The Monetary Authority of Singapore (MAS) released today a consultation paper on proposals to enhance its regulatory framework, which the agency says are needed for safeguarding investors’ interests.
The three key changes are; to extend to investors in non-conventional investment products the current regulatory safeguards only available to investors in capital markets in Singapore; to require all investment products to be rated for complexity and risks, and for these ratings to be disclosed to investors; and to provide accredited investors the option to benefit from the full range of capital markets regulatory safeguards that are applicable to retail investors.
Mr. Lee Boon Ngiap, Assistant Managing Director, Capital Markets, MAS, said, “Taken together, the three proposals will further safeguard investors’ interests and empower them to make better informed investment decisions.”
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The non-conventional investment products MAS seeks to regulate are those offered to retail investors in Singapore as alternative investments. Many of these products have features that are similar to regulated capital markets products, but are structured to assign ownership of underlying physical assets to investors, thereby taking them outside the regulatory perimeter of the agency. The two categories are buy-back arrangements involving the exchange of precious metals and schemes which have the elements of a collective investment scheme, but do not pool investors’ contributions.
Perhaps the most interesting change is that MAS proposes to introduce a complexity risk framework for investment products to help retail investors differentiate between simpler and more complex investment products, as well as gauge their riskiness. Under the proposed framework, all investment products sold to retail investors will be rated along two dimensions, 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.
Until now, non-retail investors were considered by MAS to be better informed and better able to access resources to protect their interests, and hence require less regulatory protection in line with the practice of other major financial centers. Under the new MAS proposal however, accredited investors will by default be treated as retail investors unless they choose to “opt-in” to accredited investors status. An accredited investor who chooses to “opt-in” to accredited investors status is willing to forgo the benefits of regulatory safeguards available to retail investors, in return for the ability to access a wider range of complex and risky investment products.