The MAS said the new requirements will apply to the sale of Specified Investment Products (SIPs), which excludes a number of investment types, including listed SIPs such as futures and exchange traded funds, and unlisted SIPs such as investment linked insurance policies (a full list of exclusions is given below).
Under the new measures, which come into force on 1 January 2012, intermediaries must conduct a Customer Knowledge Assessment to assess whether a customer has the relevant knowledge or experience to understand the risks and features of an unlisted SIP.
In the case of listed SIPs, the MAS said the assessment will be used to ascertain whether the customer has the relevant experience or knowledge to understand the risks and features of complex structures or derivatives, before approving the customer’s account to trade such products.
The adviser will inform the customer if, following the assessment, it is decided he does not possess the relevant knowledge or experience. If the customer still intends to proceed with the transaction, the intermediary must offer advice to the customer. MAS said it will not allow “execution only” in such cases. Furthermore, safeguards, such as a lower trading limit for the client, must also be introduced before the client is allowed to proceed with the transaction.
In addition to assessing clients, advisers and other representatives who deal in or provide advice on SIPs, must complete additional examinations on product knowledge and analysis. The MAS said it is working with Institute of Banking & Finance and the Singapore College of Insurance to introduce the additional examinations by end 2011.
The MAS said advisers must comply with these new requirements with all customers, new and existing.
Excluded Investment Products:
(a) any stocks or shares issued or proposed to be issued by a corporation or body unincorporate, other than where such corporation or body unincorporate is a collective investment scheme;
(b) any unit of a share which represents ownership of the underlying share, where the underlying share is held on trust for the unit-holder by a custodian, and where –
(i) the units of shares have been previously issued, are listed for quotation or quoted on a securities exchange, and are traded on the exchange or an application has been or will be made for permission for the units of shares to be listed for quotation or quoted on a securities exchange or recognised securities exchange and the shares have been previously issued and are listed for quotation on a securities exchange or a recognised securities exchange; and
(ii) no additional consideration (other than administrative fees) is payable by the unit-holder in the event that he converts the unit of share into the underlying share;
(c) any right, option or derivative issued or proposed to be issued by a corporation or body unincorporate in respect of its own stocks or shares;
(d) any unit in a business trust;
(e) any unit in a collective investment scheme, such collective investment scheme being an arrangement:
(i) that is a trust;
(ii) that invests primarily in real estate and real estate-related assets specified by the Authority in the Code on Collective Investment Schemes; and
(iii) all or any units of which are listed for quotation on a securities exchange;
(f) any debenture other than:
(i) asset-backed securities as defined in section 262 (3) of the Securities and Futures Act (Cap.289); or
(ii) structured notes as defined in regulation 2 (1) of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005;
(g) any life insurance policy other than investment-linked life insurance policies as defined in the First Schedule to the Insurance Act (Cap. 142); or
(h) any contract or arrangement the effect of which is that one party agrees to exchange currency at an agreed rate of exchange with another party, where such currency exchange is effected immediately,
but does not include any product specified in items (a) to (h) above that is listed for quotation or quoted only on a securities market or a futures market that is not operated by an approved exchange.
