Singapore Strengthens Investor Protections

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SINGAPORE – The Monetary Authority of Singapore (MAS) has proposed new measures to improve investor protection, including extending current regulatory safeguards to cover non-conventional investment products and making it mandatory for all investment products to be rated according to their complexity and risk.

Non-conventional products

A consultation paper released by MAS earlier this week noted the increase in the number of complex non-conventional products offered to retail investors and the way that such schemes are structured in order to assign ownership of underlying physical assets to investors which, as a result, takes them out of the regulatory boundary of the Securities and Futures Act (SFA) and the Financial Advisers Act.

Two such non-conventional products –buy-back arrangements involving the exchange of precious metal, and collective investment schemes (CIS) which do not pool investors’ contributions – are being targeted by MAS. The central bank has recommended that the current regulatory safeguards available to ordinary investors in capital markets under the SFA should be expanded to investors involved with non-conventional investment products such as these. As part of this, the exchange of precious metals would be regulated as ‘debentures’ and non-conventional CIS, speculated to cover land banking, would be regulated as conventional CIS.  The amendments to CIS coverage would put MAS’s regulatory coverage of the product in line with Hong Kong and the UK.

Accredited investors

As well as proposing new regulations regarding non-conventional products, MAS has also suggested extending regulatory protection to different types of investors. At present, investors whose income in the previous year was more than S$300,000 (US$180,000) or whose net personal assets exceed S$2 million (US$1.6 million) are automatically classified as ‘accredited investors’ (AI), which unbeknownst to many provides them with a lower level of regulatory protection than retail investors.

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In the consultation paper, MAS has proposed that all investors other than institutional investors should enjoy the same range of capital markets regulatory protection as retail investors unless they specifically choose AI status. Those who opt in to AI status will have access to a greater range of riskier and more complex investment products but will forgo the benefits offered to retail investors.

Product ratings

MAS has also proposed rating all investment products according to their structural complexity and the risk of loss of investment.  It would be mandatory for product issuers to disclose these ratings and extra information regarding the products’ historic price volatility and/or credit rating to potential investors in product offering documents and marketing materials.

“Those investors who are shying away from investing, whether it is alternative products or other schemes, will now have a better chance of knowing whether or not they can take the risk, and whether or not they should be going in to invest,” said David Gerald, President and CEO of the Securities Investors Association of Singapore.

“I think it would attract more investments, it will attract more retail investors to the market,” he added.

“Taken together, the three proposals will further safeguard investors’ interests and empower them to make better informed investment decisions,” said Lee Boon Ngiap, Assistant Managing Director of MAS.

The public consultation over the proposals began this week and will run until September 1. If approved, the proposals will be implemented next year.

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email singapore@dezshira.com or visit www.dezshira.com.

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