KEEPING PACE WITH PRODUCT
The FAA now regulates the sales and advisory process
for several new hybrid investment products. MAS felt
that growing retail interest in these products required
adequate safeguards to protect Singapore investors.
Structured deposits are hybrid
investment products where returns are tied to the performance
of a reference financial instrument. MAS introduced
Guidelines on Structured Deposits to raise standards
of banks in the sale and marketing of these products.
The Guidelines on Structured Deposits require banks
to ensure that:
- All marketing materials on such
products disclose key information in a clear and adequate
manner, and do not include statements that are false
- Bank representatives selling
these products are qualified and have a reasonable
basis for making recommendations.
- Steps are taken to segregate
the sales process for such investment products from
other deposits so that consumers will not be misled
into assuming that structured deposits have similar
risk-return profiles as traditional fixed deposits.
In addition, MAS issued a
Consumer Guide on structured deposits to raise consumer
awareness of the risks involved in investing in such
Traded Endowment Policies
and Traded Life Policies
Traded endowment policies (TEPs) and traded life policies
(TLPs) are second- hand insurance policies packaged
as an investment product and sold to third party investors.
Given the incidence of fraud associated with foreign
TLP product providers in other countries, MAS decided
to only permit the distribution of TLPs to non-retail
investors in Singapore. Distributors of TEPs will be
permitted access to the retail market only with a minimum
investment of S$20,000. The TEPs also need to be manufactured
in a recognised country where the life company and product
provider are regulated. Singapore investors investing
in foreign TEPs should also have access to an appropriate
overseas compensation and dispute resolution scheme,
and a Singapore-based representative office.
FAs are required under the FAA to disclose any remuneration from making
recommendations on investment products, or executing a purchase or
sale contract of a designated investment product on their clients’
behalf. The purpose of requiring remuneration disclosure is to make
consumers aware of the costs of the financial advisory services provided.
This will allow them to make better-informed decisions. In May 2004,
MAS issued a Practice Note on the Disclosure of Remuneration by Financial
Advisers. This provided guidance to FAs on their obligations with
respect to remuneration disclosure. It clarifies the types of remuneration
to be disclosed, when FAs must disclose their remuneration, and how
the remuneration should be disclosed.
In October 2004, MAS issued Guidelines on Switching of Designated
Investment Products. The aim of these Guidelines is to provide guidance
on the controls, procedures and processes that MAS expects FAs to
implement in order to monitor and deter undesirable switching activities.
The Guidelines address the disclosure requirements of FAs and their
representatives, the types of monitoring procedures to be put in place
by the FAs, and how the remuneration structure of representatives
can affect their conduct. MAS will conduct a thematic inspection of
selected FAs to assess the level of compliance with the Guidelines.
We will also work with the CPF Board and the industry associations
to address the problem of improper switching and churning in the financial