MAS unveils plans for stricter regulatory framework for retail investments

Non-conventional investments are in the spotlight.

The Monetary Authority of Singapore (MAS) yesterday released a consultation paper on proposals to enhance its regulatory framework for safeguarding investors’ interests.

Under the proposed changes, non-conventional investment products such as buy-back arrangements on precious metals and other collective investment schemes will also be covered by the current regulatory safeguards available to investors in capital markets.

The new framework will also require all investment products to be rated for complexity and risks, and for these ratings to be disclosed to investors as well as provide accredited investors the option to benefit from the full range of capital markets regulatory safeguards that are applicable for retail investors. 

According to the MAS, “In recent years, there has been an increase in the number of non-conventional products offered to retail investors 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 Securities and Futures Act (SFA).”

Here’s more from MAS:

MAS proposes to extend to investors in these non-conventional products the current regulatory safeguards under the SFA for investors in capital markets. 

This is to ensure that structures which are in substance capital markets products are regulated as such. The two categories of non-conventional products that are the subject of this consultation are: 

i. Buy-back arrangements involving the exchange of precious metals. In economic effect, such arrangements are equivalent to collateralised borrowing and will be regulated as “debentures” under the SFA.

ii. Schemes which have the elements of a regulated collective investment scheme but do not pool investors’ contributions. The proposal is to regulate such schemes as collective investment scheme under the SFA. 

To help retail investors differentiate between simpler and more complex investment products, as well as gauge their riskiness, MAS proposes to introduce a complexity-risk framework for investment products.

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.

Under this proposal, AIs will by default be treated as retail investors unless they choose to “opt-in” to AI status. An AI who chooses to “opt-in” to AI status may be one who 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. 

The public is invited to participate in the consultation exercise on the proposed changes over a six-week period from 21 July to 1 September 2014.