26 July 2018
Various regulations issued pursuant to the Securities and Futures Act (“SFA”) and the Financial Advisers Act (“FAA”) have been or will be amended to support the implementation of safeguards for protecting retail investors. The amendments relate to capital markets products, product highlights sheet (“PHS”) requirements, fair and balanced advertisements, and removal of the FAA exemption for advising overseas investors.
By way of background, the SFA was amended on 19 August 2016 to implement safeguards for the protection of retail investors. Changes included a requirement for issuers of capital markets products to classify investment products, the provision of a PHS for certain types of securities investments, and empowering the Monetary Authority of Singapore (“MAS”) to prescribe additional restrictions on advertisements in relation to certain offers.
In September and October 2013, MAS consulted on draft versions of the regulations to support the amendments to the SFA. The draft regulations dealt with matters including PHS requirements, advertisement restrictions, and exemption under the FAA in relation to overseas investors.
On 8 June 2018, MAS released its response to the feedback received from the consultation (“Response”).
Definition of “prescribed capital markets products” and exemption from classifying capital markets products
Under section 309B(1) of the SFA, an issuer is required to classify its capital markets products as MAS may prescribe before it may make an offer of them, and notify the relevant approved exchange (in the case of listed products) and intermediaries through which the products are offered, of this classification.
Under section 309B, capital markets products are classified either as “prescribed capital markets products” or “capital markets products other than prescribed capital markets products”. The new Securities and Futures (Capital Markets Products) Regulations 2018 (“Capital Markets Products Regulations”), which took effect from 9 July 2018, provide for the definition of “prescribed capital markets products”. These include shares, units in a business trust, units in a SGX-listed real estate investment trust, units in collective investment schemes (“CIS”) which satisfy certain investment restrictions, and debentures other than asset-backed securities and structured notes.
Pursuant to the Capital Markets Products Regulations, an issuer is exempt from complying with section 309B(1) of the SFA if the offer is made to an accredited investor, expert investor, institutional investor or any other person that is not an individual.
One of the changes for the protection of investors is the requirement for issuers to provide investors with a PHS for offers of asset-backed securities, structured notes, unlisted CIS and exchange-traded funds (“ETFs”) that are made with a prospectus. To implement this requirement, MAS issued the Guidelines on the Product Highlights Sheet (“PHS Guidelines”) on 21 October 2010 to provide guidance on the form and content of the PHS.
With the amendments to the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 (“Shares and Debentures Regulations”) and the Securities and Futures (Offers of Investments) (Collective Investment Schemes) Regulations 2005 (“CIS Regulations”), the form and content of a PHS are prescribed in these regulations. The PHS Guidelines will be cancelled upon the amendments to the Shares and Debentures Regulations and CIS Regulations coming into force. MAS has issued a Practice Note on the Product Highlights Sheet to provide broad guiding principles on the preparation of a PHS.
These requirements will apply to PHSs accompanying prospectuses or profile statements lodged with MAS on or after 10 December 2018.
Fair and balanced advertisements
The Shares and Debentures Regulations, CIS Regulations, Securities and Futures (Offers of Investments) (Business Trusts) (No. 2) Regulations 2005 (together, “Offers of Investments Regulations”), Securities and Futures (Licensing and Conduct of Business) Regulations (“LCB Regulations”) and Financial Advisers Regulations (“FAR”) will be amended to implement MAS’ proposed requirement for advertisements on investment products to provide a fair and balanced view of the investment product and comply with specific advertising restrictions (“advertising restrictions”).
The advertising restrictions will apply to advertisements that are disseminated or published on or after 10 December 2018. They include:
- Advertisements to present a fair and balanced view of the investment product.
- Advertisements to be approved by senior management before they are published or disseminated.
- Advertisements must conform to a minimum font size requirement.
Removal of exemption under FAA for advising overseas investors
Currently, regulation 36 of the FAR exempts financial advisers from compliance with certain conduct of business requirements under the FAA when providing financial advisory services to an overseas investor as defined in regulation 36 (“overseas investor exemption”). To ensure the regulatory regime for financial advisory services protects investors irrespective of their citizenship, residency status or physical location, MAS had proposed removing the overseas investor exemption by deleting regulation 36.
The overseas investor exemption will be removed from the FAR with effect from
10 December 2018.
The following materials are available on the MAS website www.mas.gov.sg:
- Securities and Futures (Capital Markets Products) Regulations 2018
- Securities and Futures (Offers of Investments) (Shares and Debentures) (Amendment) Regulations 2018
- Securities and Futures (Offers of Investments) (Collective Investment Schemes) (Amendment) Regulations 2018
- Securities and Futures (Offers of Investments) (Business Trusts) (No. 2) (Amendment) Regulations 2018
- Securities and Futures (Licensing and Conduct of Business) (Amendment) Regulations 2018
- Financial Advisers (Amendment) Regulations 2018
- Financial Advisers (Amendment No. 2) Regulations 2018
- Practice Note on the Product Highlights Sheet
- Guidelines on Maintaining Records of Approval for Advertisements or Publications
- Response to Feedback Received - Consultation Paper on Draft Regulations Pursuant to the SFA and FAA