ChFC09 Ethics for the Financial Services Professional

Correct: Under the principle of Utmost Good Faith (Uberrimae Fidei) and the disclosure requirements in Singapore, the proposer has a duty to disclose every material fact known to them. A material fact is one that would influence the judgment of a prudent underwriter in determining the premium or whether to accept the risk. Since the omission makes the contract voidable at the insurer’s option, the best professional and legal step is to disclose the information immediately. This allows the insurer to decide whether to continue the cover, apply an exclusion, or adjust the premium, thereby ensuring the policy’s remaining coverage is valid and enforceable.

Incorrect: Waiting until a claim is made is incorrect because the insurer can repudiate the claim and void the policy for non-disclosure of a material fact. Relying on incontestability clauses is risky and does not fulfill the ongoing duty of good faith, especially if the omission is discovered early. Terminating and reapplying with a different insurer without addressing the previous non-disclosure may lead to further complications, as previous policy history and health status are material facts that must be disclosed in any new application under Singapore’s regulatory framework.

Takeaway: The principle of Utmost Good Faith requires immediate disclosure of material facts to ensure the validity of the insurance contract and protect the client’s interests in the event of a claim in Singapore’s insurance market.

Correct: Under the Securities and Futures Act (SFA), specifically Sections 218 and 219, insider trading is strictly prohibited. The most effective control is the implementation of ‘Chinese Walls’ (information barriers) which isolate price-sensitive information within specific departments. This, combined with a restricted list that prohibits trading in securities where the firm possesses inside information, ensures that the firm and its representatives do not violate market misconduct provisions.

Incorrect: Obtaining written undertakings from clients does not absolve a representative from the prohibition against ‘tipping’ or communicating inside information under the SFA. Limiting disclosure to specific clients is still a violation of the SFA as it involves the communication of non-public, price-sensitive information. Executing trades while in possession of inside information is prohibited regardless of whether the representative personally profits or if it is intended for the client’s benefit, as it undermines market integrity.

Takeaway: The Securities and Futures Act prohibits both the trading on and the communication of non-public price-sensitive information, requiring firms to maintain robust internal barriers and restricted lists to ensure compliance and market integrity in Singapore.

Correct: Under Section 70 of the Financial Advisers Act (FAA), the Monetary Authority of Singapore (MAS) has the power to require a licensed financial adviser, an exempt financial adviser, or a representative to furnish information or produce documents relating to its business. The law explicitly states that the person to whom the notice is sent must comply within the timeframe and in the manner specified by the Authority. This is a mandatory statutory requirement designed to facilitate effective supervision.

Incorrect: The obligation to provide information is not limited to cases of suspected contraventions; MAS can request information for general supervisory purposes or periodic reviews. There is no provision in Section 70 that allows a firm to unilaterally redact information based on commercial sensitivity or trade secrets, as the regulator’s statutory power of inspection overrides these internal classifications. Furthermore, compliance with a Section 70 notice is a legal requirement that does not depend on the prior approval of external legal counsel or the firm’s Board of Directors.

Takeaway: Under Section 70 of the FAA, licensed financial advisers in Singapore must strictly comply with MAS’s requests for information or documents within the specified timeframe and format.

Correct: Approach 2 is the most appropriate from a retirement planning perspective because the Enhanced Retirement Sum (ERS) allows members to receive higher monthly payouts for life through CPF LIFE. This addresses the primary risk of retirement—longevity risk—by ensuring a higher guaranteed income stream. While Approach 1 provides liquidity, it reduces the monthly payout by half compared to the FRS, which may lead to income inadequacy in later years, especially as the cost of living rises in Singapore.

Incorrect: The suggestion that maximizing cash withdrawal is the primary goal of the CPF framework is incorrect; the primary goal is to ensure basic retirement adequacy. The claim that ERS is mandatory for the CPF LIFE Standard Plan is factually wrong, as ERS is a voluntary top-up limit, not a requirement for specific plans. The assertion that Retirement Account interest rates are significantly lower than SGS yields is incorrect, as the RA currently offers attractive risk-free pegged rates (including extra interest on the first $60,000) that are generally higher than or competitive with long-term SGS yields.

Takeaway: Selecting a retirement sum level (BRS, FRS, or ERS) requires balancing the trade-off between immediate liquidity and the adequacy of lifelong monthly retirement income.

