Exotic investments could come under MAS rules
Products like land-banking, gold buy-back schemes may be regulated
By Yasmine Yahya, The Straits Times, 22 Jul 2014
Products like land-banking, gold buy-back schemes may be regulated
By Yasmine Yahya, The Straits Times, 22 Jul 2014
PEDDLERS of esoteric financial products such as forestry investment and gold buy-back schemes have for many years avoided being regulated.
But new proposals by the Monetary Authority of Singapore (MAS) unveiled yesterday aim to change that.
The operators of such schemes have stayed unregulated by deliberately structuring their investment products so that they do not fall under the ambit of the Securities and Futures Act.
This could soon change, as the MAS hopes to extend the scope of its powers to cover two more types of investment structures.
The first: buy-back arrangements involving gold, silver and platinum. Under such schemes, an investor buys an amount of precious metal with the agreement that he can sell it back at a higher, agreed-upon price, regardless of market prices. An example of such a scheme is one operated by Genneva Gold, which in 2012 went bust and left more than 10,000 investors stranded.
The second investment structure the MAS is targeting is the collectively managed investment scheme, such as that operated by Profitable Plots, accused in 2012 of cheating investors of more than $3 million.
These schemes allow groups of investors to buy direct stakes in an asset, but their funds are pooled and the asset is managed by the scheme operator, who splits any income or profits among the group.
If the MAS' proposals come to pass, operators of such schemes would have to be licensed, publish proper disclosures and comply with relevant codes under the law before they can market their products to retail investors.
This could mean that retail investors might soon be unable to invest in land-banking schemes, as the existing code on collective investment schemes does not allow investing in vacant land that does not generate income.
"These proposals are somewhat overdue but it's better late than never," said Securities Investors Association ( Singapore) president David Gerald.
"If such operators were to be regulated, they would think twice before marketing in Singapore and this would raise the overall quality of investment products in Singapore, ensuring that only ethical operators come here."
Investor Ang Eng Choo, who was recently stung by an unregulated investment scheme, agreed. "As an end user, it's good to have the Government safeguarding our interests, as long as it doesn't dampen the marketplace for investment products."The MAS, which is seeking public feedback on its proposals, is also suggesting a new ratings system for investment products.
Under the system, financial product sellers will have to state in their brochures the level of risk and complexity of the product, according to a set of guidelines issued by the MAS.
This will help standardise ratings, making it easier for investors to differentiate between simpler and more complex products and gauge riskiness, MAS said.
WHO'S AFFECTED BY PROPOSED RULES
- Operators which want to launch a precious metal buyback scheme would have to undergo the same processes and comply with the same rules as bond issuers.
- Collectively managed investment schemes, similar to those offered by EcoHouse and Profitable Plots, would come under the existing code on collective investment schemes under the new MAS proposals.
Beefed-up rules on exotic investments 'welcome'
But if not done carefully, they could hurt investors, weaker firms: Experts
By Yasmine Yahya, The Straits Times, 23 Jul 2014
But if not done carefully, they could hurt investors, weaker firms: Experts
By Yasmine Yahya, The Straits Times, 23 Jul 2014
TOUGHENING up the rules surrounding more unconventional investment schemes will help protect consumers but if the regulation is not done carefully, it risks hurting even more investors, said financial experts.
The beefed-up rules, while welcome, could place a heavy financial burden on companies as they try to comply, and may even force some to go out of business, they said yesterday.
This, in turn, might spell trouble for investors who placed money with these firms.The rules being flagged by the Monetary Authority of Singapore (MAS) come after hundreds of people here have been burned by two types of exotic products - precious metal buybacks and collectively managed investment schemes.
These are very similar to investment products that already come under MAS regulation but are deliberately structured in such a way that they do not fall under the ambit of the Securities and Futures Act, the MAS said.
Under the first, investors can buy gold, silver or platinum with the guarantee that they can sell it back to the operator at a higher, fixed price, regardless of the metal's market price.
There have been scandals over the past year involving such investment products peddled by firms such as Genneva Gold and Virgin Gold Mining Company. Both firms have been accused of financial impropriety.
The MAS said in a paper released on Monday that it plans to regulate these investments as debentures, or a type of bond. This would mean that an operator who wants to launch a precious metal buyback scheme would have to undergo the same processes and comply with the same rules as bond issuers.
Collectively managed investment schemes allow investors to buy a direct stake in an asset, say a unit in an apartment block, and then pool the funds from all the investments in the entire block.
The block is then managed and rented out by the scheme operator. Investors make returns from an income pool that is divided among the whole group rather than from the rents collected at their own unit. EcoHouse and Profitable Plots are among operators of similar schemes. Investors have filed complaints with the Commercial Affairs Department against both firms after they failed to meet payout promises.
Under the new MAS proposals, such schemes would come under the existing code on collective investment schemes.
Investor Haden Hee, who sank $50,000 into Profitable Plots, said it was time the Government stepped in. "When I was making the investment, I was told that even wealthy investors, lawyers and doctors were doing it too. I think they were all deceived," he said.
Fellow Profitable Plots investor Ivan Teo said many consumers likely assumed that such schemes were already regulated. He said: "Many of us thought that since Singapore has very strong property investment rules and this was a British firm, we could be confident investing in it."
Eternal Financial Advisory chief executive Viviena Chin said she has advised several clients over the years to avoid such products. MAS' move would at least get consumers thinking twice before putting their money into such unconventional schemes, she added.
She said: "I know friends and clients who have put their savings into unregulated investments such as wine and lost their money. I think it's high time MAS clamps down on all unregulated investments and makes it difficult for them to market (their products) in Singapore."
Bringing operators of such products under the ambit of the law will likely have a financial impact on them, said financial advisers.
If they are regulated, they would have to obtain a licence from MAS and their sales staff would have to undergo exams to become licensed financial advisers, both of which are lengthy processes. They may also have to maintain a minimum base capital of up to $1 million.
This could put many such firms, most of which are small operators, out of business, said Promiseland financial planner Wildred Ling. "That could be good because fly-by-night operators will have to leave and we'll have only legitimate players left," he said.
One land investment firm with about 20,000 clients here agreed. "Our company is unregulated but we have our own strict internal compliance standards. Being regulated would put us in good stead and it would weed out the undesirable companies," said a spokesman.
However, MAS has to take into consideration the impact regulation might have on people who have already invested in such schemes, he added.
In some cases, the new rules, if passed, would mean some companies may be unable to sell their products to retail investors.
Take land banking firms, which allow investors to collectively buy plots of undeveloped land with the promise that it can be sold to a developer for a profit. Under the law now, property investment firms cannot take retail investors' funds for investments in vacant land that does not generate income.
"Perhaps MAS could allow these firms to service existing customers but not take on new retail clients," Mr Ling said.
And there are many collectively managed investment schemes that have popped up in Singapore in recent years that may realise that their business does not comply with the law.
The existing code on collective investment schemes require them to invest in liquid assets - those that can be bought and sold easily - and many do not.
There are, for example, agricultural schemes where investors can buy trees, cassava or wine grapes, which the operator will cultivate and harvest on their behalf.
There are even farming schemes, where investors pay the operator a fixed amount of money to buy farm animals or birds such as emus. The scheme operator is then responsible for harvesting and selling to distributors. The investors receive payouts from revenues of these activities.