SINGAPORE - The Monetary Authority of Singapore is proposing new rules that will extend the arm of the law over esoteric investment products, such as landbanking and precious metal buy-back schemes, that are currently beyond its regulatory ambit.
In a paper released on Monday, the MAS said that such schemes are often deliberately structured so that they fall out of the regulator's scope.
"Many of these products have features that are similar to regulated capital markets products, but are structured to assign ownership of underlying physical assets to investors, thereby taking them outside the regulatory perimeter of the Securities and Futures Act (SFA)."
Under MAS' proposals, buy-back arrangements involving precious metals and collectively-managed investment schemes will come under the SFA.
These will include gold buy-back schemes such as the one operated by gold trader Genneva, which came under scrutiny in 2012 for alleged financial impropriety.
It will also cover investment schemes under which investors buy a fractional interest in an asset but have no day-to-day control of the management of the asset.
For example, this could be a scheme where investors each buy a unit in an apartment block and the investment manager rents out the units for them, but the investors do not have a say in who the units are rented to. Furthermore, their profits do not come directly from the rental of the unit that they bought but rather from a pool of profits arising from the rentals collected from the whole apartment.
If the MAS proposals are adopted, these investment schemes will come under MAS regulation, which means that their issuers or managers will have to be licensed by the regulator and they will have to publish a prospectus.
Among other proposed changes announced on Monday, the MAS also plans to introduce a new ratings system to be applied to all investment products. Under the system, product manufacturers will have to clearly state on their product brochures its level of risk and complexity, according to a set of guidelines issued by the MAS.
This system will help to standardise ratings in the industry and make it easier for investors to differentiate between simpler and more complex products and gauge their riskiness, the MAS said.