New Opt-In Regime For Accredited Investors In Singapore.

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Asia Pacific Legal Updates

 

1 June, 2019

 

New Opt-In Regime For Accredited Investors In Singapore.

 

Introduction

 

The Securities and Futures (Amendment) Act 2017 introduced several changes that aim to tighten the accredited investor regime in Singapore. In addition to the revised eligibility criteria of accredited investors (AIs)[1], which came into force on 8 October 2018, beginning 8 April 2019 (extended from 8 January 2019), an investor that meets the relevant criteria to be classified as an AI will only be treated as such if the investor specifically consents to being classified as an AI.

 

As such, investors will be afforded the flexibility of opting to retain the regulatory safeguards available to retail investors moving forward and will no longer be deemed as AIs simply because they meet the relevant criteria. Financial institutions (FIs) and their clients must therefore comply with the new opt-in regime in order to qualify for certain exemptions from regulatory requirements available to AIs.

 

Opt-in Procedure  

 

If an FI has assessed a prospective investor to be an eligible AI and intends to treat the investor as such, the FI must first provide the investor with the following statements in writing (whether via hardcopy or electronic form):

 

  1. That the FI has assessed the investor to be eligible as an AI;
  2. That the investor may consent to be treated by the FI as an AI;
  3. That the investor may at any time withdraw his or her consent;
  4. A general warning regarding AIs forgoing certain regulatory safeguards, as fully set out in the First Schedule of the SF(CI)R 2018; and
  5. A clear explanation in plain language of the effect of consenting to being treated as an AI in sufficient detail to enable the investor to make an informed decision.

 

Subsequently, if he or she intends to be treated as an AI, the relevant investor must then provide a written statement (whether via hardcopy or electronic form), or a signed statement recorded by the FI (if the investor provides verbal confirmation), that:

 

  1. The investor knows and understands the consequences of being treated as an AI;
  2. The investor consents to being treated as an AI; and
  3. The investor knows that he or she may at any time withdraw his or her consent.

 

Existing Clients

 

For existing clients of FIs (i.e. clients who are on-boarded prior to 8 April 2019) who meet the revised eligibility criteria of an AI, their status as AIs would remain unless they elect to opt-out. In order to comply with this, the FIs must provide existing clients with the following statements in writing (whether via hardcopy or electronic form):

 

  1. That the FI has assessed the existing client to be eligible as an AI;
  2. That the FI intends to continue to treat the existing client as an AI;
  3. That the existing client may at any time withdraw his or her consent;
  4. A general warning regarding AIs forgoing certain regulatory safeguards, as fully set out in the First Schedule of the SF(CI)R 2018; and
  5. A clear explanation in plain language of the effect of consenting to being treated as an AI in sufficient detail to allow the investor to make an informed decision.

 

If the FI does not receive a response from the existing AI client notifying that they do not consent to being treated as an AI, the FI must record the fact in writing in order to continue to treat the client as an AI.

Notwithstanding the above, it should be noted that for existing AI clients who are individuals, the opt-out procedure described above would only be applicable until 8 July 2020, after which the FI must comply with the opt-in procedure set out above in order for the existing AI individual client to be treated as an AI. This requirement does not apply to existing clients who are not individuals.

 

Conclusion

 

The new regime provides eligible investors greater flexibility, which was not previously available, and also ensures that investors have greater degree of informed consent before making investments with any FIs. However, the new regime also means that the FIs must establish more cumbersome and complicated internal systems and client on-boarding processes. FIs should therefore ensure that they are aware of and are ready to comply with the requirements of the new regime.

 

Duane Morris logo

 

For further information, please contact:

 

Hans Chua, Partner, Duane Morris & Selvam

hchua@duanemorrisselvam.com

 

Notes

 

[1] The revised criteria includes a cap on the net value of an individual’s primary residence at S$1 million (in determining whether the total value of the individual’s net personal assets exceeds S$2 million in value to be classified as an AI), and the introduction of a separate criteria for financial assets (where an individual with financial assets exceeding S$1 million would be classified as an AI). For the full revised eligibility requirements for AIs, please see Section 4A(1)(a) of the Securities and Futures Act (Chapter 289) of Singapore and Regulation 2 of the Securities and Futures (Classes of Investors) Regulations 2018 (SF(CI)R 2018).