Correct: In Singapore, Section 57 of the Insurance Act requires that for a life insurance policy to be valid, the person effecting the insurance must have an insurable interest in the life insured at the time the policy is taken out (inception). For general insurance, which operates on the principle of indemnity, the claimant must show they have suffered a financial loss, meaning they must possess an insurable interest at the time of the loss to receive a payout.

Incorrect: The suggestion that life insurance requires insurable interest at both inception and claim is incorrect because, under Singapore law, the interest only needs to exist at the time of inception. The claim that general insurance only requires interest at the time of signing is incorrect because the principle of indemnity necessitates interest at the time of loss. The assertion that MAS limits life insurance interest only to immediate family or exempts companies from general insurance interest requirements is a misrepresentation of the Insurance Act and common law principles.

Takeaway: In Singapore, insurable interest must exist at the inception of a life insurance policy, while for general insurance, it must exist at the time of the loss.

Correct: Under the Financial Advisers Act (FAA) and the Representative Notification Framework (RNF), an individual must not provide financial advisory services until they are an appointed representative and their name appears on the Public Register. If a breach occurs, the firm must stop the unauthorized activity immediately, assess potential client impact, and fulfill its reporting obligations to MAS regarding the breach of the FAA.

Incorrect: Continuing advice under supervision is still a breach of the FAA as the individual is not yet an appointed representative. Backdating documents is a serious integrity violation and a breach of the Fit and Proper Criteria set by MAS. Waiting for the system to update without taking corrective action ignores the immediate regulatory breach of conducting regulated activities without a valid representative status.

Takeaway: No individual may conduct regulated financial advisory activities in Singapore until they are officially listed as an appointed representative on the MAS Public Register of Representatives.

Correct: Under Section 305 of the Securities and Futures Act (SFA), offers of units in a collective investment scheme (CIS) are exempt from the prospectus requirements if the offer is made to relevant persons, which includes accredited investors. While a prospectus is not required, the offeror must still comply with specific conditions, such as submitting a notification to MAS via the CISNet portal and providing an information memorandum containing the necessary disclosures to the investors.

Incorrect: The small offer exemption (fewer than 20 persons) mentioned in one option refers to Section 302B and is a different type of exemption not specific to the ‘Restricted Scheme’ framework for accredited investors. The Singapore Exchange (SGX) does not grant prospectus exemptions for CIS; these are statutory exemptions found within the SFA itself. Furthermore, the MAS does not issue individual ‘No-Objection’ letters for every restricted scheme offer; instead, the framework relies on the offeror’s notification and adherence to the CIS Code and SFA requirements.

Takeaway: Restricted schemes offered to accredited investors in Singapore are exempt from SFA prospectus requirements under Section 305, provided they follow MAS notification and disclosure procedures.

Correct: Under MAS regulations, investment products that are not ‘plain vanilla’ (like many ETFs that use derivatives or complex indexing) are classified as Specified Investment Products (SIPs). For listed SIPs, such as certain ETFs on the SGX, intermediaries are required to perform a Customer Knowledge Assessment (CKA) for retail investors. This assessment evaluates the investor’s education, work experience, or investment experience to ensure they can manage the risks associated with the product.

Incorrect: Classifying all ETFs as Excluded Investment Products (EIP) is incorrect as many involve complex structures requiring a CKA. Requiring all investors to be Accredited Investors is an over-restriction, as retail investors can trade SIPs if they pass the CKA. Providing only a Product Highlights Sheet is insufficient for SIPs. A full Financial Needs Analysis is generally required for financial advice, but for execution-only services of listed SIPs, the CKA is the specific mandatory suitability tool required by MAS.

Takeaway: Retail investors must pass a Customer Knowledge Assessment (CKA) before they can trade SGX-listed ETFs that are classified as Specified Investment Products (SIPs).

Correct: The Life Insurance Association (LIA) Singapore establishes industry standards to ensure transparency and comparability. One of its key roles is setting the maximum illustrated investment return rates for benefit illustrations (BI). When an adviser identifies a potential discrepancy, the best practice is to refer to the LIA Guidelines on Benefit Illustrations, which provide the standardized framework that all member companies must follow to prevent misleading projections.

