Tighter safeguards for investors from Jan 1 2012

Tighter safeguards for investors from Jan 1


Lorna Tan, Senior Correspondent
29 July 2011
Straits Times
(c) 2011 Singapore Press Holdings Limited

'Knowledge test' for investors before they can buy certain products

SINGAPORE'S central bank has unveiled new measures aimed at ensuring that financially
inexperienced investors do not buy complex investment products without knowing what they are getting
into.

From next Jan 1, all banks and other outlets will have to assess the financial knowledge and investment
experience of everyone keen to buy such products.

Those who pass the checks will be allowed to buy. But those who are not approved and still wish to buy
must be given advice by the banks on whether the product is suitable.

The products include exchange traded funds, investment-linked insurance policies, structured notes,
warrants, options and futures.

And the Monetary Authority of Singapore (MAS) has set the bar fairly high before someone can invest in
these products. For example, customers will be approved if they have a business diploma, or have
bought certain products at least six times in the past three years, or have a minimum of three years of
working experience related to investment products.

The safeguards come in the wake of the 2008 financial crisis, when 9,900 investors here suffered huge
losses totalling $520 million after the implosion of Lehman Minibonds they had thought were low-risk.

Some people were mis-sold products by banks which had wrongly classified the products as being lowrisk
while others were pushed products without proper advice and complete information. Some providers
did not even gather any financial information from clients before selling.

Under the new measures, financial institutions have to conduct a 'customer knowledge assessment' with
their clients before selling certain products.

In the case of a trading account such as for buying exchange traded funds, a 'customer account review'
will be needed.

Welcoming the moves, Consumers Association of Singapore executive director Seah Seng Choon said
the assessment measures would help investors understand the risks and implications of such
investments and minimise mis-selling.

But he felt that even those who have cleared the assessment should exercise caution.

Retail investor Susan Foo, 48, a retiree, who lost $50,000 from her investment in Lehman Minibonds,
said she might have avoided that fate if the new measures had been in existence earlier.

Under the new regulations, the seller should tell the customer if he is assessed as not having the
relevant knowledge or experience.

If the customer is not approved, banks may suggest that he undergoes learning modules to learn more
about these products. And in some cases, a lower trading limit would have to be set.

As the assessment results are not transferable, investors will be assessed repeatedly if they go
shopping at different banks. The results are valid for either one or three years subject to certain
conditions.

Banks contacted yesterday said they would have no problem meeting the new rules from MAS.

'Since early 2009, we have adopted an even more stringent sales process by incorporating certain
knowledge assessment criteria into our financial needs analysis, and requiring a full financial needs
analysis of our customers for every investment product sold,' said Mr Lim Wyson, OCBC's head of
global wealth management.

DBS Bank said it would not sell a product even if the customer insists if the product is deemed
unsuitable and he has no clear capability of understanding it.

Standard Chartered Bank said it takes account of factors such as a customer's personal background,
risk tolerance, investment horizon and funds, to come to an agreed risk rating.

However, for some businesses, the new rules might prove too costly and a hassle to implement
because they may have to get more staff and spend more time with each customer.

Mr Wong Sui Jau, general manager of online unit trust distributor Fundsupermart, believes the new
measures will weed out weaker rivals. His company has had to modify its IT systems and hire
investment specialists to deal with customers.

Products not covered

THE new rules apply to 'specified investment products' which are any investment products other than
those listed below. Products that are listed only on a stock exchange outside Singapore are also not
subject to the rules.

* Shares
* Depository receipts representing shares
* Rights issues
* Company warrants
* Units in business trusts
* Units in real estate investment trusts
* Certain debentures
* Life insurance policies (other than investment-linked insurance policies)
* Foreign exchange contracts