DBS High Notes 5- Discussion questions

Who are the stakes involved?

Clients who are investors whove lost their savings. Banks and advisors from DBS,
also known as relationship managers. Singapore government and MAS.
What are the ethical issues in this case?
1. Mis-selling to retirees as retirees have no more source of income, but only have
the sum of money from CPF fund, they have to rely on this sum. On top of that, they
target the elderly who are above aged of 40 where they are lowly-educated, hence
the investor does not know what they are buying into. They are unclear and unsure
of what the information was given and what the sales person was talking about
since they have little knowledge and education.
2. Mis-representation: Consumers have to make informed decision. They are given
the wrong facts. Withholding information, bankers themselves are also unsure of the
information that they just talked to their clients about. It is therefore not exactly
safe.
3. MAS found that the risk ratings assigned to some of the Lehman-linked
investment products were inconsistent with risk warnings stated in the individual
prospectus. DBS also did not provide their salesmen with accurate and complete
information about the notes, and that they were not properly trained in the
marketing and sales of Lehman-linked notes.
4. Investors buy products- complex financial derivatives- that they do not fully
understand. Banks and financial advisors push products onto customers instead of
giving financial advice objectively. When Lehman Brothers collapsed, many claimed
that the relationship managers tricked them into investing in DBS high notes 5,
saying that they were very safe investments (ThamWaiWah, 60 I could not fully
understand the prospectus, I told them Im a conservative investor and that this was
my CPF money.) The product was too complicated for many customers to
understand the core=relation between the collapse of Lehman Brothers and the loss
of their life savings. In all, clients were frustrated because they lose not only money
but also trust to the finance industry.

5. Due care theory (Focus on the relative vulnerability of the customer, who has less
information and expertise than the firm): In the name of profits, DBS chose to
exploit their customers-some of whom were financially vulnerable- and could not
understand the complexities of the financial product that they were buying.
Should caveat emptor (let the buyer beware), be an excuse for
relationship managers or financial institutions (FI) to disclaim liability in
the loss of clients invested amounts?
No.
1. It is frequently impossible for consumers to have complete knowledge about
manufactured goods, especially in the financial investment industry, where
investors rely heavily on the statistics and information provided by the FIs. Though
many may argue that investors have access to a lot of statistics online, the FIs are
the ones who packages the end product for the buyer to see.
2. Businesses and FIs in particular should be held liable for all products they place in
the market. Consumers are just end-users, who ultimately reap the benefits of an
invention or investment through payment of an acquisition cost.
3. Increasing consumer rights backed by consumer legislation has led to the decline
of caveat emptor use as consumers are primary stakeholders and at times, have
direct stakes in the company.
Yes.
For accredited investors (knowledgeable) permitted to invest in higher risk products.
What is the role of government? In particular, what should MAS have done
in this case?
Crisis deteriorated to a point where it is necessary for the government to step in to
help contain the crises.
1. Tougher regulations on banks
2. Enforcing a greater need for transparency between banks, customers and the
public. Allowing all parties to be informed of the various risks involved when making
investment decisions.

3. Tougher penalties for banks that flout credit rating guidelines or do not provide
proper analysis of risk ratings.
4. Impose measures to prevent conflicts of interests. RMs owe a fiduciary duty to
their clients to act in their best interests and not to profit from transactions made by
them.
5. To have bank provide customers with a scaled down version of the prospectus.
Removing financial jargons and crafting product sales sheet to fit the lexicon of the
layman.

What

responsibility

does

DBS

have

for

its

potential

clients

and

policyholders?
Economic: Provide investors with adequate and attractive returns on their
investments.
Legal: Adhere to all laws and regulations set by MAS and the Singapore
government. Complying with consumer laws and fulfil all contractual obligations
including the payment of interest and the principle amount on due date. Reflects
the companys ability to operate within societys codified ethics.
Ethical: To provide investors with accurate and substantial information (Risks
involved etc.) for decision making and not concealing certain facts to incite a quick
investment decision. Ensure that the investment products sold are suitable for the
particular investors (risk appetite matched with suitable financial products).
Ultimate aim is to practice ethical banking. To be knowledgeable of the product they
are marketing to the customers.
How could DBS have done better?
1. Develop concrete crisis management solutions to address the problem, giving
directors a bigger stake in the management and overseeing of risk.
2. Focus on improving information transparency, disclosure and risk management
strategies in other to fulfil both their social, economic and ethical responsibilities in
society.

2.1 Ensure clarity and integrity investment advisory duties.

3. Appointing independent parties to evaluate the selling process of financial
products and to provide a detailed analysis of crises when it actually occurs (Clark
Principle 5- Managers should work cooperatively with other entities)
4. Providing clients with open communication channels. Clients interest, personal
preference and financial goals should be of utmost priority and managers should
actively monitor the concerns of their customers, which can be used as inputs for
decision-making (Clark Principle 1- Acknowledge and actively monitor the concerns
of all legitimate stakeholders)
5. DBS should have informed their investors of the uncertainties of the US stock
market, which Lehman Brothers resided in Highly fluctuating property prices in the
US was one of the main reason Lehman Brothers collapsed as a result of high
defaults on loans.
6. Provide new training for relationship managers, focusing on the responsibility
owed to the customer. To have them make sure that customers are fully aware of
the risk of their investment instead of pushing for a quick sale.