Hong Kong and Singapore.
These two countries are often compared because of similar geopolitical situations, racial compositions, approaches to economic growth and competitors to be the regional (if not world) class financial markets.
However, the recent Lehman mini-bonds fiasco has shown very different regulatory approaches in resolving the losses suffered by investors.
Hong Kong Monetary Authority: 1
Hong Kong’s recent actions by the Hong Kong Monetary Authorities as well as their Securities and Futures Commissioned has resulted in Lehman mini-bond holders who would be compensated as much as 70% of their principal amounts invested with the banks. About USD 1.6 b (SGD 2.4 b) was invested by Hong Kong investors in Lehman mini-bonds and around USD 800m or (SGD 1.2 b) or roughly 50% would be compensated.
Monetary Authority of Singapore: 0
Singapore’s banks on the other hand are compensating around SGD 107m (USD 71m) out of around SGD 508m (USD 352) or roughly 21% would be compensated. This is half the proportion that the Hong Kong authorities have managed to help broker for their own investors. Interestingly enough, if the percentage paid by each financial institution in Hong Kong is similar, I suspect DBS in Hong Kong would likely be paying out a higher proportion than DBS Singapore for selling virtually the same product.
The Monetary Authority of Singapore on the other hand, had its Deputy Chairman and Minister for Trade and Industry, Mr. Lim Hng Kiang defending its actions in its supervision and not accepting that it had been lax in supervision.
Different Jurisdictions – Different Outcomes
The compensation obtained by Hong Kong investors is double that of Singapore for the same product and very similar circumstances. Why are Singapore investors suffering more than those in Hong Kong. Based on the news reports about the Lehman mini-bonds fiasco in these two countries, it appears that the Hong Kong authorities was more proactive in being an advocate for the retail investor compared to MAS’s more hands-off approach urging retail investors to avail themselves to first lodge their complaints to the banks and financial institutions before going to FIDReC.
While investors in the ill-fated Lehman related minibonds and other derivative products have suffered, the way their suffering unfolded has been quite different.
On one hand, banks in Hong Kong have to put up a US 200m fund “to help pay legal costs of trying to recover collateral that was backing many of the investments, possibly increasing the payout for investors“.
There were no such reports of similar initiatives in Singapore.
It seems ironic that Hong Kong, better known for its free-market type of approach to financial markets, has emerged to be seen as a stronger proponent for the retail investor.
Singapore, with its reputation of being tops in Corporate Governance in the region and in laws and regulations appear to be letting the Financial Institutions get away with a ban (ranging from six months to two years) on selling these structured notes that no-one aged 9 to 90 with a breath would touch with a ten-foot bamboo pole.
I guess the morale of this story is that perhaps one is better off investing in Hong Kong financial market because you seem to have more protection than as a retail investor in Singapore.
Be well and prosper.