The Monetary Authority of Singapore (MAS) released a consultation paper in late December 2012 as part of its ongoing efforts to enhance and refine the regulatory framework for collective investment schemes (CIS or schemes).
The MAS consultation paper sets out: (i) the proposed changes to the Securities and Futures (Offers of Investments) (Collective Investment Schemes) Regulations 2005 (CIS Regulations); and (ii) the proposed regulatory treatment of closed-end funds. We set out below a summary of the proposals.
Proposed Amendments to the CIS Regulations
- Enhanced Disclosure Requirements for Offers of Units in CIS
The CIS Regulations prescribes, among others, the information that must be set out in a prospectus for an offer of units in a CIS. Pursuant to the consultation paper, the MAS proposes to impose the following additional disclosure requirements:
- Information on scheme manager and its principals: The CIS Regulations currently require the name, address and track record of the manager of the scheme to be stated in the prospectus. To provide investors with additional information to assess the manager and its principals, the MAS is proposing the following further disclosures in the prospectus: (i) information on the manager’s directors and key executives (such as the working experience, educational and professional qualifications and areas of expertise); (ii) information on any functions that the manager has delegated to a third party; and (iii) the name of the financial supervisory authority which licenses or regulates the manager (as well as its underlying funds and submanagers, where applicable).
- Valuation method for a scheme’s assets: Under the current regime, the valuation method of a scheme’s assets need only be set out in the trust deed of an authorised scheme. The MAS is proposing to require the disclosure of such valuation method in the prospectus in line with current market practice.
- Information memorandum to be furnished to investors in respect of an offer of units in a restricted scheme
The MAS is proposing to re-introduce the requirement for an offer of units in a restricted scheme to be made in or accompanied by an information memorandum in light of the fact that certain types of CIS (particularly those that employ advanced strategies) may pose risks to investor protection and financial stability, particularly given the growing complexity of CIS.
The information memorandum should contain information to assist investors in making an informed investment decision in respect of the units being offered, including information on the scheme’s investment objectives, focus and investment approach, the risks of subscribing for units in the scheme, any redemption conditions or limits and gating structures, the past performance of the scheme, and the fees and charges payable by the investors and by the scheme.
Proposed Regulatory Treatment of Closed-End Funds
- Definition of CIS to include closed-end funds
Currently, closed-end funds are not subject to the CIS regulatory regime as they do not fall within the statutory definition of a “collective investment scheme” as provided in the Securities and Futures Act (SFA). Accordingly, closed-end funds are exempt from the authorisation/recognition requirements, prospectus requirements, investment restrictions and business conduct rules that CIS offered to retail investors are subject to.
In light of the similarities between closed-end funds and other CIS, as well as the practice in other jurisdictions, the MAS is proposing to include closed-end funds under the CIS regulatory regime.
To ensure that the regulatory net is not cast too wide, the MAS has clarified that its intention is to regulate those entities whose primary purpose is to generate profit/return for its investors through its investment based on a “defined investment policy”.
The MAS will consider the following elements in determining whether a closed-end fund has a defined investment policy:
- the final form of the investment policy is fixed by the time investors' commitments to the entity become binding on them;
- the investment policy is set with the intent to give investors the benefit of the results of the investments;
- the investment policy is part of, incorporated in, or referenced in the entity’s constitutional documents;
- a contractual relationship between the entity and the investors binds the entity to follow the investment policy;
- the investment policy contains a series of investment guidelines;
- the investment policy is clearly set out and disclosed to investors; and
- any change to the investment policy is disclosed to the investors and may require their prior consent.
- Listing on a securities exchange
Currently, investors in closed-end funds are restricted in their ability to exit their investments as the units are non-redeemable. To enable investors to exit more expediently on the secondary market, the MAS is proposing to require closed-end funds offered to retail investors to be listed on an approved securities exchange.