From 12 August 2014 to 12 September 2014, the Monetary Authority of Singapore (the "MAS") is seeking feedback from the public on proposed changes to the net personal asset test in the unsecured credit rules. The proposals are set out in a consultation paper that the MAS issued on 12 August 2014 (the "Consultation Paper").
In a separate consultation paper on "Proposals to Enhance Regulatory Safeguards for Investors in the Capital Markets" (the "July 2014 Consultation Paper") that the MAS issued on 21 July 2014, the MAS is proposing, among other things, changes to the concept of an Accredited Investor ("AI") under the Securities and Futures Act (the "SFA").
Currently, under the SFA, an individual is considered to be an AI if he meets the wealth threshold of more than S$2 million net assets or his income in the preceding 12 months is not less than S$300,000. The MAS is proposing 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.
Net personal assets eligibility test
Financial institutions ("FIs") are currently exempted from a number of regulatory requirements when extending credit cards and unsecured credit to an individual with total net personal assets exceeding S$2 million, or an annual income of at least S$120,000. For example, an FI may grant credit above the regulatory maximum credit limit to such an individual and grant credit to such an individual even if his unsecured debt aggregated across FIs exceed his annual income for three consecutive months.
Following the review of the AI eligibility criteria under the SFA, the MAS is proposing to align the total net personal assets test under the credit card and unsecured credit rules with that of the SFA such that the 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. As an individual is less likely to tap on the equity in his primary residence to pay off his debts, it would be prudent to ensure that the individual has substantial assets apart from his primary residence.
The MAS proposes a two year transition period for FIs' existing cardholders and unsecured credit borrowers after the revised net personal assets criteria takes effect.
Draft legislative amendments to credit card and unsecured credit rules
To effect the proposed changes as well as other refinements to the credit card and unsecured credit rules, the MAS will be amending the Banking (Credit Card and Charge Card) Regulations 2013 and MAS Notices 118, 635, 827 and 1109 to direct insurers, banks, finance companies and merchant banks respectively on unsecured credit facilities to individuals. A draft version of the changes can be found in Annex A to the Consultation Paper.
The legislative changes are scheduled to take effect in Q4 2014, save for the changes relating to the net personal asset eligibility test, which will be aligned to the date the related changes in the SFA take effect.