Oct 25, 2010

Retail investors will have to prove that they know what they are getting into

Retail financial investors to get better protection

(SINGAPORE) Soon, retail financial investors will have to prove that they know what they are getting into before they are allowed to buy certain investment products.

And if they don't, the Singapore Exchange (SGX) is ready to give them a primer over the Internet on the subject.

The onus of the new regime, however, falls on financial institutions. They must make sure that their customers have financial knowledge or experience before doing business with them, said the Monetary Authority of Singapore (MAS) yesterday.

Investment products that fall under the new, tougher Regulatory Regime for Listed and Unlisted Investment Products include popular unit trusts, structured deposits and exchange traded funds (ETFs).

Those not caught under the new regime include shares, depository receipts representing shares, rights issues, company warrants, plain vanilla bonds or debentures, business trusts, Reits, life insurance policies and foreign exchange contracts.

The MAS said that for the sale of unlisted investment products, financial advisers have to conduct a customer knowledge assessment before a sale, to assess whether the customer has the relevant knowledge or experience to understand the risks and features of the product.

The assessment should find out if the customer has any finance-related background relevant to the product, which includes relevant educational qualifications; investment experience or work experience directly related to the product or similar products.

For trading of listed products under the regime, the remisier has to do a customer account review before account opening. The review is to ascertain whether the customer who wishes to trade the listed security has the relevant knowledge or experience to understand the risks and features of derivatives, before approving the customer's account for trading such products.

For customers who do not have the relevant qualifications, remisiers could ask if they wanted to take an Internet-based tutorial on derivatives that is developed by SGX, said MAS.

Existing customers are not exempt from the review, but remisiers will be given a transition period to comply with the requirement.

The tougher regime will be implemented as soon as possible.

'Generally, proposals which do not require legislative amendments will be implemented first,' said an MAS spokeswoman.

Financial institutions will be expected to adopt the remaining proposals even before legislative implementation as good practice in conducting business with their customers, she said. 'We are targeting all legislative amendments to be effected by the end of 2011.'

Bankers expect the tougher requirements to increase compliance cost but saw it as generally beneficial to customers.

Helen Neo, Maybank Singapore head of consumer banking, said that the proposed customer knowledge assessment requirement was already embedded in its sales advisory structure.

'While this may lead to a stringent sales advisory process, it is beneficial to the customers as this enhanced due diligence is put in place to protect customers' interest before they purchase any investment product.'


My comment : I think this is generally a good move to ensure investors safe guard their money against their ignorance in any investment product.  However, I do not really understand why unit trusts and ETFs fall under the new regulation. I hope they make a review on these two types of investment vehicles.

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