Incorrect: Reporting to the Singapore Exchange (SGX) is incorrect because the SGX oversees listed companies and market trading, not the technical actuarial standards of insurance benefit illustrations. The Personal Data Protection Commission (PDPC) is responsible for data privacy issues and has no jurisdiction over the financial assumptions used in insurance projections. Advising a client to rely on verbal promises instead of written illustrations violates the principles of fair dealing and professional conduct mandated by the Financial Advisers Act.

Takeaway: The LIA Singapore standardizes benefit illustrations to ensure that consumers can make fair comparisons between products based on consistent and realistic investment assumptions.

Correct: Under Section 23(1) of the Financial Advisers Act (FAA), certain entities such as banks licensed under the Banking Act 1970 and insurance companies licensed under the Insurance Act 1966 are exempt from the requirement to hold a financial adviser’s license. However, being an ‘exempt financial adviser’ does not mean they are exempt from the law entirely; they must still adhere to the conduct of business requirements set out in the FAA and its subsidiary legislation, including the duty to disclose product information and the requirement to have a reasonable basis for any investment recommendations made to clients.

Incorrect: The suggestion that the bank is exempt from all FAA provisions is incorrect because the exemption applies specifically to the licensing requirement, not the standards of conduct. The idea that a bank must apply for a separate license based on a revenue threshold is false, as the exemption is based on their status as a regulated bank. The claim that a bank needs a full license to serve retail clients is also incorrect, as the FAA provides the licensing exemption for banks regardless of the client segment, though specific conduct requirements may vary between retail and accredited investors.

Takeaway: In Singapore, banks and insurance companies are exempt from holding a financial adviser’s license under the FAA but must still comply with statutory conduct of business standards when providing advisory services.

Correct: Under Section 23(1)(a) of the Financial Advisers Act (FAA), banks licensed under the Banking Act are exempt from holding a financial adviser’s license. However, they are classified as ‘exempt financial advisers’ and are still required to comply with the FAA’s business conduct requirements, such as the duty to disclose product information and ensure a reasonable basis for recommendations, unless specific exemptions apply for certain client classes.

Incorrect: The suggestion that a bank needs a CMS license for life insurance is incorrect because life insurance is regulated under the FAA, and banks are exempt from the FA license. The claim that the Banking Act excludes the FAA is false because the FAA specifically includes ‘exempt financial advisers’ within its regulatory framework for conduct. Stating the FAA does not apply to accredited investors is a misconception; while certain conduct requirements may be waived for accredited investors, the institution and its representatives remain within the scope of the FAA.

Takeaway: Banks in Singapore operate as exempt financial advisers under the FAA, meaning they do not require a separate FA license but must still adhere to prescribed conduct of business standards set by the Monetary Authority of Singapore (MAS).

Correct: In the Singapore financial landscape, S-REITs are listed on the SGX and, while they provide regular income, they are equity securities. Their market price fluctuates based on investor sentiment, property valuations, and interest rate environments. Under the Financial Advisers Act (FAA) and MAS guidelines on fair dealing, advisors must recognize that S-REITs carry higher risk than traditional fixed-income instruments like Singapore Government Securities (SGS). Reclassifying them as ‘Defensive’ for conservative clients could lead to unsuitable advice, as the capital value is not guaranteed and can be highly sensitive to interest rate hikes which increase borrowing costs for the trusts.

Incorrect: The suggestion that the 90% distribution rule ensures capital preservation is incorrect because distributions come from earnings, not capital, and do not protect against a drop in the share price on the SGX. Classifying S-REITs as risk-free due to property location is a misconception; physical assets are subject to valuation risks, occupancy fluctuations, and economic cycles. Comparing S-REITs to statutory board bonds is also inaccurate as bonds are debt instruments with a legal obligation to repay principal, whereas S-REITs are equity-based and do not guarantee the return of the initial investment.

Takeaway: Financial advisors in Singapore must treat S-REITs as yield-bearing equities with significant market and interest rate risks, ensuring they are not misrepresented as low-risk fixed-income alternatives.

Correct: Under the Securities and Futures Act and MAS guidelines for Collective Investment Schemes (CIS), a Product Highlights Sheet (PHS) is a mandatory requirement for retail offers. It must be a concise, standalone document (typically not exceeding 4 to 8 pages) that uses plain English and follows a prescribed template to highlight key features, risks, and fees, allowing retail investors to make informed comparisons.

