MAS Issues Consultation on Proposals to Enhance Regulatory Safeguards for Investors in Capital Markets
On July 21 2014, the Monetary Authority of Singapore (the “MAS”) issued a consultation paper entitled “Consultation Paper on Proposals to Enhance Regulatory Safeguards for Investors in the Capital Markets” (the “Consultation Paper”)1 , in which a number of important regulatory changes impacting the offer of investment products are proposed.
This briefing provides an overview and summary of the regulatory changes proposed by the MAS.
Overview of Consultation Paper
The MAS is consulting on proposals in the following three key areas:
1. Regulating non-conventional investment products
In recent years, there has been an increase in the number of non-conventional products that are offered to retail investors in Singapore as alternative investments. The MAS has noted that some of these products exhibit essentially the same characteristics as regulated capital markets products, but are structured in a manner that take them outside the regulatory scope of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”) and the Financial Advisers Act, Chapter 110 of Singapore (the “FAA”). These typically involve investors taking a direct interest in physical assets (as opposed to a securitized interest with the physical asset as the underlying).
With the intention that the current regulatory safeguards under the SFA and FAA should also be extended to investors in such non-conventional products, the MAS has proposed to bring under its regulatory purview:
(i) buy-back arrangements involving gold, silver and platinum (“Precious Metals”); and
(ii) collectively-managed investment schemes in respect of property that display all characteristics of a regulated collective investment scheme, other than the pooling of investors’ contributions.
2. Introducing complexity-risk ratings framework for retail investment products
The MAS has also proposed to:
(i) introduce a framework by which all investment products can be rated for their complexity of structure, and the risk that investors may lose some or all, or more than their principal investment amount; and
(ii) require product issuers to rate their retail investment products and disclose these ratings in regulated offering documents and through other stipulated channels.
3. Refining non-retail investor classes, introducing opt-in regime for accredited investors
The MAS has proposed refinements to the existing non-retail investor classes to enhance investor protection, as well as to streamline and rationalize the investor classes. These include the introduction of an opt-in regime for accredited investors, under which a person who qualifies as an accredited investor will, by default, be treated as a retail investor unless such person elects to be treated as an accredited investor.
Summary of key changes proposed in the Consultation Paper
Invitation for comments
Please refer to the Consultation Paper for the complete set of proposals as well as the list of consultation questions. The deadline for comments and feedback to be submitted to the MAS is September 1, 2014. We are collating comments from clients and industry participants for submission to the MAS. If you have any comments on the proposals that you would like us to submit on your behalf, please contact Han Ming Ho (+65.6230.3966, email@example.com) or Josephine Law (+65.6230.3916, firstname.lastname@example.org).
If you have any questions regarding this update, please contact the Sidley lawyer with whom you usually work.
Han Ming Ho
1The Consultation Paper is available here.
2“Property” is not defined in the SFA and could include, for example, securities, futures, money, commodities, goods and real estate, whether located in Singapore or elsewhere.
3Please see Part I of the Consultation Paper for examples of collectively-managed investment schemes in the context of real-estate.
4Aside from managers of a listed real estate investment trust (“REIT”), which are already required to be licensed for REIT management under the SFA.
5An “accredited investor” is currently defined under the SFA as:
i. an individual —
a. whose net personal assets exceed in value S$2 million (or its equivalent in a foreign currency); or
b. whose income in the preceding 12 months is not less than S$300,000 (or its equivalent in a foreign currency);
ii. a corporation with net assets exceeding S$10 million in value (or its equivalent in a foreign currency), as determined by —
a. the most recent audited balance-sheet of the corporation; or
b. where the corporation is not required to prepare audited accounts regularly, a balance-sheet of the corporation certified by the corporation as giving a true and fair view of the state of affairs of the corporation as of the date of the balance-sheet, which date shall be within the preceding 12 months;
iii. the trustee of such trust as the MAS may prescribe, when acting in that capacity; or
iv. such other person as the MAS may prescribe.
6“Net equity in an individual’s primary residence” is defined as the estimated fair market value of the individual’s primary residence less any outstanding amounts in respect of any credit facility granted to the individual or any other person that is secured by that residence.
7An “institutional investor” is currently defined under the SFA as:
i. a bank that is licensed under the Banking Act, Chapter 19 of Singapore;
ii. a merchant bank that is approved as a financial institution under section 28 of the Monetary Authority of Singapore Act, Chapter 186 of Singapore;
iii. a finance company that is licensed under the Finance Companies Act, Chapter 108 of Singapore;
iv. a company or co-operative society that is licensed under the Insurance Act, Chapter 142 of Singapore, to carry on insurance business in Singapore;
v. a company licensed under the Trust Companies Act, Chapter, Chapter 336 of Singapore;
vi. the Singapore government;
vii. a statutory body established under any Singapore act;
viii. a pension fund or CIS;
ix. the holder of a capital markets services license for:
a. dealing in securities;
b. fund management;
c. providing custodial services for securities;
d. real estate investment trust management;
e. securities financing; or
f. trading in futures contracts;
x. a person (other than an individual) who carries on the business of dealing in bonds with accredited investors or expert investors;
xi. the trustee of such trust as the MAS may prescribe, when acting in that capacity; or
xii. such other person as the MAS may prescribe.
8An “expert investor” is defined under the SFA as:
i. a person whose business involves the acquisition and disposal, or the holding, of capital markets products, whether as principal or agent;
ii. the trustee of such trust as the MAS may prescribe, when acting in that capacity; or
iii. such other person as the MAS may prescribe.
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