MAS issues preliminary response to feedback on proposed changes to complex products regime, to launch further consultation in H1 2024

29 November 2023

On 3 November 2023, the Monetary Authority of Singapore (“MAS”) issued its preliminary response to feedback received from its consultation on proposals to enhance and update the complex products regime.

In the consultation paper published on 3 November 2021, MAS proposed:

  • reviewing the classifications of certain debentures and hybrid securities, namely perpetual securities and preference shares, as Excluded Investment Products (“EIP”) or Specified Investment Products (“SIP”), and revising the complexity criteria for collective investment schemes (“CIS”); and
  • streamlining the SIP safeguard requiring intermediaries to assess customers’ investment knowledge and experience, for transactions where the intermediary has already committed to provide advice to the customer
    (i.e. advised transaction).

Product classification and complexity criteria

MAS sought comments on:

  • the EIP/SIP classification for debentures with variable interest rates, debentures with convertibility features, perpetual securities and preference shares (“consulted products”); and
  • the complexity criteria for CIS.

EIP/SIP classification for consulted products

MAS acknowledged the common sentiment of most respondents that there should be clearer disclosures of the key features and risks of the investment product, regardless of classification. In its response, MAS said that this can be done by enhancing the Product Highlights Sheet (“PHS”). With clearer disclosures, the current SIP classification and safeguards may become less relevant. MAS therefore intends to consult the industry on enhancements to the PHS requirements, together with a holistic review of the safeguards under the complex products regime. The consultation is targeted for the first half of 2024.

Given the upcoming broader review, MAS will hold back on responding to its earlier proposals on the consulted EIP/SIP classification changes and the safeguards, and will take them into consideration in the broader review. In the meantime, MAS will maintain the current product classification for all the consulted products.

Complexity criteria for CIS

Currently, for a CIS to be an EIP, it must meet the following restrictions which must be set out in the offer documents:

  • securities lending or securities repurchase in relation to the CIS must solely be for efficient portfolio management, and the total value of securities lending and securities repurchase transactions must not exceed 50% of the CIS’ net asset value at any time; and
  • investments in SIPs must solely be for efficient portfolio management or hedging.

With respect to limb (a), MAS will remove the restrictions in relation to securities lending and securities repurchase to streamline the complexity criteria to focus on the use of SIPs (i.e. the current limb (b)).

With respect to limb (b), MAS will expand the EIP criteria to allow funds that invest in SIPs for the purpose of directly replicating the performance of an “acceptable index” (e.g. S&P 500, FTSE 100, Hang Seng Index and STI) to
be classified as EIP. This is in addition to the existing criteria allowing for investments in SIPs for the purpose of efficient portfolio management or hedging. MAS will import the concept of “acceptable index” from the Code of Collective Investment Schemes to ensure that not all funds that track the performance of any portfolio of assets would qualify.

MAS will amend the Schedule to the Securities and Futures (Capital Markets Products) Regulations 2018 to implement these changes. The changes are expected to take effect in the first half of 2024, subject to consultation on the draft amendments and the legislative process.

Distribution safeguards

MAS said that most respondents supported the proposal to give greater flexibility to financial advisers to integrate the consideration of the customers’ investment knowledge or experience within the suitability assessment, instead of conducting a formal Customer Knowledge Assessment or Customer Account Review (“CKA/CAR”) for advised transactions.

While noting the broad support received, MAS will not proceed with the proposal at this juncture in view of the planned broader review of the complex products regime. MAS will be considering broader changes including whether there is still a need for distribution safeguards in the form of mandatory CKA/CAR and financial advice for all SIP transactions.

Reference materials

The response is available on the MAS website www.mas.gov.sg.