Incorrect: Including the full legal text of the trust deed would violate the requirement for the PHS to be a concise summary. The PHS is mandatory for all retail offers of relevant investment products, not just those with long prospectuses, and it is specifically aimed at retail investors rather than just accredited investors. Mandatory 10-year back-tested simulations are not a standard PHS requirement and could be considered misleading under MAS fair dealing guidelines.

Takeaway: The Product Highlights Sheet is a mandatory, concise summary document designed to provide retail investors with a clear understanding of an investment’s key features and risks in a standardized format.

Correct: In the Singapore insurance market, the free-look period (or cooling-off period) is generally 14 days from the date the policyholder receives the policy document. For Investment-Linked Policies (ILPs), the insurer is entitled to recover medical examination expenses and adjust the refund amount to reflect any market loss in the value of the underlying units that occurred between the time of investment and the cancellation request.

Incorrect: One alternative incorrectly suggests a 30-day window and a full refund without deductions, which is not the standard regulatory requirement. Another alternative incorrectly claims that the period starts from the application approval date and that ILPs are exempt, when in fact ILPs are covered but have specific refund calculations. The final alternative incorrectly links the start of the period to the first premium payment and suggests it only applies if no medical exam was conducted, which is not accurate under Singapore industry standards.

Takeaway: The 14-day free-look period in Singapore starts upon receipt of the policy document and allows for the deduction of medical fees and market losses specifically for investment-linked products.

Correct: Under Section 27 of the Financial Advisers Act (FAA), a financial adviser and its representatives are prohibited from making a recommendation unless they have a reasonable basis for doing so. This involves conducting a factual analysis of the client’s financial situation, investment objectives, and particular needs. The MAS Guidelines on Recommendation on Investment Products further emphasize that the ‘Fact Find’ process is essential to establish this reasonable basis, regardless of the personal relationship between the representative and the client.

Incorrect: The option regarding Accredited Investor status is incorrect because, under the Securities and Futures Act and FAA, the value of a primary residence can only contribute up to SGD 1 million towards the SGD 2 million net personal asset threshold, and AI status does not entirely remove the obligation for ethical conduct. The option regarding verbal disclosures is incorrect because the FAA and MAS guidelines require documented evidence of the suitability analysis. The option regarding the provision of brochures is incorrect because simply handing over disclosure documents does not fulfill the representative’s duty to ensure the recommendation is suitable for the specific client’s needs.

Takeaway: Financial advisers in Singapore must document a reasonable basis for every recommendation by conducting a formal suitability assessment of the client’s financial profile and objectives.

Correct: Under the Central Provident Fund (CPF) regulations in Singapore, the Home Protection Scheme (HPS) is a compulsory mortgage-reducing insurance scheme for HDB flat owners who use their CPF savings to pay their monthly housing installments. This ensures that the family is protected from losing their home in the event of the member’s death, terminal illness, or total permanent disability. A member can only be exempted from HPS if they have alternative private insurance policies (such as whole life, term life, or mortgage reducing term assurance) that are sufficient to cover the outstanding housing loan.

Incorrect: HPS is not voluntary if CPF savings are being used for HDB loan repayments, even if the loan is with a private financial institution or credit union. There is no automatic waiver based on repayment history, as the scheme is designed to cover life risks (death/disability) rather than credit risks. Refinancing does not remove the HPS requirement; the obligation remains tied to the use of CPF funds for the HDB mortgage until the loan is fully paid or the member reaches age 65.

Takeaway: HPS is mandatory for all HDB owners using CPF for mortgage repayments unless they obtain an official exemption through qualifying private insurance coverage.

Correct: According to the Code on Collective Investment Schemes (CIS Code) issued by the Monetary Authority of Singapore (MAS), if an investment limit is breached due to circumstances beyond the manager’s control (such as a corporate merger or market appreciation), it is treated as a passive breach. The manager is required to take all necessary steps to rectify the breach within a period of not more than three months from the date of the breach. Furthermore, the manager must not enter into any transaction that would increase the extent of the breach during this period.

