The Monetary Authority of Singapore (MAS) has released a consultation paper which will aim to protect investors, with rick ratings being proposed for all investment products.
Key changes will extend to investors in non-conventional investment products the current regulatory safeguards available to investors in capital markets. It will also require all investment products to be rated for complexity and risks, and for these ratings to be disclosed to investors.
MAS noted that 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.
MAS wants to extend to investors in these non-conventional products the current regulatory safeguards under the SFA for investors in capital markets to ensure that structures which are in substance capital markets products are regulated as such.
One category of non-conventional products that is the subject of this consultation are 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.
An increasing number of investment products with more complex risk-return profiles are being offered to retail investors, according to MAS. Such products pose greater challenges to retail investors in deciding on investments that suit their level of understanding and risk appetite.
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.
The public is invited to participate in the consultation exercise on the proposed changes over a six-week period until September 1, 2014.
A copy of the public consultation paper is available on the MAS website.
Andrew Batt, International Group Editor of PropertyGuru Group, wrote this story. To contact him about this or other stories email andrew@propertyguru.com.sg
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