The Monetary Authority of Singapore (MAS) said it will lift the ban on the sale of structured notes for CIMB Securities, DMG & Partners Securities, Kim Eng Securities, OCBC Securities, UOB Kay Hian and Phillip Securities with immediate effect.

Previously, these institutions had been banned by MAS from selling structured notes for a year.

MAS Lifts Ban (MAS announcement)

MAS Lifts Notes Ban on Six Institutions (Today)

Six financial institutions can resume selling structured notes (CNA)

MAS has (through the MoneySense program), recently published a consumer warning on land banking investments.

The warning highlights the risk of investing in land banking products. It also reiterates the fact that land banking is not regulated by MAS as it involves a direct interest in real estate and not securities (such as collective investment schemes).

Interestingly, the UK’s FSA has adopted an approach that some of these land banking investments can be considered a collective investment scheme and has determined that such operators would be in breech of the financial regulation regime if they did not obtain authorisation from FSA. They have actually closed down a number of land banking companies since 2007.

They also said that “if you have entered an agreement to participate in a Landbanking collective investment scheme which is run by an unauthorised person, you may have a statutory right to recover your money and compensation for any consequent losses. This is because agreements which an unauthorised person enters into while operating, advising on or arranging for persons to participate in a collective investment scheme cannot necessarily be enforced.”

The warning from MAS must have came as a result of recent publicity in the press about some investors’ bad experience with a particular land banking company in Singapore. For those investors who had invested with a couple of these companies here (some of which had been operating in Singapore from as early as five years ago), this warning might come as “too little, too late”.

A few days ago, MAS issued a monograph “ Tenets of Effective Regulation” to communicate MAS’ approach to developing effective regulation.

• Tenet 1: Outcome Focused
• Tenet 2: Shared Responsibility
• Tenet 3: Risk Appropriate
• Tenet 4: Responsive to Change and Cycles
• Tenet 5: Impact Sensitive
• Tenet 6: Clear and Consistent

Very nice from a management and KPI point of view but I think at the end of the day, most investors will be concerned about the bottom line. Will this change what MAS has done in the past and how will this affect them?

The best regulations in the world will be of limited help if certain investment products fall outside (and continue to fall outside) the supervision of MAS in the first place. Things like wine and land investments immediately come to mind.

Also, regulation can only be effective if it is applied consistently across all platforms.

For example, if a financial adviser sells you some unit trusts via an investment-linked insurance product (ILP), he is not required to monitor the fund’s performance for you according to this statement from LIA.

Yet, if he sells you the exact same unit trust via a normal unit trust platform, he has a higher duty of care to do so.

This is not very consistent.

Anyway, the description of the six tenets can be found below:

Tenet 1: “Outcome Focused” commits MAS to uphold sound regulation of a high standard but also acknowledges that there is no one way to do this. Good regulatory outcomes can sometimes be best achieved by prescriptive and clear rules, and at other times by laying down broad principles and placing responsibility on financial institutions to deliver the regulatory outcomes. There are also different circumstances when one-size-fits-all rules or alternatively, differentiated rules are more appropriate.

Sometimes, regulation is aimed specifically at impacting market practices in a significant way and even changing them, and at other times the impact of regulation is more appropriately calibrated and mitigated. An outcome focused approach calls on MAS to give consideration to all of the six Tenets and to exercise appropriate judgement as to how and in what measure the Tenets should be applied in the particular circumstances of each new regulation so that good regulatory outcomes can be achieved.

Tenet 2: “Shared Responsibility” describes our belief that regulation alone is insufficient and that in many instances, regulatory outcomes can be more effectively achieved with the MAS, financial institutions, investors and consumers each taking on specific responsibilities and shared ownership of supervisory objectives and outcomes.

In addition to MAS’ prescription of specific behaviours through regulation, reliance and responsibility can also be placed where appropriate on financial institutions individually, their boards and senior management, through their governance, and on the industry collectively, to address supervisory concerns directly.

