|By Gabriel Chen|
MAS announced its decision as part of its response to feedback it has received on a slew of changes proposed in the wake of the collapse of Lehman-linked structured products. -- ST PHOTO: RICHARD CHNG
FROM now on, retail investors can expect financial products to fall clearly into two categories.
Products that fully protect an investor's principal sum are labelled 'capital guaranteed' - anything else carries the possibility of a loss.
That's because the Singapore's financial regulators have decided to ban a puzzling in-between category of investments that currently carry the monikers 'capital protected' or 'principal protected'.
There are no agreed definition for these terms, which are not easily understood by investors, said the Monetary Authority of Singapore (MAS) on Tuesday.
MAS announced its decision as part of its response to feedback it has received on a slew of changes proposed in the wake of the collapse of Lehman-linked structured products.
These proposals, first released in March, were mooted in response to controversy over the way complex investment instruments were sold to people, including many elderly and lowly educated folk.
Some of the key changes require financial institutions to provide customers with simple, user-friendly 'product highlights sheets' and provide 'health warnings' on complex investments in appropriately large font.
MAS has also proposed that bank tellers should not sell investments and there should be a seven-day 'cooling off' period during which an investor could change his mind and pull out of his investment.
In a 19-page document on Tuesday, the financial regulator outlined public responses it had received, and said that it would adopt most of the proposals.
The ban on the use of the term 'capital protected' will apply to mass-market products familiar to retail investors, including structured deposits, unit trusts and investment-linked life insurance policies.
Some investors have previously raised concerns that they had difficulty understanding what those terms meant, MAS said.
A 'capital protected' product is where the principal sum is ploughed into investments like bonds which, on maturity, are expected to provide the 100 per cent capital protection.
But this is not a certainty.
'The bonds could turn sour and affect the value of the investment, and people may not get back 100 per cent,' said First Principal Financial's chief executive Mohamed Salim.
a blog on: Financial Planning Advice - Christopher Pua