Non-conventional investments
The bill also tackles investment products that “display essentially the same characteristics as traditional capital markets products, but are deliberately structures to fall out of MAS’s regulatory framework”, Ong added.
“First, the bill empowers MAS to prescribe certain products as debentures. With these powers, MAS intends to prescribe as debentures, buy-back arrangements involving gold, silver and platinum. This is because in substance, such schemes are similar to collateralised borrowing arrangements.”
Once classified as a debenture, they must provide an MAS-registered prospectus. “This will provide retail investors better access to information on product features and risks, and make more informed investment decisions.”
Following similar approaches in the UK and Hong Kong the bill also “widens the definition of collective investment schemes, which must be authorised or recognised by MAS for public offers made to retail investors”, he said.
“Currently, for a scheme to be regarded as a CIS, both profits and contributions from investors must be pooled. But investment schemes can be structured to sell investors sub-divided interests in physical assets; such as undeveloped land, plantation plots or even units in an apartment block to be run as a hotel. By structuring the schemes this way, the pooling element can be avoided, and regulation as a CIS circumvented.
“The amended CIS definition will no longer require investors’ contributions and profits to be pooled for a scheme to be regarded as a CIS. A scheme can be caught as CIS as long as the scheme property is managed as a whole. This recognises the “collective” nature of such schemes, since property is still managed as a whole by the scheme manager, to generate profits for the collective interests of scheme investors.”
Investor responsibility
Ong emphasised, however, that “all investments carry risk, that ultimately, investors must take responsibility for their financial decisions”.
“Investors need to critically assess investment products and refrain from investing in any product they do not understand or where the returns sound too good to be true.”
