Thursday 24 September 2015

MAS beefs up safeguards for retail investors

New rules will apply to non-conventional products such as gold buyback schemes
By Lorna Tan, Senior Correspondent, The Straits Times, 23 Sep 2015

Retail investors are to get a boost in protection with new rules for previously unregulated investments linked to gold and other physical assets such as land.

Scores of investors here have been burned, for instance, by gold investment schemes offering to buy back the metal at a fixed price.

Another key change will allow greater flexibility for accredited investors - those meeting elevated wealth or income levels - to decide on the level of regulatory protection they want to be accorded.

The Monetary Authority of Singapore (MAS) unveiled the planned regulatory tweaks yesterday after a consultation paper last year.

It said regulatory safeguards should protect investors in non-conventional products in the same way as in capital market products like shares. The non-conventional products will be regulated.

For example, arrangements involving gold, silver and platinum with guaranteed buybacks at an agreed price will be regulated.

Companies offering such products will need to be registered with MAS.

Collective investment schemes (CIS) intended for retail investors will first need to be authorised or recognised by MAS, and a prospectus registered, unless exempted. These schemes will be restricted to investments in securities or other liquid assets - such as precious metals - or with stable income potential such as completed real estate.

MAS said the question of whether a land-banking scheme would be regulated when the proposals are implemented will depend on the business model of the scheme.

The expanded CIS regulations may mean some schemes can no longer solicit funds from the public. But scheme operators will be able to rely on existing exemptions to solicit funds - from more sophisticated investors, for instance.

Arrangements in place before the legislative changes will not be affected unless more funds are raised from retail investors after the new laws are implemented.

MAS said the legislation would go to Parliament next year.

Giving the thumbs up, Consumers Association of Singapore (Case) executive director Seah Seng Choon said the measures are "long overdue". He said that with these safeguards in place, promoters of such collective investments would be made to account for their claims.

Mr David Gerald, president and chief executive of the Securities Investors Association Singapore (Sias), said many Singaporeans had been caught without recourse in scams involving gold schemes and similar CIS involving land and property. "The move to have more of these investments regulated will hopefully bring peace of mind to investors and enhance the protection of investors in these investments."

Under the changes, financial institutions will have to treat new customers eligible to be accredited investors as retail investors by default, unless they choose to "opt in" - such as those who wish to retain easier access to a wider range of complex, risky products.

Sias, Case and MAS caution retail investors to continue to be vigilant even with these safeguards.

"Consumers have to bear in mind that such collective investments come with high risk. Consumers who are not comfortable with such risk should not get involved," said Mr Seah.

MAS is still reviewing feedback on the remaining proposal to introduce a framework to rate retail investment products on their complexity and risk, and will issue a separate public response later.

Accredited investors include those with net personal assets above $2 million or with income in the preceding 12 months not less than $300,000.

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