Monetary Authority of Singapore Consults on Proposed Amendments to the Code on Collective Investment Schemes

On November 10, the Monetary Authority of Singapore (MAS) issued a Consultation Paper on Proposed Amendments to the Code on Collective Investment Schemes (Consultation Paper). 

The Code on Collective Investment Schemes (Code) applies to Singapore-domiciled collective investment schemes authorised under Section 286 of the Securities and Futures Act, Chapter 289 of Singapore (SFA) for retail offer in Singapore (Authorised Funds) and, to a lesser extent, to offshore-domiciled collective investment schemes recognised under Section 287 of the SFA also for retail offer in Singapore (Recognised Funds). 

The Consultation Paper seeks to amend the Code to develop specific rules for retail offers of Authorised Funds that invest solely in gold, silver and platinum (Precious Metals Funds), as well as to enhance and refine the regulatory framework for collective investment schemes in three key areas: (i) enhance transparency and market discipline; (ii) improve operational effectiveness and (iii) provide greater clarity to market practitioners. The proposals in the Consultation Paper are intended to apply similarly to investment linked policy (ILP) sub-funds issued by insurers under MAS Notice 307, for consistency in the regulatory treatment of collective investment schemes and ILP sub-funds.

This briefing focuses on the proposals affecting Authorised Funds and Recognised Funds, excluding proposals affecting and relating only to real estate investment trusts (REITs).

Key amendments proposed in the Consultation Paper

A summary of the key amendments proposed in the Consultation Paper is set out below.

	Proposal	Summary
1.	Precious Metals Funds permitted subject to additional requirements	A net asset value cap will be imposed on a Precious Metals Fund’s investments in silver and/or platinum, OR a Precious Metals Fund may invest only in gold, for a start.  Where a Precious Metals Fund invests in gold and silver, it must follow the London Bullion Market Association prices and good delivery rules. Where a Precious Metals Fund invests in platinum, it must follow the London Platinum & Palladium Market prices and good delivery rules. The prospectus of a Precious Metals Fund should clearly state that an investment in the Precious Metals Fund carries risks different than in other types of funds that invest in transferable securities and that it is not intended to be a complete investment program for any investor.
2.	Disclosure requirements on a manager’s credit risk assessment process	A manager of a fund will be required to detail its credit assessment process (for the purpose of verifying ratings issued by credit rating agencies (CRAs)) in the prospectus of the fund, including: the scope of the internal credit assessment, including the extent to which the manager will rely on credit ratings issued by CRAs; the use of other tools or metrics (other than credit ratings) in the internal credit assessment; and  the events that will trigger a review of internal credit assessments that had been performed.
3.	Additional disclosure requirements on securities lending or repo1  in semi-annual and annual reports	The semi-annual and annual reports of a fund will be required to include these additional disclosures on securities lending or repo: the amount of securities on loan as a proportion of total lendable assets and of the fund’s assets under management, and the absolute amounts of the repo book and the reverse repo book; the top 10 collateral securities received by the fund, and the top 10 counterparties of securities lending and repo; the transaction profile broken down by (1) collateral type, (ii) currency, (iii) maturity tenor, (iv) geographical location of counterparty, (v) proportion of cash versus non-cash collateral, (vi) maturity of non-cash collateral and (vii) settlement/clearing (tri-party, bilateral or central clearing party, where applicable); the share of collateral received that is re-used or re-hypothecated, compared with the maximum authorised amount if any, and information on any restrictions on type of securities; the split between the return from securities lending and repo and the return from cash collateral reinvestment; the number of custodians and the amount of assets held by each custodian; and the way securities received by the counterparty are held (i.e. in segregated accounts or pooled accounts).
4.	Additional disclosure requirements to apply equally to Recognised Funds	Additional disclosure requirements in the Code that apply to Authorised Funds will apply to Recognised Funds as well.  The additional disclosures are to be made: in the prospectus where performance fees are payable; in the prospectus, semi-annual and annual report and marketing material where the fund invests in financial derivatives; in the prospectus and semi-annual and annual report where the fund carries out securities lending or repurchase transactions; and  in the prospectus where the fund is an index fund.
5.	Advertising rules for Authorised and Recognised Funds	Managers will be required to ensure that advertisements for Authorised Funds and Recognised Funds are prepared in accordance with the existing Code of Best Practices in Advertising Collective Investment Schemes and Investment-Linked Life Insurance Policies2  as well as the Recommended Disclosures to Support the Presentation of Income Statistics in Advertisements3.
6.	Redemption period for all funds except property funds and hedge funds	All funds, except property funds and hedge funds, will be required to pay out redemption proceeds within seven business days from the receipt of the redemption request.

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 December 12, 2016. 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, hanming.ho@sidley.com) or Josephine Law (+65 6230 3916, jlaw@sidley.com).

 

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¹ Refers to both repurchase transactions and reverse repurchase transactions.
² Jointly issued by the Investment Management Association of Singapore (IMAS) and the Life Insurance Association.
³ Issued by IMAS.