The CKAs were brought in by the Monetary Authority of Singapore in the wake of the Lehman Brothers “mini-bond” incident and similar cases, in order to ensure that inexperienced investors are protected from buying products that they do not understand.
The CKAs take into account an individual’s educational qualifications, investment experience and work experience. Under the new rules, advisers must conduct CKAs whenever they sell what the MAS calls “specified investment products”, which it defines as “likely to contain derivatives, and may have features, and risks that can be more difficult for retail consumers to understand.”
“Examples include structured notes, exchange traded funds, exchange traded notes, investment-linked insurance policies, warrants and options, futures, and certificates,” the MAS adds, in an explanatory document for consumers on its website.
In introducing CKAs, the MAS joins other major financial regulators in seeking to protect unsophsticated investors. In the EU, for example, since July all funds sold have had to come with a so-called key investor information document (Kiid), and the documents are expected to be in place for all existing funds by next summer.
‘Client-centred approach’
Explaining the MAS’s thinking, MAS managing director Ravi Menon told an audience of wealth managers at Singapore’s Fullerton Hotel in October that wealth managers had to “move away from a transaction-driven approach of pushing products to a client-centred approach that focuses on customised advice to meet long-term needs”.
“Dealing fairly with customers must be made a priority,” he added.
The CKAs have complicated matters for some product providers, such as direct-to-consumer fund platforms like iFast’s Fundsupermart.com. Those of its clients who fail the CKA will need to work through investment experts, potentially adding to the costs of running such platforms and making them more like the kinds of platforms used by advisers.
Among the other new regulations:
- Since the end of last month, life companies, advisers and other providers of investment products to “non-accredited” investors in Singapore have begun making use of new disclosure forms, known as product highlight sheets, when introducing new products to clients. In Singapore, an accredited investor is considered to be an individual whose net personal assets exceed S$2m ($1.55m, £972,670), or whose income in the preceding 12 months is not less than S$300,000.
- Since 1 Sept, Singapore’s so-called defined market segment insurers – Friends Provident International, Generali, Royal Skandia, Transamerica and Zurich International – have been given new restrictions, in the form of minimum contractual investment amounts on the policies they sell ($50,000). This is to ensure they remain focussed on the growing HNWI market – and not use a potential loophole selling short-term plans, with a minimum annual minimum premium of only $5,000 per annum – in order to leave the shorter-term market to "local" insurers.
- For the past two years the MAS has consulted with the Singaporean fund management industry on a range of proposed amendments to the country’s existing regulatory regime, to “raise quality and business conduct standards”. Among the areas the MAS has focused on are risk management, auditing practices and qualifications for those involved in fund management. The proposed amendments to the Securities and Futures regulations and Financial Advisers Regulations are intended to be implemented in 2012.
- Earlier this year, Singapore’s private banks got together to create a new private banking Code of Conduct, which they said was aimed at solidifying the rapidly-growing industry’s high standards. Under the code, which took effect on 1 Sept, private bankers in Singapore are expected to pass a new competency assessment regime called the Client Advisor Competency Standards, or CACS, before they are able to provide financial advice.
