7 October, 2015
On 21 July 2014, the Monetary Authority of Singapore ("MAS") published a consultation paper on proposed measures to enhance safeguards for Singapore investors, including:
(i) regulation of non-conventional investment products, such as precious metals buy-back arrangements and collectively-managed investment schemes, as capital markets products under the Securities and Futures Act (“SFA”); and
(ii) introduction of a new Accredited Investor (“AI”) opt-in regime.
MAS has since released its responses in respect of the above two proposed measures. MAS will publish its response to its third proposal to introduce a new framework to rate investment products separately.
1. Non-conventional investment products
MAS will proceed with its proposal to regulate non-conventional investment products which are in substance capital market products:
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i. Precious metal buy-back arrangements to be regulated as debentures: MAS will regulate an arrangement where one party sells gold, silver or platinum to another party and undertakes to buy back the precious metal at a pre-determined higher price, so that the other party can receive a financial benefit which is not linked to the market value of the precious metal as a "debenture". Consequently, a person offering such arrangement to the other party must consider the prospectus requirements under the SFA, and a person dealing in such arrangements must be duly licensed unless otherwise exempt. To address feedback, arrangements where the other party is providing funding in the ordinary course of business will be excluded from regulation.
ii Collectively-managed investment schemes to be regulated as collective investment schemes ("CIS"): Currently, to be regulated as a CIS, a scheme must be both collectively managed and involve pooling of contributions and profits. MAS now intends to regulate a scheme as a CIS if it is either collectively managed or involves the pooling of contributions and profits. Consequently, to offer such schemes, the scheme must be authorized or recognized by the MAS, comply with the Code on CIS, and a prospectus must be registered with the MAS, unless exemptions apply. Operators of such schemes must also be licensed fund managers. Existing exemptions from the CIS regulatory framework including exemptions when soliciting funds from accredited and institutional investors continue to apply. MAS also intends to disallow schemes primarily investing in undeveloped real estate to be offered to the retail public.
2. New AI opt-in regime
Currently, an investor who meets the prescribed wealth thresholds ("AI-eligible investors") will be automatically classified as an AI. MAS will proceed with its proposal to enable AI-eligible investors to "opt-in" to be treated as AI, or otherwise, financial institutions ("FIs") will need to treat such AI-eligible investors as retail investors. The opt-in regime will apply to all AI-eligible investors, including corporations.
Under the AI opt-in regime:
- a financial institution (“FI”) must notify its clients who are AI-eligible investors of their right to opt-in, provide a description and warning of the regulatory safeguards that will be disapplied if they opt-in to AI status, and obtain from such clients a confirmation in writing if they wish to be treated as AIs;
- an AI-eligible investor may opt-in to AI status with one FI, but remain as a non-AI with another;
- an AI-eligible investor may change his/her investor classification when entering into different transactions with the same FI; and
- any individual who holds a joint account with another individual who is an AI-eligible investor, will also be AI-eligible in respect of transactions entered into using the joint account. However, all joint account holders must opt-in to be AIs in respect of that joint account.
Following the proposal to enable non-AI eligible investors to be treated as AIs through joint account holdings with AI-eligible investors, MAS will remove existing exemptions under the Financial Advisers Act currently granted to private banks to service non-AI clients who are "connected" to the bank's main AI client.
To address feedback on the operational difficulties to re-classify clients who are currently treated as AIs, MAS will allow FIs to continue to treat existing AI-eligible investors as AIs so long as the FIs notify their existing AI-eligible investors of their right to be treated as non-AI retail investors and such investors do not "opt-out" of their AI statuses.
3. Change in classification of investors
MAS has proposed other amendments in relation to the classification of investors. In particular, MAS proposes:
changes in AI-eligibility criteria for individuals: Currently, an individual qualifies as an AI if his net personal assets exceed S$ 2 million.
MAS proposes to instead require an individual to have net financial assets (i.e. assets in bank deposits, capital markets products, life insurances and other investment products as MAS may prescribe) of S$1 million;
expanding scope of corporations and trustees eligible to be AIs: Currently, corporations are AI-eligible if their sole businesses are to hold investments and they are wholly owned by AIs, or if they have S$10 million net assets, and trustees are AI-eligible if the value of the assets of the trust exceed S$10 million. MAS proposes instead to treat all corporations as AI-eligible if all shareholders are AI-eligible investors, and all trustees of trusts as AI-eligible if all beneficiaries are AI-eligible, or
if the settlors of the trusts have reserved rights to control or revoke the trusts, and the settlors are AI-eligible.
iii. expanding scope of institutional investors: MAS will proceed with its proposal to extend the scope of such investors to include foreign entities carrying out financial services activities, foreign central governments, supranational organisations, sovereign wealth funds and government- owned entities. In view of feedback received, MAS will also include in the definition of institutional investors, financial market infrastructure regulated by MAS or in a foreign jurisdiction.
MAS will also retain the classification of "expert investor" in view of feedback received.
4. Anticipated timeline for implementing amendments
MAS targets to table the proposed amendments in Parliament in 2016.
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