MAS Requires Intermediaries to Assess Investment Knowledge and Experience of Retail Customers

28 July 2011… The Monetary Authority of Singapore (MAS) has introduced new requirements for intermediaries to formally assess a retail customer's investment knowledge and experience before selling certain investment products to the customer.

2   These new requirements will apply to the sale of Specified Investment Products (SIPs), which are all investment products other than those listed in the Annex1. These include listed SIPs such as futures and exchange traded funds, and unlisted SIPs such as investment linked insurance policies.

3   Under the new measures, intermediaries must conduct a Customer Knowledge Assessment to assess whether a customer has the relevant knowledge or experience to understand the risks and features of an unlisted SIP. In the case of listed SIPs, intermediaries have to conduct a Customer Account Review to ascertain whether the customer has the relevant knowledge or experience to understand the risks and features of complex structures or derivatives, before approving the customer’s account to trade such products. The intermediary will inform the customer if he is assessed not to possess the relevant knowledge or experience. If the customer still intends to proceed with the transaction, the intermediary must offer advice to the customer. MAS will not allow “execution only” service in such cases. Safeguards, such as a lower trading limit than what the intermediary would otherwise have imposed, will also be put in place before the customer is allowed to proceed with the transaction. Intermediaries must comply with the new requirements in their dealings with all customers, new and existing. 

4   MAS has introduced these stronger measures and enhanced requirements to further safeguard customers’ interests. We aim to ensure that intermediaries recommend suitable investment products to customers, particularly those who may not have the relevant investment knowledge or experience.

5   The new requirements follow from MAS’ consultation paper on the Regulatory Regime for Listed and Unlisted Investment Products that was published on 28 January 2010, and MAS’ subsequent response to feedback received that was issued on 21 October 2010.

6   The requirements will come into effect on 1 January 2012 and will be introduced by means of a new Notice on the Sale of Investment Products [Notice No. SFA 04-N12] and a new Notice on Recommendations on Investment Products [Notice No. FAA-N16]. A transition period of five months will be provided for intermediaries to put in place the necessary processes to meet the requirements. In the meantime, intermediaries intending to sell SIPs should start adopting the proposed measures as good practice in conducting business with customers. MAS has also issued a guide to help consumers understand the requirements and what they can expect from their financial institutions when purchasing SIPs.

7   In line with the new requirements, all representatives who deal in or provide advice on SIPs must pass additional examinations on product knowledge and analysis. MAS is working with the Institute of Banking & Finance and the Singapore College of Insurance to introduce the additional examinations by end 2011.

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1 The Annex lists the less complex products which are already established in the market and are generally well understood by retail investors.

 

Annex  – Excluded Investment Products

Unless otherwise provided here, the terms used or referred to in this Annex shall have the same meanings assigned to them in section 2 of the Act or section 2 of the Securities and Futures Act (Cap. 289), where applicable.

“Excluded Investment Product” means:

(a) any stocks or shares issued or proposed to be issued by a corporation or body unincorporate, other than where such corporation or body unincorporate is a collective investment scheme;

(b) any unit of a share which represents ownership of the underlying share, where the underlying share is held on trust for the unit-holder by a custodian, and where –

(i) the units of shares have been previously issued, are listed for quotation or quoted on a securities exchange, and are traded on the exchange or an application has been or will be made for permission for the units of shares to be listed for quotation or quoted on a securities exchange or recognised securities exchange and the shares have been previously issued and are listed for quotation on a securities exchange or a recognised securities exchange; and
  
(ii)   no additional consideration (other than administrative fees) is payable by the unit-holder in the event that he converts  the unit of share into the underlying share;

(c) any right, option or derivative issued or proposed to be issued by a corporation or body unincorporate in respect of its own stocks or shares;

(d) any unit  in a business trust;

(e) any unit in a collective investment scheme, such collective investment scheme being  an arrangement:

(i) that is a trust;

(ii) that invests primarily in real estate and real   estate-related assets specified by the Authority in the Code on Collective Investment Schemes; and

(iii) all or any units of which are listed for quotation on a securities exchange;

(f) any debenture other than:

(i) asset-backed securities as defined in section 262 (3) of the Securities and Futures Act (Cap.289); or

(ii) structured notes as defined in regulation 2 (1) of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005;

(g) any life insurance policy other than investment-linked life insurance policies as defined in the First Schedule to the Insurance Act (Cap. 142); or 

(h) any contract or arrangement the effect of which is that one party agrees to exchange currency at an agreed rate of exchange with another party, where such currency exchange is effected immediately,

but does not include any product specified in items (a) to (h) above that is listed for quotation or quoted only on a securities market or a futures market that is not operated by an approved exchange.


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Last Modified on 26/11/2016