Incorrect: Maintaining the exposure indefinitely is not permitted under the CIS Code, as all breaches must be rectified to protect the risk profile of the fund. Immediate liquidation within two business days is not a regulatory requirement for passive breaches and could lead to unnecessary losses for unitholders; the Code allows for a reasonable rectification period of three months. The suggestion that action is only required if the breach exceeds 20% is incorrect, as the 10% single issuer limit is a fundamental requirement that must be monitored and corrected regardless of the specific percentage of the breach.

Takeaway: In Singapore, passive breaches of investment limits in unit trusts must be rectified within a maximum of three months without further increasing the exposure.

Correct: Under Section 4A of the Securities and Futures Act (SFA), the definition of an Institutional Investor includes banks licensed under the Banking Act 1970, statutory boards, the Government of Singapore, and the Monetary Authority of Singapore (MAS). These entities are considered to have the highest level of financial expertise and resources, requiring the least amount of regulatory protection.

Incorrect: The person whose business involves the acquisition and disposal of capital markets products is the specific definition of an Expert Investor under the SFA, not an Institutional Investor. The individual with financial assets exceeding S$1 million and the corporation with net assets exceeding S$10 million are definitions associated with Accredited Investors, which is a separate category with different regulatory requirements and opt-in/opt-out regimes.

Takeaway: In Singapore, Institutional Investors are specifically defined entities like banks and statutory boards, whereas Expert Investors are defined by their professional business activities in capital markets products.

Correct: Under Section 6 of the Financial Advisers Act (FAA) in Singapore, no person shall act as a financial adviser unless they hold a financial adviser’s license or are an exempt financial adviser. This is the primary control because the FAA imposes strict criminal penalties for unlicensed activity, including fines not exceeding $50,000 or imprisonment for a term not exceeding 12 months, or both. Compliance with the licensing framework is the only way to legally provide financial advice.

Incorrect: Relying on insurance is ineffective because professional indemnity insurance does not absolve an individual or firm from criminal liability under the FAA. Having a supervisor sign off on advice provided by an unlicensed individual still constitutes a breach of the Act, as the individual providing the advice is performing a regulated activity without the necessary authorization. Restricting advice to existing clients does not provide an exemption; any regulated financial advisory activity performed before a license is granted or a representative is properly notified to the MAS remains a violation of the law.

Takeaway: Providing financial advice without a valid license or exempt status is a criminal offense under the Financial Advisers Act, carrying significant fines and potential imprisonment.

Correct: Under Section 49L of the Singapore Insurance Act, a Trust Nomination creates a statutory trust for the benefit of the policy owner’s spouse and/or children. Because a trust is created, the policy owner loses legal and beneficial interest in the policy. Consequently, the policy owner cannot unilaterally revoke the nomination, surrender the policy, or make changes that affect the nominees’ interests without the written consent of all nominees (or a trustee who is not the policy owner). This loss of control is the trade-off for the protection the policy receives from the policy owner’s creditors.

Incorrect: The statement regarding Revocable Nominations providing the same creditor protection is incorrect because under Section 49M, the policy owner retains full ownership and control, meaning the policy remains part of their estate and is accessible to creditors. The statement regarding Trust Nominations including parents is incorrect because Section 49L statutory trusts are strictly limited to the spouse and/or children of the policy owner. The statement regarding consent for loans under a Revocable Nomination is incorrect because the policy owner retains absolute rights to deal with the policy without nominee consent under the Section 49M framework.

Takeaway: A Trust Nomination under Section 49L provides robust creditor protection for a spouse and children but requires the policy owner to give up unilateral control over the policy’s management.

Correct: In Singapore’s general insurance framework, the principle of contribution is a corollary of the principle of indemnity. When double insurance exists (multiple indemnity policies covering the same interest, subject matter, and peril), the insurers are responsible for sharing the loss. This prevents the insured from recovering more than the actual loss sustained, thereby upholding the indemnity principle while allowing the insurers to distribute the burden rateably.

Incorrect: The idea that the earlier policy must pay first describes a primary-excess relationship which is a specific policy provision, not the general principle of contribution. Double insurance is not a breach of utmost good faith or the duty of disclosure unless it was done with fraudulent intent to over-insure. Allowing an insured to recover the full loss from both insurers would violate the principle of indemnity, which dictates that insurance should only restore the insured to their prior financial position, not provide a profit.

