The Monetary Authority of Singapore (the "MAS") has issued a "Consultation Paper on Proposals to Enhance Regulatory Safeguards for Investors in the Capital Markets" (the "Consultation Paper"). The consultation closes on 1 September 2014.
The following are the key changes:
- Safeguards for investors in non-conventional investment products: The MAS cautions that some buy-back arrangements involving precious metals that are marketed to consumers as financial instruments are in effect debt obligations if the arrangement between the parties is that the funds made available will be repaid with interest at the end of the entire arrangement and the transfer of ownership of the investment precious metal under the arrangement is for security and not consumption purposes. The MAS proposes to regulate as debentures such arrangements if they involve certain features. The MAS has also observed arrangements offered to retail investors that fall outside the statutory definition of a collective investment scheme ("CIS") as investors are offered direct interests in underlying physical assets and the investors' contributions are not initially pooled. To enable the regulation of such arrangements, the MAS proposes to remove the requirement for the pooling of investors' contributions to be present for an arrangement to be regarded as a CIS.
- Complexity-risk rating framework for investment products: Require product issuers to rate their investment products for relative complexity (i.e. the difficulty in understanding the risk/reward profile of a product) and risk (i.e. the likelihood of losing the principal investment amount). Product issuers will be required to disclose such ratings in product offering documents for new and ongoing offers to retail investors.
- Opt-in regime for accredited investors and proposed changes to eligibility criteria: Accredited investors ("AI") are generally identified by income or wealth thresholds and considered to be sufficiently knowledgeable or experienced in managing their financial affairs. The MAS proposes to refine the AI class by introducing an "opt-in" regime under which all investors other than institutional investors would by default be treated as retail investors. An investor who meets any of the criteria stipulated in the AI definition will have the choice of electing for retail or AI status (and be made aware of the consequent reduction in regulatory safeguards). The Consultation Paper sets out the key features of the opt-in regime and transitional arrangements for existing AIs. The MAS is also proposing amendments to the eligibility criteria of AIs. Notably, it is proposed to modify the net assets eligibility criterion of an individual such that net equity in an individual's primary residence can only contribute up to S$1 million of the minimum net assets threshold of S$2 million.
The following materials are available from the MAS website www.mas.gov.sg:
- Press release
- Consultation Paper
- Annex 1: Amendments to Definition of "Debentures" and "Collective Investment Schemes"
- Annex 2: Securities and Futures (Prescribed Debentures) Regulations 201X
- Annex 3: General Explanations to Accompany Proposed Complexity-Risk Ratings and Historical Price VolatilityICredit Rating Indicator
- Annex 4: Amendments to definition of "Accredited Investor", "Institutional Investor" and "Expert Investor"