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Regulator plans new rules to shield investors

MAS says they'll apply to assets such as land banks, gold and other physical assets

[SINGAPORE] The Monetary Authority of Singapore (MAS) yesterday proposed a set of regulations to boost investor protection, with new rules for investments linked to land banks, gold and other physical assets - following several scams that have left retail investors high and dry.

Its latest move, laid out in a consultation paper, means investment schemes linked to land-banking and other physical assets such as most precious metals, will no longer be made available to retail investors.

MAS also wants all retail investment products to be rated on their complexity and risk - a decision that David Gerald, president of the Securities Investors Association (Singapore), said would provide needed guidance for retail investors. "It's better late than never," he added.

The central bank plans to tweak its definition of collectively managed investment schemes (CIS) to include schemes that involve pooled profits and remove investors from the daily control of the investments. This will apply to land-banking, which would then be classified as a CIS.

All CIS must meet standards set out in the CIS Code, which ensures that the assets involved are liquid. Since land cannot be deemed liquid, unlike securities, it would no longer be offered to retail investors.

The move comes amid rising concerns over land-banking investments. Last month, two of three directors of land-banking firm Profitable Plots were jailed for conspiring to cheat investors in a bond scam that came with claims of a 12.5 per cent yield in returns within six months.

The regulator plans to make an exception for investment schemes linked to gold, silver and platinum, by creating specific rules for such products for retail participation. The MAS had earlier done so for real estate investment trusts (Reits) to allow investors to invest in income-generating properties.

The exception comes as these precious metals are regarded as comparable to financial assets in liquidity and tradability terms.

Also, buyback arrangements involving gold, silver or platinum will be regulated by MAS as debentures, and must meet prospectus disclosure requirements. MAS sees close similarities between these buybacks and collateralised debt obligations.

While it does not seek to judge the merits of investment schemes, MAS said that consumers should enjoy the regulatory safeguards for products that are similar to existing capital markets products. BT understands these products have fallen out of MAS's regulatory scope due to their unique structures.

As one industry source put it, "if it looks and smells like a capital market product, it is a capital market product".

Indeed, investigations are still ongoing at certain gold trading companies, where there have been fears of fraud. In these gold buyback schemes, investors buy gold at a premium to the market price, and receive monthly payouts. The firms then pledge to re-purchase the gold a few months later at an even higher premium.

The MAS has also proposed that all investment products sold to retail investors should be rated based on the complexity of the products' structure, and the risk of loss of the principal invested. This is meant to raise the level of disclosures. BT understands that banks issuing such products can include a few lines of explanation to guide investors on the rating, but these are meant to be short and easy to understand.

"The proposed measures will help to strengthen Singapore's reputation as a global wealth management hub. We welcome these measures as they will help investors make more informed decisions," said Dennis Khoo, managing director and head of personal financial services at United Overseas Bank (UOB).

OCBC Bank has a product suitability committee that assesses the suitability of investment products for retail investors, said Lee Ee Ling, head of risk & prevention, consumer financial services, at the bank.

In another shift, the MAS has proposed to allow all non-institutional investors to opt for accredited investor status.

Currently, accredited investors are automatically categorised as such, based on their income or wealth. The change allows flexibility for investors to decide on the level of regulatory protection they want to be entitled to.

This comes as the income or wealth threshold - at S$2 million net personal assets or S$300,000 annual income - used to define an accredited investor, is seen as too blunt a tool. An investor who gets a sudden windfall may not be savvy with his money just yet. "Sophistication doesn't change overnight," said the source.

If the industry feedback is positive, implementation of these proposals should take about a year, said an MAS spokeswoman.