Takeaway: The principle of contribution ensures that in cases of double insurance, the loss is shared among insurers so the insured receives only a fair indemnity and no more.

Correct: The Independent Damage Assessment Centres (IDACs) were established under the GIA’s Motor Claims Framework in Singapore to provide an unbiased, independent report on the extent of damage to a vehicle following an accident. By having a qualified surveyor assess the damage before repairs begin, the industry ensures transparency, helps control repair costs, and mitigates the risk of fraudulent or exaggerated claims.

Incorrect: Determining legal liability and negligence is the responsibility of the insurance companies’ claims departments or the courts, not the damage assessment centre. While roadworthiness is important, the IDAC’s primary role is damage assessment for insurance purposes rather than safety certification. IDACs are assessment points, not necessarily the workshops where the actual repairs must be performed; repairs are typically done at authorized or preferred workshops after the assessment is complete.

Takeaway: The IDAC provides an independent and objective damage report to ensure fair claim settlements and prevent inflated repair costs under the Singapore Motor Claims Framework.

Correct: Risk evaluation is the stage in the risk management process where identified risks are measured in terms of their potential frequency (how often they might occur) and severity (the magnitude of the loss). By assessing both dimensions, the bank can rank risks and decide whether to avoid, reduce, retain, or transfer them (e.g., through insurance), ensuring that even low-frequency but high-severity risks like PDPA breaches are properly addressed.

Incorrect: Focusing solely on historical frequency ignores low-probability but high-impact events which are critical in risk management. Focusing exclusively on severity ignores the cumulative impact of high-frequency, low-severity losses. Delegating the entire evaluation to an insurer is incorrect because the bank remains responsible for its own risk management framework and must understand its exposures to implement internal controls before seeking insurance.

Takeaway: Risk evaluation requires a balanced assessment of both the likelihood and the potential financial impact of an exposure to determine its priority and treatment.

Correct: In Singapore’s insurance principles, repudiation of liability occurs when the insurer seeks to set aside the entire contract or treat it as if they are no longer bound by it. This typically happens due to a breach of the duty of utmost good faith (non-disclosure or misrepresentation) or a breach of a condition precedent to the contract. If successful, the insurer is discharged from all liability under the policy, not just the specific claim at hand.

Incorrect: Affirming the contract while refusing a specific loss based on an exclusion is the definition of a denial of a claim (or repudiation of a claim), not a repudiation of liability for the contract. There is no regulatory requirement from the Monetary Authority of Singapore (MAS) to pay a claim before disputing liability for a breach of contract. Applying a retrospective premium loading while keeping the policy in force is a commercial negotiation or a policy endorsement, but it does not constitute a legal repudiation of liability.

Takeaway: Repudiation of liability challenges the validity of the entire contract, whereas denial of a claim disputes coverage for a specific event under an otherwise valid contract.

Correct: Under Singapore’s Work Injury Compensation Act (WICA), an injured employee or their dependents must choose between claiming compensation under the WICA statutory regime or filing a common law claim against the employer. This ‘election of remedies’ prevents double recovery for the same injury. WICA is a no-fault system, meaning compensation is payable regardless of who was at fault, but it is subject to statutory limits and specific formulas.

Incorrect: The suggestion that compensation is based on years of service without limits is incorrect because WICA uses a formula involving age and average monthly earnings, subject to strict statutory caps. The claim that death benefits require proof of negligence is false because WICA is a no-fault system. The assertion that the lump sum only covers medical expenses is incorrect as it specifically addresses the loss of earning capacity or the loss of a breadwinner in the case of death, separate from medical expense reimbursements.

Takeaway: WICA provides a no-fault statutory path for compensation with fixed limits, but requires claimants to choose between a WICA claim and a common law lawsuit.

Correct: Under the principle of indemnity as applied in Singapore’s general insurance market, the objective is to place the insured in the same financial position they occupied immediately before the loss. For property that is not insured on a ‘reinstatement’ or ‘new for old’ basis, this involves accounting for ‘betterment.’ If the insurer provided a brand-new machine to replace a four-year-old one, the insured would be in a better financial position than before the loss. Therefore, a deduction for depreciation or wear and tear is applied to the replacement cost to arrive at the actual financial loss.

