|Date: 28/04/2009||Type: Article||Language: English||Source: Mondo Vision
|A very good morning to everyone. To our guests from overseas, a very warm welcome to Singapore. I am most delighted to join you at this inaugural Shorex Wealth Management Forum in Singapore.
Global Impact of Crisis
The current financial crisis is unprecedented. The speed at which events unfolded has been exceptional. The scale of impact has also become global. As an illustration of its extra-ordinary impact, world equity market capitalization has plunged to less than US$31 trillion, from US$62 trillion just 20 months ago – investors and households across the globe have been affected significantly.
Singapore's financial system remains healthy. We are spared partly because our financial institutions have very low non-performing loans, minimal exposure to toxic assets, and are well-capitalised. In addition, our regulators are alert and pro-active, and have always upheld high standards of supervision and risk management. While our banks are holding up well, there is still substantial risk in the global financial system - which is undergoing significant, structural changes. We thus need to remain vigilant.
While Asia's financial system is relatively unscathed, we are getting the second-order effects on our real economy. With the collective drag of falling export demand, lower commodity prices, and much tighter external financing terms, economic growth is slowing significantly.
Addressing the Challenges
It is premature to ascertain how the new financial landscape, post-crisis, is going to look like. However, we can infer this somewhat from key agendas being debated by policy-makers, regulators and industry players. One potential driver of change is the shift in investor mindset. Industry feedback suggests that investors are now asking for even more transparency on the management of their accounts. In addition, given the pain of wealth destruction arising from this crisis, investors are taking on a more holistic view on their wealth protection needs.
These suggest the renewed emphasis on building trust, enhancing transparency and proper risk management and market conduct. It also brings into sharper focus what should be a long term sustainable business model within the private wealth management industry. A brokerage, highly transaction-based model no longer looks sustainable. In this respect, allow me to share 3 key areas the industry may have to address, as a different financial landscape starts to unfold.
1) Re-building Trust and Confidence
Firstly, the need to re-build customers' trust and confidence. Financial institutions must uphold the highest standards of integrity, professionalism and exemplary business conduct. It is crucial that institutions ensure that any investment advice given is fair, objective and in the best interest of clients. The only sustainable way to grow the business is to serve clients' needs well, build trust and demonstrate your commitment to their long-term interests, given any market conditions.
Early this month, MAS issued a set of "Guidelines on Fair Dealing – Board and Senior Management Responsibilities in Delivering Fair Dealing Outcomes to Customers". These guidelines go beyond mere compliance with regulatory requirements. They aim to shift the mindset of financial institutions to one where the board and senior management bear core responsibility for ensuring that they embed fair dealing outcomes in all their business practices, manifested in its day-to-day dealings with clients.
For example, having remuneration structures that rely primarily on commissions, or which are biased towards rewarding staff for recommending certain investment products is untenable. It will inevitably elicit a culture where the institution and its representatives are more concerned about their own revenue interests, as opposed to having clients' interests at heart. Financial institutions will have to review the way in which they deal fairly with clients, to provide real value and restore confidence.
2) Proper Corporate Governance and Risk Management
The second area is the need for financial institutions to place continuous emphasis on good risk management practices. In this volatile market environment, clients' exposures are intensified. There must be proper systems and processes in place to safeguard their interest. As new regulations are introduced, financial institutions will also need to keep abreast of these changes. Those who are able to instill good corporate governance and risk management systems will be well-positioned to strengthen their reputation for integrity and reliability.
Corporate governance is about how the business and affairs of a company are directed and managed, in order to enhance corporate performance and long-term value. It is about performance and accountability. Directors and management must recognise their responsibilities in setting the right tone at the top, and putting in place a corporate culture that looks beyond the question of "is this legal?", to the broader question, "is this right?". For this, you need integrity and an ethics-based culture.
The Madoff and Stanford frauds in the US highlight the undesirable outcomes when asset managers fail to adhere to the basic principles of fairness, transparency and ethical conduct. The idea of allowing a fund manager to act as his own custodian, fund administrator and broker is absolutely untenable. Yet, Madoff fooled not just the ordinary man-in-the-street but also professional fund managers. The industry must surely move to one where there is increased emphasis on the safekeeping and handling of customers' monies and assets; and independence of fund administration and custodian functions.
My third point is on competence. Financial institutions must focus on continuous skill upgrading within the industry. The strong market performance in the past decade has allowed many players to expand their operations, sometimes at the expense of training. The need for a high level of competence is even more acute given current challenges in the financial sector. Financial sector professionals who have learnt their skills during the boom years may now need a very different skill-set to manage risks brought about by this unprecedented financial crisis.
This market slowdown could present a good opportunity to invest in skills upgrading. MAS has encouraged efforts in this area through enhancement of our funding schemes for training. For example, we have recently increased the funding support for qualifying training programmes under the Financial Training Scheme (FTS).
Long Term Potential of Asia
Amidst the challenging market conditions, it is worth reiterating the long-term growth potential of Asia. Although economic growth in Asia is expected to slow in the immediate term, from 6% in 2008 to 3% in 20091, the region is still expected to outperform the global economy. The macroeconomic and financial fundamentals of Asian economies remain generally sound, unlike during the Asian Financial Crisis. In the mid-to-long term, Asia's share of global GDP is expected to rise from 24% in 2008 to 30% in 20182. Asia will thus continue to provide strong growth opportunities and geographical diversification benefits for investors. This makes the region an increasingly important source of asset and income base. Financial sector players who are able to get their fundamentals right and stay engaged in this region, will find themselves in good stead for the upturn in Asia.
The success of Singapore as a financial centre can be traced to our strong fundamentals. We have always been built on a strong and progressive supervisory regime, coupled with a highly reputable legal and corporate governance framework. These qualities have attracted international recognition. Recently, we were also ranked first in corporate governance standards in Asia by The World Economic Forum's Global Competitiveness Report. Fitch affirmed Singapore's 'AAA' sovereign rating last week. The City of London's Global Financial Centre Index ranked Singapore the most competitive financial centre in Asia, and third globally, after London and New York.
As a trusted and sovereign country, investors are attracted by the socio-political stability and strong economic fundamentals that Singapore offers. These are even more important attributes given this uncertain environment. Together with our long-term strategy of building a pro-business and competitive financial centre, we are confident that Singapore is well positioned to emerge stronger from this crisis.
In conclusion, let me wish all of you much insightful discussions over these two days of the conference. Thank you.