A series of measures includes the banning of certain words and phrases relating to capital protection; increased disclosure of valuations and potential risks; a requirement that providers assess the suitability of products for different client types and that they institute formal policies setting out how this will be achieved.
A seven day cooling-off period for unlisted structured products is also to be introduced.
The MAS, Singapore’s financial regulator, is to enforce the rules in the wake of the Lehman Minibond scandal, in which retail investors were sold credit-linked structured products without being made aware of their risks.
The bonds became worthless when US investment bank Lehman Brothers collapsed last September, leaving hundreds of investors millions of dollars of out of pocket.
Numerous products affected
The wide-ranging changes to the way investment products are sold to retail clients will also impact on mutual funds and investment-linked life insurance policies (ILPs).
Other measures contained in the MAS plans include a requirment on providers to produce question and answer style literature, known as Product Highlight Sheets, that spells out in simple language the terms of a product and risks involved.
And providers that do not supply regular updates on the valuation of product will be made to do so, while bid and redemption prices must also be published. The term ‘capital/principal protected’ is to be banned, though ‘capital guaranteed’ – deemed to be clearer – is permitted.
A second round of rules dealing with remuneration for those selling investment products – essentially the role of commission and bonuses, as well as product definitions, risk ratings, risk warnings and mandatory advice for the sale of certain ‘complex’ products, will be issued later in the year.
Simon Liew, investment strategist for Singapore’s Frontier Wealth Management, said the new rules were to be welcomed.
“A lot more transparency and simplification of the product description would be better for customers [but the] the increased regulation is likely to affect banks more than IFAs, as they are more sales and product driven.”
The full details of the measures can be found by visiting the MAS website.