About one year after MAS did a public consultation on their proposals to enhance safeguards of some forms of unregulated investments, they have studied the responses and are now ready to put this into law.
Retail investors in non-conventional investment products will now be accorded the same regulatory safeguards as investors in capital markets products.
This involves two main areas.
Precious Metals Buy-back Schemes
Precious metals buy-back arrangements which involve the sale of precious metals with guaranteed buy-back at an agreed price. The scope will be limited to arrangements involving gold, silver and platinum, as these are widely regarded as financial assets and are commonly used as collateral for such arrangements.
Collectively-managed Investment Schemes (CIS)
Schemes which are in substance similar to traditional regulated investment funds but do not pool investors’ contributions will be regulated as Collective Investment Schemes under the SFA.
The key factors to determine whether an investment is considered a CIS will be the :
- Participants have no day-to-day control over management of the property (“control” limb);
- Property is managed as a whole by or on behalf of the scheme operator (“management” limb);
- Purpose or effect (or purported purpose or effect) of the arrangement is to enable participants to participate in profits arising from the scheme property (“purpose” limb).
Schemes intended for retail investors will require authorization from MAS and are restricted to:
- investments in securities or other assets that are liquid (e.g. precious metals), or
- have stable income-generating ability (e.g. completed real estate)
The operators will need to adhere to the CIS code, which will be impossible for most operators.
The rest of the schemes like agriculture, undeveloped real estate, land banking, etc will not be allowed to be sold to the general public.
Once this is put into law, many of the unregulated schemes existing today will only be able to rely on accredited investors. Most will likely have to close shop.
Another change that is going to be implemented is that investors who meet prescribed wealth or income thresholds to qualify as accredited investors (AIs) will have the option to benefit from the full range of regulatory safeguards that are applicable for retail investors.
You can read the full MAS response here:
2015_08_24 Response to feedback Part I and III