Where appropriate and effective, we will also consider, as an alternative to regulating an activity, placing reliance on disclosure of timely and adequate information so that informed consumers, investors and other stakeholders may exercise choice and market discipline. The design of regulation should wherever appropriate provide for rather than take away from financial institutions and stakeholders’ responsibility and incentives to contribute towards regulatory outcomes.

Tenet 3: “Risk Appropriate”.

Regulation should set standard, baseline requirements of broad application and provide for the exercise of supervisory judgement to set higher standards or permit exemptions when merited by the particular circumstances of a financial institution. For example, more demanding regulation may be appropriate for systemically important financial institutions whose failure can cause widespread disruption to the financial system compared to a small institution in the same licence category with simple operations.

Tenet 4: “Responsive to Change and Cycles”.

Regulation should be updated expeditiously as industry and market practices change and as new risks emerge. Regulation should also require the pre-emptive build-up of prudential buffers in financial institutions to weather a downturn or stress event, and to effectively address macroprudential risks.

Tenet 5: “Impact Sensitive”.

The costs and impact of regulation should be considered alongside the benefits and desired outcomes of regulation, so that the costs are not disproportionate to the benefits. Regulation should be targeted clearly at specific and material risks to the objectives of financial supervision. The design of regulation should take into account market realities so that unintended and unnecessary disruption to market practices is minimised. Even in instances where regulation is specifically aimed at changing market practices, care will be taken to avoid placing undue burden.

Tenet 6: “Clear and Consistent”.

Regulation should be clear so that financial institutions have reasonable certainty as to their legal obligations. Regulation should not be subject to frequent and sudden changes that cause uncertainty and disruption to business and market practices. Where appropriate, like activities conducted by regulated institutions from different sectors should be subject to similar and consistent regulation.

The Monetary Authority of Singapore (MAS) has released a consultation paper on proposed amendments to the Code on Collective Investment Schemes (Code). The Code prescribes best practices in the management, operation and marketing of collective investment schemes (CIS) authorised under the Securities & Futures Act.

The proposed amendments aim to provide clarity and to increase the flexibility for managers in managing their funds, and enhance protection for investors. They include:

i. Introducing a list of permissible investments and accompanying criteria to enhance clarity in the application of the liquidity and diversification limits.

ii. Strengthening safeguards on the use of financial derivatives through prescription of counterparty limits and acceptable forms of collateral used to mitigate counterparty risks.

iii. Introducing additional guidelines on the use of the commitment approach and Value-at-Risk (VaR) method for calculating exposures to financial derivatives.

iv. Enhancing existing guidelines on funds’ securities lending activities through comprehensive requirements on the counterparty, custodian and the use of collateral. This is in the light of the heightened attention on counterparty and liquidity risks as a result of the recent global financial crisis.

v. Establishing new investment guidelines for funds seeking to track indices, introducing principles for the naming of funds and requirements to standardise the methods used for calculating performance fees where the fund manager decides to impose such fees.

vi. Modifying existing operational requirements, including allowing the sending of accounts and annual reports to unitholders by electronic means with certain exceptions as long as unitholders are notified and do not object to it.

The proposed amendments will also apply to funds offered via an investment-linked life insurance policy (ILP). As a transitional measure, MAS proposes to give fund managers and approved trustees for CIS three months to comply with the revised Code.

The full consultation paper (82 pages!) can be downloaded here:

Proposed Amendments to the Code on Collective Investment Schemes

Feedback can be sent to ciscode@mas.gov.sg or (+65) 6225-1350 (fax) by 25 June 2010.

The Macroeconomic Review is published twice a year by MAS in conjunction with the release of the MAS Monetary Policy Statement (MPS).

The purpose of the Review is to provide information on the Economic Policy Group’s background analysis and assessment of GDP growth and inflation developments in the Singapore economy, and in doing so, to share with market participants, analysts, and the wider public the basis for the policy decision articulated in the MPS.

The latest copy of the review can be downloaded here:

MAS Macroeconomic Review April 2010