Parliament yesterday passed a law that will provide more stringent safeguards for retail investors.
The wide-ranging changes to the Securities and Futures Act will, among other things, tighten the criteria for accredited investors.
They will also improve the governance and enforcement powers of the Monetary Authority of Singapore (MAS), a move that will increase the transparency of Singapore's financial markets, said Minister for Education (Higher Education and Skills) Ong Ye Kung, who is an MAS board member.
Mr Ong, speaking on behalf of Deputy Prime Minister and Minister-in-charge of MAS Tharman Shanmugaratnam, said the changes were "significant and timely".
MAS had mulled over them since July 2014.
One key change will make it harder for individuals to qualify as accredited investors. These are people deemed to have enough financial experience to buy sophisticated and risky investment products.
Current rules define them as having more than $2 million in net personal assets.
"The Bill tightens the way net personal assets are calculated, such that the net equity of an individual's primary residence can contribute only up to $1 million of the $2 million threshold," said Mr Ong.
A mechanism will also be introduced to let investors opt out of being recognised as accredited investors even if they meet the criteria.
The changes are aimed at ensuring that unaware or illiquid investors do not inadvertently buy risky products.
The rule on such sales had been closely scrutinised amid allegations that some bank representatives sold risky products, including a range of high-yield bonds that defaulted last year, to ill-informed investors.
Another key change will standardise the maximum penalty awarded in civil cases that involve market misconduct. It will be either $2 million, or three times the amount of benefits gained or losses avoided, whichever is greater.
This will enhance the current rules, which cap the civil penalty at three times the benefits gained or losses avoided, subject to a minimum of $50,000.
"So where the benefits gained or losses avoided are small, the civil penalty is effectively $50,000, and may not adequately reflect the culpability of the offender," Mr Ong said during the debate on the Bill.
Meanwhile, the Bill will make several statutory adjustments to lessen the legal constraints on MAS' power to pursue cases and individuals.
The MAS will also designate the Singapore interbank offered rate and the swap offer rate. This means the central bank will regulate the entities that manage these key financial benchmarks to ensure a credible rate-setting process.
MPs, including Mr Saktiandi Supaat (Bishan-Toa Payoh GRC) and Ms Foo Mee Har (West Coast GRC), backed the Bill. Both noted that retail investors have been hit by malpractices in the financial industry.
Mr Ong Teng Koon (Marsiling-Yew Tee GRC) agreed, saying: "There are many unprincipled, amoral people whose sole expertise is to scam money from the general public. I'm pleased that these amendments take a significant step towards addressing this."
Ms Foo, however, urged the MAS to maintain a balanced regulatory approach "so as not to stymie growth and impact Singapore's competitiveness".
Mr Henry Kwek (Nee Soon GRC) called for greater focus on promoting financial literacy to complement the tighter rules. "This will empower the people to be financially savvy and prudent in uncertain times," he said.