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Wednesday, September 09, 2009

MAS responds to feedback on sale of unlisted investment products

MAS responds to feedback on sale of unlisted investment products
9 Sep 2009

The Monetary Authority of Singapore (MAS) said it will ban the use of the term "capital or principal protected", or any form of the term, in all disclosure documents and marketing materials for unlisted investment products sold to retail investors.

It said this is due to a lack of an agreed definition of the term, which would be clear and easily understood by investors.

This was one of the changes highlighted in MAS' response to feedback on a recent consultation paper, which reviewed the sale and marketing of unlisted investment products.

The Consultation Paper on the Review of the Regulatory Regime Governing the Sale and Marketing of Unlisted Investment Products was published on March 12.

Unlisted investment products include debentures and unit trusts which are not traded on an approved exchange, and life insurance policies.

The central bank will also impose restrictions on marketing and advertising materials.

These include guidelines on the font size, which must be a minimum of 10 point Times New Roman, and restrictions on the use of graphics or words that are inconsistent with the nature or risks of the product.

To offer more timely disclosure, MAS will also require issuers to provide semi-annual and annual reports on unlisted investment products with tenures of 12 months or longer.

They must also disclose "material changes" to all unlisted investment products regardless of tenure. MAS said ongoing disclosures can be made online and it will provide more details on how this can be implemented later.

The central bank will also develop guidelines on the format and information to be included in the semi-annual and annual reports, which will be put up for consultation in the first quarter of 2010.

Another change is that issuers have to inform investors of the bid or redemption prices of each unlisted product publicly and regularly. This is to give investors an indication of the price at which they can exit from their investments.

But MAS noted that this is only an indicative price and may not be the actual exit price. Issuers are not obligated to provide an exit mechanism for investors.

However, issuers must ensure that their representatives are competent in selling complex investment products.

In light of that, MAS said both new and existing representatives will have to pass the new Capital Markets and Financial Advisory Services (CMFAS) module for complex products before they are allowed to sell them.

Transitional arrangements will be made for existing representatives when the new model is implemented in the first half of 2010.

MAS added that it will also introduce a cooling period of seven days for unlisted debentures with tenures longer than three months.

The central bank will publish the second part of its response to the public feedback in the 4th quarter of 2009. It will cover areas like remuneration structures for the sale of investment products and risk rating of retail investment products, among others.

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