The Monetary Authority of Singapore (the “MAS“) has issued a consultation paper on 6 October 2017, inviting comments on proposed new notices and guidelines that elaborate on and set out the requirements of key changes to the regulatory framework of the Securities and Futures Act (“SFA“) following the enactment of the Securities and Futures (Amendment) Act 2017 (“SFAA“) on 9 January 2017.
The proposals in the present consultation paper (which will likely be the first in a series) cover the following:
- new MAS Notice on Risk Fact Sheet for Contracts for Differences (“CFDs“) (“CFD Notice“) and new MAS Guidelines on the CFD Notice (“Guidelines on CFD Notice“);
- amendments to the existing MAS notice on Risk Based Capital Adequacy Requirements for Holders of Capital Markets Services Licences [Notice No. SFA 04-N13] (last revised 1 November 2016) (“MAS Notice SFA04-N13“);
- amendments to the existing MAS Notice 757 Lending of Singapore Dollar to Non-Resident Financial Institutions (published 28 May 2004) (“MAS Notice 757“) and the equivalent notices to take into account the change in the definition of “securities”[1] in the SFAA; and
- new guidelines on the interpretation of the term “persons who commonly invest” in Division 3 of Part XII of the SFA (“Common Investors Guidelines“).
New CFD Notice and Guidelines on CFD Notice
MAS is seeking comments on its draft CFD Notice which sets out the circumstances under which a capital markets services licence holder (including financial institutions exempt from holding a capital markets service licence) which is dealing in CFDs with retail investors, must provide a risk fact sheet. The draft CFD Notice also prescribes the format of said risk fact sheet, and the minimum information that must be included. MAS is also seeking comments on the accompanying Guidelines on CFD Notice, which provide further information on compliance with the CFD Notice. These requirements will come into force when the relevant amendments to the SFA take effect.
Amendments to MAS Notice SFA04-N13
Briefly, MAS Notice SFA04-N13 establishes the methodology, which a holder of a capital markets services licence (other than a holder of a capital markets services licence for only providing credit rating services), shall use for calculating its financial resources or adjusted net head office funds, whichever is applicable, and its total risk requirement, pursuant to the Securities and Futures (Financial and Margin Requirements for Holders of Capital Markets Services Licences) Regulations.
MAS is consulting on consequential amendments to be made to MAS Notice SFA04-N13 to effect changes arising from the SFAA – including changes to product definitions in Part I of the SFA, changes to Part IV of the SFA, and to the Second Schedule to the SFA – to extend the capital markets services licensing regime to over-the-counter derivatives.
Amendments to MAS Notice 757 and equivalent notices
MAS’ monetary policy of using the exchange rate as its principal tool is articulated in MAS Notice 757 and the equivalent notices, limiting the lending of Singapore dollars to non-resident financial institutions for speculation in the Singapore dollar foreign exchange market. The below table summarises the classes of financial institutions and their respectively applicable MAS notices:
| Notice No. | Class of Financial Institution |
|---|---|
| MAS Notice 757 | Banks (except representative offices) |
| MAS Notice 1105 | Merchant banks |
| MAS Notice 109 | Insurance companies (except captive insurers) |
| MAS Notice 816 | Finance companies |
| MAS Notice SFA 04-N04 | Capital markets services license holders that deal in securities |
To take into account the change in the definition of “securities” in the SFAA, the MAS has proposed to amend MAS Notice 757 and the equivalent notices as follows:
(a) Scope of application of MAS Notice SFA 04-N04 and definition of “residents”
MAS intends to broadly retain the current scope of application of MAS Notice SFA 04-N04 (which currently applies to capital market services licence holders that conduct the regulated activity of dealing in securities), by applying it to all capital markets services licence holders that carry on a business of dealing in capital markets products that are securities, units in a collective investment scheme, or securities-based derivative contracts. Corresponding amendments will also be made to MAS Notice 757 and the equivalent notices. The aim is to achieve a consistent application of MAS Notice SFA 04-N04 across all securities trading activities (including futures contracts on securities).
(b) Definition of “financial institutions”
MAS also proposes to amend the definition of “financial institutions” in MAS Notice 757 and the equivalent notices, in particular replacing the term “securities dealing” (which currently appears as an example of entities considered to be carrying on businesses in financial services) in paragraph 2.1.2 with “dealing in capital markets products”. This is to avoid misconstruction of the existing term “securities dealing” as being limited to dealings in only equity or debt instruments.
New Common Investors Guidelines
MAS is also seeking comments on its proposed new Common Investors Guidelines, which aim to provide interpretative guidance on the term “persons who commonly invest”. A new statutory definition to the term was introduced in the SFAA as part of amendments to Division 3 of Part XII of the SFA (which concerns insider training). The Common Investors Guidelines are intended to be operationalised with the taking effect of the relevant amendments to the SFA.
Several things may be noted of these proposed guidelines.
First, the proposed Common Investor Guidelines will clarify that the term may comprise different classes of investors, depending on the product in question. Rather than to specify what are the classes of common investors for each product, the said guidelines will explain the MAS’ approach to determining who are the common investors for any particular product. Secondly, the proposed Common Investor Guidelines will also set out, on a non-exhaustive basis, the characteristics of persons who would be considered to be “retail investors”, by reference to the following knowledge descriptors and abilities:
- rational and economically motivated investors, with at least some experience and knowledge of investing in the relevant financial product, but who may not be investment professionals;
- awareness of the prevailing price of the relevant financial product from time to time; and
- having the knowledge or ability to obtain generally available information regarding the company or issuer in question, and having the ability to draw inference from and assess the credibility of said information.
Thirdly, MAS is proposing that the test of whether information is considered generally available (under section 215(1)(b)(i) of the SFA) is to ask whether such information has been made known in a manner that would, or would be likely to, bring it to the attention of all classes of persons who commonly invest for the relevant product.
Consultation Period
The consultation period for the present consultation paper ends on 3 November 2017.
A copy of the consultation paper can be assessed here.
[1] The definition of “securities” in section 2 of the SFA will be simplified to comprise shares, units in business trusts and instruments conferring or representing ownership interests in corporations, partnerships and limited liability partnerships, and debentures. Derivatives of such products, which currently fall within the definition of “securities”, will be defined separately as securities-based derivatives contracts instead. Collective investment schemes will also no longer fall within the term “securities” and will be defined separately. Both securities-based derivatives contracts and collective investment schemes will instead be categorised under the revised definition of “capital markets products”.
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This article is written by Eric Chan from Shook Lin & Bok LLP.
This article does not constitute legal advice or a legal opinion on any matter discussed and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and practice in this area. If you require any advice or information, please speak to a practicing lawyer in your jurisdiction. No individual who is a member, partner, shareholder or consultant of, in or to any constituent part of Interstellar Group Pte. Ltd. accepts or assumes responsibility, or has any liability, to any person in respect of this article.