Incorrect: Providing the latest upgraded model without any adjustment would result in betterment, allowing the insured to profit from the claim, which violates the principle of indemnity. Refunding premiums is not a method of indemnity and does not address the loss incurred. Paying the full Sum Insured regardless of the actual value describes a ‘valued policy’ or ‘agreed value’ basis, which is not the standard application of the principle of indemnity for most commercial equipment unless specifically agreed upon at inception.

Takeaway: The principle of indemnity aims to restore the insured to their exact pre-loss financial position, which typically requires deducting depreciation to avoid the insured profiting from the claim.

Correct: In Singapore, the Insurance Act and the Financial Advisers Act (FAA) strictly prohibit rebating. No insurance intermediary is allowed to offer any rebate of the premium, or any part of their commission, or any other valuable consideration as an inducement to a person to take out a policy. This ensures that competition is based on service and product quality rather than illegal financial incentives.

Incorrect: Reclassifying a rebate as a referral fee or a loyalty credit are common but illegal methods used to circumvent the prohibition of rebating. Verbally promising to reimburse deductibles is an unethical practice that violates the principle of indemnity and the terms of the insurance contract, and it may also be considered an illegal inducement.

Takeaway: Rebating of premiums or commissions is a prohibited practice in Singapore’s insurance industry to maintain market integrity and professional standards.

Correct: In the context of Singapore’s general insurance principles, a base rate represents the average risk for a specific class. Adjustments, which include loadings for higher risks or discounts for lower risks (such as the presence of fire sprinklers or a good claims history), are necessary to ensure that the premium charged is commensurate with the actual risk exposure of the individual proposer. This maintains underwriting discipline and prevents the cross-subsidization of high-risk individuals by low-risk individuals.

Incorrect: Focusing solely on competitive pricing rather than risk assessment can lead to underpricing and financial instability for the insurer. Replacing actuarial base rates with operational fee structures ignores the fundamental principle of risk-based pricing. Standardizing premiums to a market average regardless of individual risk features fails to account for the specific hazards of each risk, which is contrary to sound underwriting practices in Singapore.

Takeaway: Base rates provide the starting point for pricing, while adjustments ensure the final premium is tailored to the specific risk characteristics of the individual insured.

Correct: According to MAS guidelines and the relevant AML/CFT notices for the insurance industry in Singapore, while a financial institution may outsource the operational aspects of Customer Due Diligence (CDD), the institution remains fully accountable for compliance. This means the credit union must ensure the vendor’s processes are robust and that all Politically Exposed Persons (PEPs), including their family members and close associates, are correctly identified and subjected to Enhanced Customer Due Diligence (ECDD).

Incorrect: Relying on indemnity clauses is incorrect because regulatory accountability cannot be transferred to a third party through a contract. Relying solely on a vendor’s internal rating without independent oversight is a failure of the credit union’s duty to manage its own risk exposure. Assuming all non-flagged applicants are low risk is incorrect because the financial institution must have its own systems to verify the effectiveness of the vendor’s screening and conduct ongoing monitoring.

Takeaway: Financial institutions in Singapore remain ultimately responsible for PEP identification and AML/CFT compliance even when functions are outsourced to third-party providers.

Correct: In Singapore’s general insurance principles, an insurable risk must be fortuitous, meaning the loss must be accidental or unexpected. Gradual tarnishing is a form of wear and tear or ‘inherent vice,’ which is an inevitable process and therefore lacks the element of fortuity. Additionally, for a risk to be insurable, the loss must be capable of financial measurement. Sentimental value is subjective and cannot be used as a basis for indemnity; therefore, a professional valuation is required to establish a measurable monetary value.

Incorrect: Options suggesting that inevitable events like gradual tarnishing can be insured by increasing premiums are incorrect because insurance is designed to cover accidental risks, not certainties. Options that suggest sentimental value is a valid basis for financial measurement fail to recognize that insurance provides financial indemnity for measurable loss, not emotional compensation. Suggesting that a physical object without a market price should be covered under a Life Insurance framework is a fundamental misunderstanding of the different classes of insurance regulated under the Singapore Insurance Act.

Takeaway: To be insurable, a risk must be fortuitous (accidental) and the potential loss must be measurable in objective financial terms rather than subjective sentimental value.