Structured Products Regulations in Singapore¶

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Structured products are financial instruments whose returns are linked to the performance of underlying assets such as equities, indices, interest rates, currencies, or commodities. The Monetary Authority of Singapore (MAS) regulates structured products under the Securities and Futures Act 2001 (SFA) and the Financial Advisers Act (FAA) to ensure investor protection and market integrity.

Types of Structured Products¶

Structured Deposits¶

Structured deposits are deposits placed with a financial institution where the return (and in some cases, the principal) is linked to the performance of an underlying reference asset or index. Key characteristics:

Principal protection: May be fully protected, partially protected, or at risk depending on product terms
Return component: Linked to underlying asset performance (equities, FX rates, interest rates, commodity prices)
Issuer risk: Subject to credit risk of the deposit-taking institution
Regulatory treatment: Regulated under MAS Notice 757 (for banks) and the Banking Act

MAS Notice 757 requires banks offering structured deposits to: - Conduct suitability assessments before recommending structured deposits to retail customers - Provide a pre-transaction disclosure document including risk warnings - Ensure the customer has sufficient understanding of the product risks - Maintain records of suitability assessments for at least 5 years

Structured Notes¶

Structured notes are debt securities whose returns are linked to an underlying asset. They differ from structured deposits in that they carry both market risk and issuer credit risk. Regulatory requirements include:

Prospectus requirement: Must be registered with MAS under SFA Part XIII unless exempt
Product Highlights Sheet (PHS): Mandatory for offers to retail investors
Risk classification: Must be classified using the MAS risk classification framework
Credit rating: Issuer credit rating must be disclosed prominently

Equity-Linked Notes (ELN)¶

ELNs are a specific category of structured notes where returns are linked to equity performance. Additional regulatory considerations:

Subject to the same prospectus and PHS requirements as other structured notes
Must disclose the correlation between the note's performance and the underlying equity
Knock-in and knock-out features must be clearly explained with scenario analysis
Auto-callable features and early redemption triggers must be prominently disclosed

MAS Regulatory Framework for Structured Products¶

Securities and Futures Act (SFA) Requirements¶

Under the SFA, structured products that constitute "capital markets products" are subject to:

Licensing: Representatives dealing in structured products must hold a Capital Markets Services (CMS) licence or be appointed under a CMS licence holder
Prospectus requirements (SFA Part XIII):
Full prospectus required for public offers of structured products
Must contain all material information for investors to make informed decisions
Prospectus must be registered with MAS and lodged with the Accounting and Corporate Regulatory Authority (ACRA)
Valid for 12 months from date of registration
Exemptions from prospectus (SFA S.274-275):
Offers to institutional investors (S.274)
Offers to accredited investors (S.275)
Small offers not exceeding S$5 million in any 12-month period (S.272A)
Private placement to no more than 50 persons in any 12-month period (S.272B)

Financial Advisers Act (FAA) Requirements¶

Representatives providing advice on structured products must comply with:

Suitability obligation (FAA S.27): Ensure reasonable basis for recommendation considering customer's investment objectives, financial situation, and particular needs
Disclosure requirements (FAA S.25-26):
Disclose material interest or conflict of interest
Disclose commission and fees received
Provide basis of recommendation in writing
Record-keeping: Maintain records of all recommendations and the basis thereof

Risk Classification Framework¶

MAS requires structured products to be classified according to a standardized risk framework to aid investor understanding.

MAS Risk Classification Categories¶

Products are classified based on: - Market risk: Sensitivity to movements in underlying asset prices - Credit risk: Issuer default probability and loss given default - Liquidity risk: Ability to exit the investment before maturity - Complexity: Number of embedded features, barriers, and conditions

Classification Levels¶

Excluded Investment Products (EIP): Simple products such as plain vanilla bonds and listed shares -- no additional suitability requirements
Specified Investment Products (SIP): Complex products including most structured products -- require Customer Knowledge Assessment (CKA) and Customer Account Review (CAR)

Specified Investment Product Requirements¶

For products classified as SIP: - Customer must pass the Customer Knowledge Assessment (CKA) before transacting - Financial institution must conduct a Customer Account Review (CAR) to assess customer's suitability - If customer fails CKA, the institution may still allow the transaction after providing additional risk warnings and obtaining written acknowledgment

Customer Knowledge Assessment (CKA)¶

The CKA is a regulatory mechanism to ensure retail customers have sufficient knowledge before investing in complex products.

