MAS proposes changes to investment product classification to lift safeguards for retail investors

SINGAPORE (THE BUSINESS TIMES) – The Monetary Authority of Singapore (MAS) is seeking feedback on classifying certain investment products, such as perpetual securities (perps), as complex that would raise the level of safeguards when these are distributed to retail investors.

Other such products highlighted include collective investment schemes, debentures and preference shares, according to MAS’ consultation paper issued on Wednesday (Nov 3).

The consultation seeks to enhance MAS’ existing complex products regime introduced in 2012.

MAS is also proposing changes to increase retail investors’ access to diversified investment funds.

In the paper, MAS proposes classifying complex investment products as either excluded investment products (EIPs) or specified investment products (SIPs). This means enhanced safeguards when these products are being distributed to retail investors.

EIPs are a list of well-established products prescribed by MAS with terms and conditions generally understandable by the market.

In contrast, SIPs are products that do not fall under the prescribed EIPs list. They must be sold with enhanced distribution safeguards – including requiring intermediaries to assess a customer’s investment knowledge and experience before investing.

MAS observed that while perps are generally clear about terms and conditions, not all investors may fully understand their features and risks – particularly the feature that redemption is optional.

On top of revising the classification of perps and requiring assessment of retail investors’ knowledge and experience, MAS proposed enhanced requirements on the marketing and disclosure surrounding perps.

Enhancements include disallowing perps to be marketed or described as bonds and making compulsory cautionary statements in advertising material that highlight the key features and risks of perps.

Other jurisdictions like Australia rely on risk warnings and enhanced disclosures, while financial institutions in the European Union, Hong Kong and Britain are required to assess the suitability of the product for the investor, taking into account their knowledge and experience, MAS said.

MAS is looking to maintain the balance between providing retail investors convenient access to a range of investment products and ensuring sufficient safeguards are present for informed decision-making, said MAS assistant managing director (capital markets) Lim Tuang Lee.

“These include helping retail investors better understand and appreciate the unique characteristics and risks associated with more complex products,” he added.

Interested parties can submit their comments on the MAS proposals here by Dec 15.

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