This latest paper from the Monetary Authority of Singapore is one of a series of measures the regulator has taken in recent months to increase the protection of consumers using investment and other financial products in the jurisdiction.
Most recently, it unveiled plans for a huge overhaul of the advisory process in Singapore, with ambitions to raise the professionalism of the financial advisory industry, lower costs and ensure investors are being treated fairly.
This latest initiative is aimed at protecting consumers who use unlisted derivative products such as contracts for differences and leveraged foreign exchange products. The MAS said investors using these types of products “are exposed to considerable risks, given the leveraging effect of margin trading on potential losses”.
However, the watchdog also said that, due to the unlisted nature of these investments, investors are at the mercy of the creditworthiness of the broker who sold them the product and, in the event of a default, they may not have recourse to transfer their positions or recover their moneys in their trading accounts.
The MAS said its proposed regulatory enhancements will aim to:
- Enhance credit risk management by derivative product dealers and mitigate the risk of over-leveraging by retail investors;
- Ensure derivative dealers are adequately capitalised and financially sound in the operation of their business;
- Enhance the protection and recovery of retail investors’ moneys and assets in the event of insolvency of the dealer; and
- Enhance risk disclosure to retail investors to better highlight the specific risks associated with trading unlisted margined derivatives so as to help them make informed decisions on the suitability of such products.
Lee Chuan Teck, assistant managing director for Capital Markets at the MAS, said: “The proposed enhancements will increase the level of protection for investors and facilitate faster recovery of their funds should the intermediary default.
“MAS strongly encourages consumers seeking financial services to deal only with persons regulated by MAS. Entities overseas may offer lower margin requirements but investors trading with them will not be protected under laws administered by MAS.”
