SINGAPORE (June 3): In these times, Financial Institutions (FIs) like banks and brokerages need to be a positive force for good and merely being safer or doing no harm is not enough.

But for FIs to be a force for good, they must be trusted, inclusive and sustainable, says Ravi Menon, Managing Director, Monetary Authority of Singapore (MAS).

To win the trust of its customers, FIs “must ensure that finance is not abused for illicit purposes; that it places its customers first and deals with them fairly; and that it fosters a culture of good conduct grounded in strong values and ethics,” says Menon in his opening address at Symposium on Asian Banking and Finance at the MAS Building on Monday.

The financial sector suffers from a trust deficit, global surveys have shown. When the Edelman Trust Barometer asked over 33,000 respondents globally to rate how much they trust businesses in each of 15 industries to “do what is right”, financial services came in as the least trusted industry.

There is also a broader sense that finance has not served the economy or society well.

“The reckless risk-taking and blatant disregard for ethical conduct that we saw in the lead-up to the global financial crisis are a big part of the explanation,” explains Menon about the mistrust.

And it has not helped that the financial industry continues to be dogged by disappointing revelations of financial misconduct and malfeasance.

Still, Menon says financial institutions in Singapore have “generally been better behaved and are better regarded” although he acknowledges “we have had our problems too”.

These include 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 the local banking system.

Menon then suggested three things the industry and regulators can do together to restore trust in the financial industry.

First is to ensure that the financial system is not abused for illicit purposes – be it money laundering, tax evasion, or terrorist financing.

Second, FIs must ensure that they deal fairly with their customers, always acting in their best interest.

For example, it is the duty of the FI and its representative to help the customer understand what he is buying and what risk he is taking.

These include being “transparent about risk, especially the circumstances under which the customer could lose all or most of his money; transparent about the assumptions underlying return projections or estimates; and transparent about fees, charges, and commissions”, says Menon.

FIs must also ensure that their sales representatives have sufficient knowledge and skills.

Third, FIs must foster a culture of good conduct underpinned by strong standards of ethics, as regulations can only go so far in shaping behaviour.

Those who work in financial institutions must look beyond the question: “Is this legal?” to “Is this right?” and “Have I checked the box?” to “Have I checked the risk?”, says Menon.

While MAS has conducted a stocktake of culture and conduct practices across selected FIs, culture and conduct practices are uneven in the industry.

A steering group has also been set up by MAS and the banks to identify emerging trends in conduct and behaviour as well as share best practices in “getting the culture right”.