ST Forum: Should MAS act?

MANY claims have been made by aggrieved investors in Singapore and other countries of malpractices in the creation and sale of collateralised debt obligations (CDOs) by investment banks.

It was also reported that the United States authorities may investigate other banks that pushed similar CDO products. This is expected, given the copious structures of CDO products prevalent then.

On April 16, Goldman Sachs was charged by the US Securities and Exchange Commission (SEC) with fraud in the structuring and marketing of a debt product tied to sub-prime mortgages.

The SEC alleged that Goldman structured and marketed a synthetic CDO that hinged on the performance of sub-prime residential mortgage-backed securities, and which cost investors more than US$1 billion (S$1.4 billion).

This latest revelation sheds a new light on the debacle and has created widespread public outcry in the US.
But in Singapore, there has been silence from the authorities, although the stakes in Singapore alone are huge, exceeding $100 million of investors' money.

This turn of events prompts at least two questions.

First, should the Monetary Authority of Singapore not open its own investigation into troubled CDOs sold here? In the meantime, should the Government at least stop channelling public deals and business to investment banks that concocted the products, as it suspended local distributors from derivatives sales, until they agree to open their books for scrutiny?

Second, how will the Financial Industry Disputes Resolution Centre (Fidrec) take this into consideration in cases under its judgment in which investors claim mis-selling and malpractice by local distributor-agents and the originator-banks they represent?

How should Fidrec factor this circumstantial evidence into its final decisions pending the outcome of the charges in the US and potential investigations here? Should decisions be deferred or at least be conditional?
Investors, I am sure, look to a constructive and supportive response from the two authorities. For many, this could be the answer to their prayers on what remains a personal dilemma.

Quek Soo Beng