Singapore Investor Protection Changes Headed for Parliament

Updated on
  • Central bank says it will submit revisions by fourth quarter
  • Changes aimed at boosting safeguards for wealthy investors

The Monetary Authority of Singapore intends to introduce legislative amendments aimed at boosting safeguards for wealthier investors by the fourth quarter.

If passed by lawmakers, the central bank will aim to implement the changes to the so-called “accredited investor” regime next year, the MAS said in an e-mailed response to questions from Bloomberg News on Friday. The timetable for the first parliamentary reading is in line with the central bank’s statement almost a year ago, when it said it would submit the proposals in 2016.

The revisions are aimed at granting some wealthy individuals the option to choose protections available to retail investors. Singaporean law assumes rich investors are better informed or have greater means to protect their own interests, and therefore exempts banks from having to provide certain disclosures about financial products that are made to retail investors.

“Consistent with the practice in other major financial jurisdictions, the full suite of regulatory protection under the capital markets regulatory framework is aimed primarily at retail investors,” the MAS said. “The proposed refinements to the AI regime formed part of a package of proposals to enhance regulatory safeguards for investors in the capital markets.”

Under Singaporean law, an individual accredited investor is a person who has more than S$2 million ($1.47 million) in personal assets including property, or made at least S$300,000 of income in the preceding 12 months. When dealing with accredited investors, banks and brokerages are exempt from requirements such as having to provide a prospectus.

Facing Losses

The proposed amendments will give such individuals an option to be treated as retail investors, thus extending relevant regulatory safeguards to them, the MAS said. The revision will also tighten the S$2 million net personal assets threshold so that an investor’s primary home can only contribute up to half that value, the MAS said.

Some wealthy Singaporean investors are facing losses after a series of defaults among local dollar-denominated corporate bonds since November. Last month, energy-services firm Swiber Holdings Ltd. joined PT Trikomsel Oke and Pacific Andes Resources Development Ltd. in defaulting on their bond obligations.

Private banks took up 49 percent to 92 percent of the unrated notes issued by the three companies in their sales from April 2013 to October 2014, according to a Bloomberg News analysis of figures from bond-sale arrangers and compiled by analysts.

Rigorous Standards

In its statement, the MAS called on private banks to consider their clients’ individual circumstances, investment portfolios and risk profiles in offering any investment product and services.

“Notwithstanding the AI status of clients, private banks are expected to adopt fair business practices and act in the best interests of their clients,” the central bank said. Private banks are expected to adhere to the code of conduct “which sets out rigorous standards for dealing with their clients,” it said.

The MAS also said it’s conducting “consumer testing” on a complexity-risk ratings framework for investment products, to determine whether such a measure would be useful in decision making by investors. The authority said it will issue a statement on the matter “at a later date.”

The framework was among several proposals including the investor protection amendments that were unveiled in a July 2014 consultation paper by the central bank. The system will take into account various factors that drive a product’s complexity in assigning a risk rating, such as the number of layers between the investor and the underlying asset, and the extensiveness of derivatives usage.

(Updates with risk ratings framework in 11th paragraph.)
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