MAS Consults on Proposals to Strengthen the Regulation of the Sale and Marketing of Unlisted Investment Products - Quick Guide to Key Proposals
Introduction
MAS is consulting the public on proposals to further safeguard consumers’ interests and promote higher industry standards for the sale and marketing of unlisted investment products. The consultation is for six weeks until 23 April 2009.
Quick Guide to Key Proposals
Q1. Why is MAS consulting the public on these proposals?
We are seeking views on these proposals from all interested parties before we finalise them in accordance with our normal approach to developing new policy.
Q2. What products are covered by these proposals?
The proposals in this consultation paper focus on enhancing the regulatory regime for unlisted investment products sold to retail investors. Specifically, these are debentures (including structured notes) and unit trusts (also known as collective investment schemes) which are not traded on an approved exchange, and life insurance policies (including investment-linked life insurance policies).
The current proposals do not cover structured deposits, dual currency investments and listed products. Once we have finalised the current proposals for unlisted structured investment products, we will also consider whether we need to look at enhancements in these other areas as a separate exercise since different legal and regulatory issues may be involved.
Q3. How do the proposals relate to existing requirements?
The proposed new measures complement MAS’ current requirements for FIs to properly disclose the features and risks of investment products to investors, to have a reasonable basis when making recommendations of products to customers, and to ensure that their representatives meet certain minimum requirements.
Q4. If the proposals are adopted, how will some of the key proposals affect me?
The tables below highlight some of the key proposals and how they would affect you if they are implemented.
Do note that the institution that distributes these products is referred to as the financial institution (FI). The person who advises you on and sells you investment products is known as a representative under the Financial Advisers Act.
(i) Proposals for Unlisted Investment Products
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Proposal |
How would this affect you if the proposal is implemented? |
| When you may first learn about an unlisted investment product... |
Marketing and advertising materials by FIs to give a fair and balanced view of the product |
• Marketing and advertising materials should clearly set out both the potential upside and downside of the investment, and all material benefits and risks. Marketing and advertising materials should not give the impression that an investor can profit without risk.
• To ensure that statements on the downsides or risks are legible and not downplayed, information and footnotes contained in advertisements appearing in any document would be subject to a minimum font size [1] .
• Notwithstanding that advertisements and marketing materials are fair and balanced, you should also read other disclosure documents such as the prospectus for a full understanding of the nature and risks of the product.
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| Bank tellers prohibited from referring customers to representatives for the purchase of investment products |
• When you visit a bank for traditional bank-related transactions, bank tellers will not be able to refer you to a representative for the purchase of investment products. This will also apply to finance companies.
• If you enquire about investment products or about products that could offer you a return higher than deposit interest rates, the bank teller may refer you to a relevant representative. The representative may then sell you an investment product.
|
| When you receive information about the product... |
FIs to provide a simplified product disclosure document |
• You will receive a Product Highlights Sheet that highlights key information to investors in a clear, concise and effective manner.
• The Product Highlights Sheet will contain key information in plain language in a “Question & Answer” format. The answers to the questions should be set out in clear and simple language that investors can easily understand. The length of the Products Highlight Sheet is capped at four pages and subject to a minimum font size [2].
• The Product Highlights Sheet supplements other product disclosure documents. Besides reading the Product Highlights Sheet, you should still refer to
- the prospectus (in the case of unit trusts and debentures); and
- the benefit illustration and product summary (in the case of life insurance policies).
• Do take time to read the Products Highlights Sheet. If you have any queries, ask your representative for clarifications.
|
| FIs to set out in more detail the basis for their recommendation |
• Besides asking you about your financial situation, objectives and risk tolerance as part of the process to understand your financial needs, your representative will also make enquiries to check your ability to bear the potential financial losses that may arise from the proposed investment.
• Specifically, your representative will request the following additional information:
- the source and extent of your regular income;
- whether the amount to be invested is a substantial portion of your assets; and
- your regular financial commitments.
• Your representative is required to give to you a document setting out in more detail the basis for a recommendation. The basis for a recommendation must at least state your objectives and needs, explain the reasons why the product is suitable having regard to the information obtained from you, and explain any possible disadvantages of the investment to you. You can then better understand why the product is suitable for you and thus make an informed decision.
• If you have any queries on the product or recommendation, you should ask your representative. Do also ask him to clarify in writing.
• You should not purchase the product if you disagree with the advice, do not understand, or are not comfortable with the product.
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| FIs can only sell you a product without giving you advice if you contact the FI on your own initiative to purchase the investment product |
• Unless you contact the FI on your own initiative to purchase an investment product, your representative should give you advice on the product.
• If you choose not to receive the representative’s advice, you are waiving an important right to receive advice on whether the product is suitable for you under the Financial Advisers Act. The representative should explain to you what this implies for you.
|
| After you purchased a product... |
FIs to make available timely and meaningful updates on your investment |
• Semi-annual and annual reports will be made available to you. These will provide updates on your investment in unlisted investment products.
• The reports should explain the calculation of actual returns and any significant deviation from advertised returns. You will also receive reports on material changes which may affect the risks and returns of the product as and when these changes occur.
• Issuers should make available, publicly and regularly, bid or redemption prices of each product. This will give you an indication of the price at which you can exit the investment.
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(ii) Additional Proposals for Complex Investment Products
| |
Proposal |
How would this affect you if the proposal is implemented? |
| After you purchased a product... |
FIs to provide "health warning" |
• You will see a "health warning"[3] in all disclosure documents and marketing and advertising materials for complex investment products.
• The intention is to alert you that you may not easily understand the features and the risks of the product and should seek to do so when your representative provides you advice.
|
| FIs to provide mandatory advice |
• You can purchase a complex investment product only after your representative has provided you with financial advice and explained whether the product is suitable for you.
• Do consider your representative’s recommendation carefully. Do not purchase the product if you do not fully understand it or find that it is not suitable for you.
|
(iii) Additional Proposals for Unlisted Debentures
| |
Proposal |
How would this affect you if the proposal is implemented?
|
| After you purchased a product... |
FIs to extend cooling-off period |
• After purchasing an unlisted debenture, you have seven days to reconsider your investment decision.
• If you change your mind during the seven days, the FI will allow you to exit your investment without having to incur sales charges or commissions.
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For more information on the various proposals, please click here to view the consultation paper [PDF,217kb].
Q5. What should I do if I have some comments on the proposals?
MAS invites you to send your feedback by 23 April 2009. You may submit your comments to:
Monetary Authority of Singapore
10 Shenton Way, MAS Building
Singapore 079117
Email: investmentpdts_review@mas.gov.sg
Fax: (65) 6225 4063
MAS will consider your comments, along with feedback from other stakeholders when finalising the additional measures. While MAS will not be able to correspond directly with all respondents, MAS will publish a document outlining MAS’ response to the various stakeholders.
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[1] Information in advertisements in any document should be in a font size of at least 10-point Times New Roman. Where information is contained in a footnote, the footnote should also be in a font size which is at least half the font size of the word or statement which it relates to, subject to a minimum of 10-point Times New Roman.
[2] Information in the Product Highlights Sheet should be in a font size at least 10-point Times New Roman.
[3] The text will be required to be in bold, and a minimum of font size 12, Times New Roman, and is to be placed in the front cover of the prospectus, the Product Highlights Sheet, the marketing and advertising materials, and any other disclosure documents.
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