Buying investment products? Pass this test first

MAS now requires that a customer be assessed prior to the sale to ensure the risks and features are understood.

Under the new measures introduced by the Monetary Authority of Singapore, intermediaries must conduct a Customer Knowledge Assessment to assess whether a customer has the relevant knowledge or experience to understand the risks and features of an unlisted SIP.

In the case of listed SIPs, intermediaries have to conduct a Customer Account Review to ascertain whether the customer has the relevant knowledge or experience to understand the risks and features of complex structures or derivatives, before approving the customer’s account to trade such products.

MAS said the intermediary will inform the customer if he is assessed not to possess the relevant knowledge or experience. If the customer still intends to proceed with the transaction, the intermediary must offer advice to the customer. MAS will not allow “execution only” service in such cases. Safeguards, such as a lower trading limit than what the intermediary would otherwise have imposed, will also be put in place before the customer is allowed to proceed with the transaction.

“We aim to ensure that intermediaries recommend suitable investment products to customers, particularly those who may not have the relevant investment knowledge or experience,” said MAS on its website. The stronger measures and enhanced requirements were introduced to further safeguard customers’ interests and should be applied to both new and existing customers.

The requirements will come into effect on 1 January 2012 and will be introduced by means of a new Notice on the Sale of Investment Products and a new Notice on Recommendations on Investment Products. A transition period of five months will be provided for intermediaries to put in place the necessary processes to meet the requirements.

In line with the new requirements, all representatives who deal in or provide advice on SIPs must pass additional examinations on product knowledge and analysis. MAS is working with the Institute of Banking & Finance and the Singapore College of Insurance to introduce the additional examinations by end 2011.