Half a year ago, MAS invited for public consultation on proposed enhancements to the regulatory framework for unlisted investment products.
Yesterday, they announced the completion of the first part of review which covers on:
The full review can be downloaded below but here’s a summary of the outcome.
Effective Product Disclosure
1) Products Highlight Sheet
A ” Product Highlights Sheet” written in plain English and not more than 4 pages will be introduced for unlisted products. It complements the prospectus and helps to highlight the key risks and benefits of the product in a language that is easy to understand.
The format of the will be developed and tested by end of 2009. Public consultation on the format will be sought.
2) Timely and Meaningful Disclosure
There will be a requirement for product issuers to product semi-annual and annual reports of the investment. This will not apply to products with a tenure of less than 12 months. Guidance for the format of these reports will be provided.
Any material changes should also be disclosed to investors immediately. It is recommended to use online avenues to provide information in a timely manner.
3) Redemption Prices to be Made Publicly Available
Indicative prices that reflect an accurate valuation of the underlying investment should be made available on the issuers or distributors website.
However, note that the disclosure of prices does not meant the issuer is obligated to redeem your product at that price. For example, some products are meant to be held to maturity and do not have an early exit mechanism. These would be highlighted clearly in the prospectus and Products Highlight Sheet.
4) Fair and Balanced Advertising and Marketing Materials
Benefits as well as risks should be spelt out properly and clearly. Financial institutions are to submit to MAS any marketing or advertising materials after they have been made public.
A minimum font size is required.
The use of the words “Capital/Principal Protected” to be banned henceforth.
Strengthening of Fair Dealing
l) Enhanced Due Diligence for New Products
Distributors are to put in place formal procedures and policies to access the nature of each new product and its suitability for targeted customers segments before distributing the product.
Tax considerations for investors need not be included in the due diligence.
2) Documentation of Advisory Process
Financial Advisers (FA) to set out in more details the basis of their recommendations.
They should state the customer’s objectives and needs, explain the reasons why the product is suitable for the customer having regard to the information obtained from the customer, and explain any possible disadvantages of the investment for the customer.
FAs are expected to make reasonable efforts to document and explain the disadvantages of the investment based on the specific circumstances of the customer.
3) Enhance Quality of Information Collected by FAs
Financial advisers should make reasonable attempts to obtain additional key information from their customers. This includes information on the source and extent of the customer’s regular income and whether the amount to be invested is a substantial portion of the customer’s assets.
4) Restriction on Sale Without Advice
It would be difficult to implement a total ban of “execution type” sales.
A customer can always choose not to receive advice.
For such cases, FAs to obtain from customers a clear acknowledgement that the customer has received a warning that he is waiving his right to receive advice under the FAA. This acknowledgement should be done in a form and manner that makes the customer aware of the implications of purchasing an investment product without advice.
5) Restrictions on Bank Tellers’ Activities
Bank and finance companies tellers will be prohibited to refer customers to representatives for the purpose of buying investment products. The only time where this is allowed is if the customer has approached the teller with an explicit request for investment products.
New Classification of Complex Investment Product
The definition will be further developed. Representatives who wish to sell such products will have to pass a new Capital Markets and Financial Advisory Services (“CMFAS”) module. This will apply to both new and existing representatives.
Introducing of a Cooling off Period
A cooling off period of 7 days will be imposed on unlisted products with a tenure of more than 3 months.