Posted inRegulationNews

Opt in or out? Singapore’s accredited investors must choose

Recent defaults on bond payments by companies such as Swiber Holdings last year offer validation for the Monetary Authority of Singapore’s (MAS) push for enhanced investor protection.
Opt in or out? Singapore’s accredited investors must choose

Some accredited investor (AI) bondholders may seem rich on paper, for example, due to home property valuations. But in reality they may not have the sophistication to manage a risky investment.

Thus, the Monetary Authority of Singapore has proposed additional safeguards to protect investors (public consultation on these changes actually started in 2014, well before the Swiber default).

Asset managers will need to update their policies and procedures to reflect the following expected changes:

  • The individual net personal assets threshold of S$2m (~$1.51m) will no longer include net equity of the individual’s primary residence for an amount exceeding S$1m.
  • A new S$1m net financial assets test is being inserted for individuals (net financial assets will mean financial assets minus liabilities, eg portfolio investment-related costs such as leverage or other borrowing).
  • Non-AI joint account holders can opt-in to be treated as AIs for a joint account where the other holder is an opted-in AI.

The changes are expected to come into effect in 2018 and asset managers should be operationally ready to comply.

What asset managers need to do

The current passive classification of AIs based on asset/income levels is being eliminated and replaced by the opt-in regime. Investors will have to choose or “opt-in”, in order for asset managers to include them in the accredited category.

This election can be different for different asset managers through whom the investor transacts. But an investor choosing opt-in with a given manager will have that choice consistently applied across all accounts of that investor.

Investors are free to change their mind at any time by writing to the asset manager.

Asset managers will be responsible for obtaining investors’ opt-in confirmations. With that responsibility comes the need to establish policies, procedures, templates and recordkeeping.

Opt-in notifications must explain, in plain English, that an investor making the choice will have certain retail-level regulatory safeguards withdrawn.

Opt-in confirmations will need to be obtained from the investor via specific forms, email or properly-recorded phone confirmations.

Asset managers are expected to monitor their AI-clients’ eligibility periodically and remind clients of their status and freedom to opt-out.

If the investor chooses instead not to opt-in and the asset manager holds an accredited/institutional investor-only license, consequences of the manager being unable to serve a client should also be disclosed.

When it comes to existing AI clients, asset managers must notify such investors that AI-status results in the dialing back of certain retail-level regulatory safeguards. Existing AI clients would have the option of opting-out if they no longer wished to be treated as AIs.

These changes will make Singapore’s investor protection standards commensurate with that of other developed financial centers such as the European Union and Hong Kong.

At the same time, asset managers need to be ready for potential opt-outs and decisions not to opt-in.

Damayanti Shahani is managing director of regulatory compliance consultancy Principium Consulting in Singapore

Part of Mark Allen.