions and the assumptions underlying return projections or estimates, he pointed out.
"Disclosure alone is not enough. Ask any consumer of financial products (who has) to go through hundreds of pages of product disclosure written in unintelligible legalese," he said.
Mr Menon noted that global surveys show that the financial sector suffers from a trust deficit.
Financial services was the least-trusted industry, according to the Edelman Trust Barometer, which asked more than 33,000 respondents to rate how much they trust businesses to do the right thing.
"There is also a broader sense that finance has not served the economy or society well," said Mr Menon.
Financial services were the least-trusted industry, according to the Edelman Trust Barometer, which asked more than 33,000 respondents to rate how much they trust businesses to do the right thing.
He said that "reckless risk-taking and (the) blatant disregard for ethical conduct that we saw in the lead-up to the global financial crisis are a big part of the explanation".
It has also not helped that financial industries in Europe, Britain, Australia and the United States have been dogged by "disappointing revelations of financial misconduct and malfeasance".
"Financial institutions in Singapore have generally been better behaved and are better regarded.
"But we have had our problems too, (including) the mis-selling of minibonds and other structured products, the manipulation by traders of financial benchmarks and, more recently, the laundering of 1MDB-related funds through our banking system," Mr Menon said, referring to Malaysia's beleaguered state investment fund, 1Malaysia Development Berhad.
However, he added that financial institutions in Singapore have made significant strides in managing money-laundering risks. The MAS too, he said, has been enhancing its surveillance and supervision of money-laundering risks.
The regulator has been conducting more on-site inspections aimed at stamping out money laundering, and applying network analysis "to detect across financial institutions high-risk clusters of entities and activities", he said.
The MAS has also conducted a stock-take of culture and conduct practices across selected financial institutions, he said.
It found that these practices are uneven in the industry, and many financial institutions struggle to articulate some risks they face. "Many are only starting to develop tools and indicators to obtain a holistic, cross-functional view of the culture within their organisation."
The regulator has thus set up a steering group to identify emerging trends in conduct and behaviour as well as share best practices in getting the culture right.
It has also set up a behavioural science unit to shore up its capabilities in this area.
Mr Menon said: "We have come a long way. Today, it is less likely that 1MDB-type methods of laundering would go undetected in our banks."
But he warned that methods used by money launderers are becoming more sophisticated.
"Financial institutions must remain alert to emerging risks and typologies. Eternal vigilance is the price we must pay to keep our financial system clean... There is no room for complacency."