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MAS Responds To Feedback On Consultation Paper On Unlisted Investment Products (Part I)
December 2009 | Corporate | Business Bulletin

On 12 March 2009, the Monetary Authority of Singapore (the "MAS") issued a consultation paper proposing enhancements to the regulatory framework for unlisted investment products ("UIPs"). On 8 September 2009, the MAS issued the first of its two part response (the "Response") to the public feedback received from that consultation. This article briefly summarises the key decisions taken by the MAS.

Proposals to promote more effective disclosure

Product Highlights Sheet - UIPs must be accompanied by a product highlights sheet which will complement the prospectus by providing the key features and risks of the investment product. The MAS will, in due course, consult on the details of the proposed format and content of the product highlights sheet.

Ongoing disclosure requirements - UIPs with tenures of 12 months or longer will be required to issue semi-annual and annual reports. All UIPs, regardless of tenure, will be required to disclose material changes.

Bid/redemption prices - Bid or redemption prices of UIPs are to be made publicly and regularly available on the issuer or distributor's website. Issuers and distributors should highlight to investors that the prices are only indicative and may not reflect actual exit prices. If the issuers do not intend to provide an exit mechanism, they should clearly state so in their prospectus and product highlights sheet.

Fair and balanced view of products - Marketing and advertising materials for UIPs are required to give a fair and balanced view of the product.

Restrictions on marketing and advertising materials - Marketing and advertising materials should be legible and not suggest that the product is, or is comparable to, a bank deposit or that there is little risk of the investor losing his principal or not achieving the stated or targeted rate of returns. The materials should not contain words or graphics that could convey an impression that is inaccurate or inconsistent with the nature or risks of the product.

Use of the term "capital/principal protected" - The use of the term "capital/principal protected" and any other derivative or form of this term is prohibited in all disclosure documents and marketing and advertising materials.

Strengthening of fair dealing practices in the sale and advisory process

Enhanced due diligence for new products - Distributors of UIPs will be required to implement formal policies and procedures to assess the nature of any new investment product and its suitability for targeted customer segments.

Documentation of the advisory process - Financial Advisers ("FAs") will be required to make reasonable efforts to document and explain the possible disadvantages of the investment based on the specific circumstances of the customer.

Enhance quality of information collected by FAs - FAs will have to take reasonable steps to obtain the necessary information from their customer.

Restrictions on sale without advice - If the customer chooses not to receive advice, the FAs should warn the customer that he is waiving his right to rely on the provisions of the Financial Advisers Act ("FAA"). FAs should also obtain from their customers a clear acknowledgement that the customer has received a warning that he is waiving his right to receive advice under the FAA.

Restriction on bank tellers' activities - Bank and finance company tellers are prohibited from referring customers to representatives for the purchase of investment products. Incentives for tellers' referral activities are banned. Tellers will be allowed to make referrals only if a customer expressly requests for information.

Complex investment products

Enhanced competency requirements for representatives - New and existing FA representatives will be required to pass a new Capital Markets and Financial Advisory Services ("CMFAS") module before being allowed to sell complex investment products. The new CMFAS module is being developed and will be implemented in 2010.

Unlisted debentures

Cooling off period - A cooling off period of seven days will apply to unlisted debentures with tenures longer than three months.