Singapore proposes ‘stronger regulatory framework’ for investors

Out-Law News | 23 Jul 2014 | 10:32 am | 1 min. read

The Monetary Authority of Singapore (MAS) has published a consultation paper aimed at setting up a “complexity-risk framework” to help investors “gauge the riskiness” of investment products.

MAS said the move is designed to strengthen Singapore’s regulatory framework for safeguarding investors’ interests in the aftermath of the global financial crisis, which “led the international regulatory community to examine whether non-retail investors are necessarily better informed or require less regulatory protection than retail investors”.

Under the proposed framework, all investment products sold to retail investors will be rated according to “complexity of structure and risk of loss of initial investment principal”.

Product issuers will be required to disclose these ratings in product offering documents and marketing materials, “along with information on the historical price volatility or credit rating of the product”, MAS said.

MAS’ assistant managing director for capital markets Lee Boon Ngiap said that taken together, the proposals “will further safeguard investors’ interests and empower them to make better informed investment decisions.”

According to MAS, key proposed changes would “extend to investors in non-conventional investment products the current regulatory safeguards available to investors in capital markets”. In addition, accredited investors would have “the option to benefit from the full range of capital markets regulatory safeguards that are applicable for retail investors”.

MAS said: “In recent years, there has been an increase in the number of non-conventional products offered to retail investors as alternative investments. Many of these products have features that are similar to regulated capital markets products, but MAS said they are “structured to assign ownership of underlying physical assets to investors which take them outside the regulatory perimeter” of the city state’s Securities and Futures Act (SFA).

Extending current regulatory safeguards under the SFA for investors in capital markets to investors in non-conventional products would “ensure that structures which are in substance capital markets products are regulated as such”, MAS said.

Two categories of non-conventional products are the subject of the consultation. The first relates to ‘buy-back arrangements’, involving the exchange of precious metals, which MAS said “in economic effect... are equivalent to collateralised borrowing and will be regulated as ‘debentures’ under the SFA”.

The second category relates to schemes which MSA said “have the elements of a regulated collective investment scheme but do not pool investors’ contributions”. MAS said it is proposed to regulate such schemes as collective investment schemes under the SFA.

The consultation period into the proposals runs until 1 September 2014.

A financial system stability asessment of Singapore, published by the International Monetary Fund in 2013 (69-page / 1.21 MB PDF), said Singapore’s “current regulation and supervision are among the best globally”. The report said: “Capital markets do not appear to pose material threats to financial stability. However, MAS should continue intensive monitoring of the asset management industry, particularly the operations of hedge funds and prime brokers, in order to minimise reputational risks.”