A TIGHTENED definition for accredited investors is among the wide-ranging amendments to Singapore's Securities and Futures Act (SFA) passed into law on Monday (Jan 9).
The latest rules, which banks have been made aware of since 2014, will introduce an opt-in regime such that to-be accredited investors have to decide to take on the status, on top of qualifying for it.
"The choice is ultimately his to make, depending on his own risk profile, investment needs and circumstances," Minister for Education and Second Minister for Defence Ong Ye Kung told Parliament on Monday in delivering the Bill.
The tighter rules also mean individuals who are deemed suitable for complex financial products will now exclude investors who have most of their wealth sunk into property.
Prior to the amendment, individuals qualify as accredited investors if they have more than S$2 million of net personal assets. The government has now legislated that the net equity of an individual's primary residence can only contribute up to half - or S$1 million - of the S$2 million threshold.
Several members of Parliament questioned if an income threshold alone is enough to determine the sophistication of investors.
Responding, Mr Ong said that the opt-in regime makes the income threshold less critical, since the investors exercise their right to get access to various financial instruments as accredited investors.
If they consider themselves sophisticated investors, they can buy restricted products such as bonds with a subscription of at least S$250,000.
And this comes as many bonds issued by oil-related companies have since been restructured by debt-ridden companies, via deferred interest payments and extended maturities.
Wealthy investors have also burnt their fingers with more complex instruments, such as accumulators that allow investors to bet on the price range that a security will trade within.
Mr Ong added that the use of wealth is a fairly objective proxy, and is widely used by regulators around the world.
Banks have said there are just small numbers of accredited investors who would no longer qualify under that status with the new SFA.
Certain lenders such as DBS also already offer clients a choice to opt for accredited investor, or retail, status.
The amended SFA will offer more protection to retail investors, as well. Specifically, any gold buy-back scheme will have to be launched with a prospectus registered with the Monetary Authority of Singapore (MAS). In these gold buyback schemes, investors buy gold at a premium to the market price, and receive monthly payouts. The firms then pledge to re-purchase the gold a few months later at an even higher premium.
Members of Parliament advocated more forceful dissuasion from the government in retail investment in such products. Mr Ong, who is also an MAS director, said that it was difficult to prejudge whether products, while risky, are fraudulent.
But with the SFA amendment, the government has raised the maximum civil penalty awarded against an errant individual to the greater of S$2 million, or three times the benefits gained or losses avoided. Previously, for cases with small benefits, the effective penalty was S$50,000. The SFA also makes clear that MAS can go after insiders who make materially false or misleading disclosures, regardless of the effect on the price of the relevant securities.
Mr Ong would not reveal details on resources spent on such enforcement action - other than saying they compare with efforts around the world - saying that the information has to be kept from ill-intentioned individuals.
In the area of over-the-counter (OTC) derivatives, MAS will now be empowered to require certain OTC derivatives products to be traded on exchanges. MAS is finalising rules for the central clearing of widely traded OTC derivatives contracts here, the Singapore dollar and US dollar interest rate swaps.
Derivatives are usually priced and traded as OTC products - that is, traded directly between two parties. This is unlike exchange-traded products, which are priced and traded through an exchange. The global financial crisis was linked to the trillion-dollar credit default swaps market, reflecting in large part bets on defaults in the US subprime housing market.
MAS will also regulate the creation of financial benchmarks, following cases of manipulation of London Interbank Offered Rate that then distorted prices of interest rate swaps. These benchmarks are used to price loans. Traders who manipulate the benchmarks can now be slapped with criminal sanctions and civil penalties.
Mr Ong said while the US and Japan have begun their requirements to trade OTC derivatives products on organised trading facilities, others such as the European Union, Hong Kong and Australia have yet to do so. MAS is watching the developments.
MAS will also streamline existing regulatory regimes for commodity derivatives and exchange-traded derivatives, "to strike a balance against our objective to promote ease of doing business, innovation and a vibrant financial sector", said Mr Ong.