Singapore’s central bank and regulator has criticised shortcomings among firms which sold and marketed structured products linked to Lehman Brothers, the US investment bank which went bankrupt last autumn.

In a survey of firms which were selling these products, the Monetary Authority of Singapore said the amount of due diligence checks and internal controls differed widely. As a result, a number of banks and intermediaries have been temporarily banned from dealing in and selling advisory services for these products.

The bans take effect from 1 July, MAS said in a statement.

“As a result, there were various forms of non-compliance with MAS' notices and guidelines on the sale and marketing of investment products. The nature and extent of these failings and their potential impact on the sales process and customers differed for each institution,” the organisation said.

The collapse of Lehman Brothers last year sent shockwaves through the structured products market because it highlighted how the capital protections in such products depended on the financial strength of the underlying banks issuing these vehicles.

The central bank has told five financial institutions to cease dealing in and providing financial advisory services for structured notes for six months from July 1 or until there are in place "adequate measures to address the findings", it said. The report said five banks are the Singapore branch of ABN Amro Bank, DBS Bank, Malayan Banking Bhd, DMG and Partners Securities Pte and UOB Kay Hian Pte.

The authority also banned CIMB-GK Securities Pte, Kim Eng Securities Pte, OCBC Securities Pte and Phillip Securities Pte from dealing in and providing financial advisory services for structured notes for one year, and Hong Leong Finance Ltd for two years, with effect from 1 July or until these firms have taken enough steps to deal with the central bank’s points.

“MAS has imposed bans on the sale of structured notes by these institutions for periods ranging from a minimum of six months to a minimum of two years.  In addition, MAS has issued formal directions to the financial institutions to rectify all the weaknesses identified by the investigations and to review and strengthen all internal processes and procedures for the provision of financial advisory services across all investment products,” MAS said.

The regulator said that as of 31 May 2009, three banks and one finance company have offered settlements to 67 per cent of investors whose cases have been decided at a value of about S$105 million.