Noting the increase in the number of complex products available in the market, the regulator has also proposed other measures that include making it mandatory for product issuers to rate and disclose ratings on investment products to retail investors.
In a consultation paper, the regulator said many of the non-conventional products, which are offered to retail investors as alternative investments have features similar to that of regulated capital markets products.
But, the products are “deliberately” structured in a way that takes them outside the regulatory perimeter of the Securities and Futures Act and the Financial Advisers Act.
In view of this, the regulator has proposed to regulate two non-conventional products categories; firstly buy-back arrangements involving the exchange of precious metals; and secondly collectively managed investment schemes (CIS) that display all characteristics of a regulated collective investment scheme, other than the pooling of investors’ contributions.
Accordingly, it proposes product providers will have to provide retail investors with a MAS-registered prospectus, while CIS unit providers will have to seek regulatory authorisation or recognition of the CIS.
Furthermore, intermediaries dealing in or advising such products, or marketing a CIS, will also need to be licensed by MAS.
The regulator also noted that this proposal would bring its regulatory coverage of CIS in line with that in Hong Kong and the UK.
Product ratings
Under the proposed complexity-risk ratings framework, the regulator has said investment products sold to retail investors will be rated along two dimensions – complexity of structure and risk of loss of initial investment principal. The ratings will have to be disclosed in all marketing and product offering documents.
This, the regulator says, will help retail investors differentiate between simpler and more complex investment products, as well as gauge their riskiness.
The framework will be applicable only to retail investors and only for capital market products, structured deposits issued by banks, participating whole life and endowment policies and investment-linked policies issued by insurers, but excluding term life policies, non-participating whole life and endowment policies and annuities.
Accredited investors
Meanwhile, the regulator is also providing accredited investors (AIs) an option to benefit from the full range of capital markets regulatory safeguards which are currently applicable to retail investors.
The regulator said in the aftermath of the global financial crisis, it has became necessary to see whether these non-retail investors – accredited, institutional and expert investors – are better informed and/or are better able to access resources to protect their interests.
Lee Boon Ngiap, assistant managing director, capital markets said: “Taken together, the three proposals will further safeguard investors’ interests and empower them to make better informed investment decisions.”
AIs will be treated as retail investors unless they choose to “opt-in” to AI status. A two-year transitional period will be provided for existing AIs to opt-in.
The regulator said an investor who chooses to “opt-in” will have 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.
The consultation will run for a six-week period until 1 September.
