Bond rebates have long been a lucrative bit of back scratching for private banks worldwide, but some much-needed light is being shone on this corner of the financial sector in Singapore.
Banks earn these rebates or bonuses from bond issuers when they sell bonds to clients - a common process that is now under scrutiny following a string of defaults on bonds worth over $1 billion.
Affected investors are asking whether their private bankers and relationship managers have knowingly sold them risky products just to get those rebates.
The potential conflict of interest is obvious, so reforms announced by the Association of Banks in Singapore this week will go a long way towards shoring up the reputation of an industry that is so integral to Singapore's financial sector.
Amendments to the Private Banking Code of Conduct mean private banks are now expected to proactively confirm whether they are earning a rebate through bond sales and to state how much the sum is. This will be done both verbally to clients and via e-mail. This is an improvement from past practice, where some private bankers provided such information only when asked by the clients, an industry source told The Straits Times.
The amended code also asks private banks to proactively present clients with a complete fee schedule, which is a detailed price list of all services and products, to be implemented by March 31. In the past, these details were often provided only on websites, and might not include all products.
Many private bankers have already subjected themselves to a high level of compliance, but it matters that investors are now given more transaction-related information and on a more consistent basis, so they know what kind of deal they are getting into. However, investors are ultimately responsible for their own decisions.
No amount of rules and guidelines can replace investors' own diligence in risk assessment and the prudence to build a diversified portfolio so that they do not lose all their money over a single failure.