Singapore retail investors could be spoilt for choice

Product classification proposals a mixed bag

MAS’s new product classification rules strive to strike balance in providing retail investors convenient access to a range of investment products while ensuring that sufficient safeguards are in place to help them make informed investment decisions.

The MAS complex products regime was first put in place in 2012 following the global financial crisis. The objective of the complex product regime is to enhance investor protection and to aid retail investors in better understanding the features and risks of a complex product before purchasing one.

MAS defines investment products with features that are deemed to be understood by retail investors as Excluded Investment Products (EIPs). EIPs are simple products which include stocks, ETFs, REITs etc. Products that are more complex are known as Specified Investment Products (SIPs), such as structured warrants, futures and so on. SIPs must be sold only with enhanced distribution safeguards. These safeguards include requiring intermediaries to assess a customer’s investment knowledge and experience before the customer invests in an SIP.

This consultation paper which was issued in November 2021 is seeking views on the following:

  1. Classifying collective investment schemes (CIS) that are authorised or recognised by MAS as EIPs
  2. Classifying debentures with varying interest payments or convertible features as SIPs
  3. The appropriate classification (either as EIPs or SIPs) of perpetual securities and preference shares, and suitable safeguards for investors who invest in these products
  4. Removing the requirement for financial institutions to conduct separate assessments on the investment knowledge and experience of customers when advising customers on products.

With these proposals, fund managers who operate CIS (apart from more complex funds) would no longer be required to highlight that the CIS is meant for sophisticated investors. They would also no longer be required to include information of the unique features and the difference in the risk profile of these CIS as compared to traditional funds.

On the other hand, if debentures with varying interest payments or convertible features and perpetual securities are indeed classified as SIPs, brokers and other intermediaries may need to enhance the marketing and disclosure requirements on these products to ensure that the key features and risks are adequately highlighted to investors.

How we can help

Bovill works with clients to carry out health checks of their product classification, distribution safeguards and disclosures to ensure that they are in line with MAS’ and other regulators’ requirements.

We can help you to:

  • Perform a full assessment of your current product classification, and advise whether your distribution safeguards in place for retail investors satisfy MAS’ requirements.
  • We can also perform such assessment when the proposed changes to the complex products regime has been finalised by MAS.

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