CKA Criteria¶

A customer is deemed to have the requisite knowledge if they meet any of the following:

Education: Holds a diploma or higher qualification in accountancy, business administration, commerce, economics, finance, financial engineering, or a related discipline
Professional qualifications: Holds CFA, CAIA, CFP, or equivalent professional certification
Work experience: Has at least 3 consecutive years of relevant working experience in the past 10 years in roles related to treasury, portfolio management, financial advisory, or capital markets
Transaction experience: Has transacted in the specific product type at least 6 times in the preceding 3 years

CKA Process¶

Financial institution assesses customer against CKA criteria using documentary evidence
Assessment must be documented and records maintained for at least 5 years
CKA status is valid for the product type assessed -- separate assessments needed for different product types
CKA results are transferable between financial institutions with customer consent

Product Highlights Sheet (PHS) Requirements¶

Mandatory Content¶

The PHS for structured products must include: - Product name and issuer - Product type and classification (EIP/SIP) - Key product features in plain language - Risk factors (market, credit, liquidity, complexity) - Scenario analysis showing potential outcomes (best case, base case, worst case) - Fees and charges breakdown - Early termination conditions and costs - Maturity date and redemption terms - Contact information for complaints

Format Requirements¶

Maximum 4 pages for single-product PHS
Must use standardized formatting prescribed by MAS
Must be provided to customer before or at the point of sale
Available in English; translation into other official languages recommended but not mandatory

Representative Obligations for Structured Products¶

Pre-Sale Obligations¶

Representatives dealing in structured products must: 1. Verify the customer's CKA status for SIP products before proceeding 2. Conduct a fact-finding exercise to understand the customer's financial situation, investment objectives, and risk tolerance 3. Provide the PHS and allow the customer adequate time to review 4. Explain the key features and risks of the product in language the customer can understand 5. Disclose all commissions, fees, and potential conflicts of interest

At Point of Sale¶

Ensure the recommendation is suitable based on the customer's profile
Document the basis of recommendation
Obtain the customer's written acknowledgment of risk disclosures
For SIP products where customer fails CKA: provide enhanced risk warnings and obtain explicit written consent
Issue a confirmation note within prescribed timeframes

Post-Sale Obligations¶

Provide periodic statements showing the current value of the structured product
Notify customers of material events affecting the product (e.g., credit events, barrier breaches)
Process early termination requests in accordance with product terms
Maintain all transaction records for the prescribed retention period (typically 5 years)

Regulatory Developments and Trends¶

Post-Lehman Minibonds Reforms¶

Following the 2008 global financial crisis and the Lehman Brothers structured notes mis-selling incidents in Singapore, MAS introduced significant reforms:

Enhanced suitability requirements for complex products
Mandatory Product Highlights Sheet for all investment products offered to retail investors
Customer Knowledge Assessment framework for Specified Investment Products
Enhanced disclosure requirements for conflicts of interest
Independent sales audit requirements for financial institutions

Current Regulatory Focus Areas¶

Product complexity: MAS continues to scrutinize the complexity of structured products offered to retail investors
Digital distribution: Increased attention on online distribution channels and the adequacy of disclosure in digital formats
Sustainability-linked products: Growing regulatory interest in structured products with ESG-linked features
Cross-border offerings: Enhanced scrutiny of structured products offered to Singapore investors by foreign issuers

Key MAS Notices and Guidelines¶

Reference	Title	Applicability
MAS Notice SFA 04-N12	Sale of Investment Products	All CMS licence holders
MAS Notice FAA-N16	Recommendation on Investment Products	Licensed financial advisers
MAS Notice 757	Structured Deposits	Banks offering structured deposits
SFA S.274-275	Prospectus Exemptions	Offers to institutional/accredited investors
MAS Guidelines on PHS	Product Highlights Sheet	All investment product issuers

Compliance Considerations for Regnify¶

When processing Form 3A declarations for representatives dealing in structured products, compliance officers should verify:

The representative holds the appropriate CMFAS examination modules (Module 6 for securities, Module 8A/9A for derivatives-linked products)
The representative's licensed activities cover dealing in capital markets products -- structured products
CPD requirements are met, including specific training on structured products if mandated by the institution
Any past regulatory actions related to mis-selling of structured products are declared and assessed
The representative's fit and proper status considers any history of customer complaints related to product suitability