MAS proposes to improve complex product labelling and disclosures for investors
The central bank released a consultation paper on Tuesday (Jul 1) seeking feedback over the next two months on plans to strengthen product highlights sheet (PHS) requirements and streamline the framework for complex products.
A PHS refers to a document provided to investors for certain investment products to outline key features and risks. It complements the main offer document, and helps users better understand key product information.
Meanwhile, the complex products framework classifies capital market products as 'complex' or 'non-complex' and requires distributors to assess an investor's knowledge and experience. Investors deemed lacking must complete a learning module or receive mandatory advice.
In a statement, MAS said the proposals aim to 'strengthen the effectiveness of a disclosure-based regime for investors to make informed choices on their own, while requiring an appropriate level of intervention for consumers who need more assistance'.
They come at a time when investors are increasingly empowered to make self-directed investments, supported by the digitalisation of financial services. However, some investors who are less technologically or financially savvy would still benefit from seeking professional advice to better understand the features and risks of the products they invest in.
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MAS invites views and suggestions from interested parties on the proposals, with comments to be submitted via the FormSG link by Sep 1.
After the consultation, it will refine the proposals as needed and issue a separate consultation on the draft amendments. A six-month transition period is planned once the changes take effect.
PHS enhancements
To improve investor understanding, MAS is proposing revised PHS templates that present key product information more clearly. For instance, essential product features will be highlighted on the first page to draw investors' attention upfront.
A new 'question and answer' format will also be introduced to better engage users on important considerations.
Complex products will be clearly marked with a 'red' label to prompt investors to seek advice where necessary.
Additionally, investment-linked policies (ILPs), which were previously exempt, will now require a PHS under the proposed enhancements.
MAS is also seeking to standardise PHS requirements across different investment products. It plans to host mandatory PHS templates on its website instead of setting them out in the Securities and Futures Act's regulations, allowing more flexibility for future updates.
It also proposes removing different page limits for PHSes based on the use of diagrams.
Under the new format, which incorporates diagrams where appropriate, PHSes for asset-backed securities, structured notes, collective investment schemes (excluding REITs), and ILP sub-funds will be capped at eight pages.
Revisions to complex products framework
MAS sees 'room to streamline the complex products distribution safeguards' by shifting towards a more disclosure- and information-based approach.
The proposals include removing the requirement for mandatory financial advice in most cases, introducing a product knowledge assessment (PKA) and applying targeted safeguards for investors who may need additional protection.
These changes follow MAS' periodic review of the complex products framework to ensure it remains fit for purpose amid evolving market conditions and the increasingly diverse investment needs of Singapore's retail investors. .
The central bank is looking to remove the requirement for mandatory financial advice even where the investor does not have the qualifications, experience, or knowledge to invest in the product, except in the case of those who require added protection.
'With clearer complex product labelling and investor-friendly PHS disclosures, investors will be in a good position to make considered, informed investment decisions,' said MAS.
Investors requiring additional protection, known as selected clients, will still need to go through a mandatory financial advisory process before transacting in complex products. This includes safeguards such as having a trusted individual present during the advisory process and a follow-up call to confirm the investment decision before proceeding.
To further support investor understanding, MAS is introducing the PKA as an alternative to assess product-specific knowledge. Unlike the existing customer account review (CAR) and customer knowledge assessment (CKA) which focus on general experience or qualification, the PKA tests an investor's understanding of a product's specific features and risks.
Under this approach, a non-selected client, such as a 40-year-old software engineer with no trading experience, would receive a risk warning before proceeding with an investment in a complex product. If the client acknowledges the risks, they may proceed without financial advice.
In contrast, a selected client, such as an 80-year-old retiree with limited English proficiency, would be required to undergo a full advisory process with added safeguards before completing the transaction.
'Timely changes'
Industry observers have welcomed the proposals, with the Securities Investors Association (Singapore), or SIAS, calling the changes 'timely and necessary given the evolving investment habits of investors'.
In particular, SIAS supported the move to introduce a clearer, more reader-friendly PHS, especially for complex investment products.
David Gerald, the president of SIAS, noted that the use of a 'red' label to clearly flag a product as 'complex' and the reorganisation of content to present key risks upfront on the first page of the PHS will help investors quickly identify the nature of the product and make more informed decisions.
Noting that investors today are increasingly savvy, he pointed out that many conduct their own research, make independent investment decisions, and even trade complex products online, both in Singapore and overseas.
'The new streamlined framework for complex products strikes the right balance — introducing sufficient safeguards to help investors understand the risks, while preserving their autonomy to choose products that suit their investment goals,' he said.
However, he cautioned that investors active in overseas markets may not realise they face the same product risks but without the protection of Singapore's regulations or recourse through SIAS if disputes arise.
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