The Monetary Authority of Singapore (MAS) has published a handbook for retail investors that details for the first time how it believes structured products should be sold.

The publication of Making Sense of Structured Products in its second public consultation coincided with the lifting of bans on the sale of structured products imposed on 10 financial institutions in Singapore in July 2009.

The Singapore financial watchdog was careful to state it was investigating further one of the more contentious issues surrounding a statement that it would define 'complex investment products', instead producing a list that will include shares, units in business trusts, real estate investment trusts, plain vanilla bonds, money market instruments, life insurance policies (other than investment-linked policies) and structured deposits (including dual-currency investments, which banks can no longer call dual-currency deposits).

"The MAS is not going to proceed with the original proposal of an enhanced regime for 'complex investment products' and is instead proposing a completely different regime," said Jacqueline Low, senior counsel for Asia at the International Swaps and Derivatives Association in Singapore. "The MAS will decide what they think are low-risk products, and will have the power to put on an excluded list products that are not subject to the new regime for listed, and now some unlisted, products."

The regulator has asked interested parties to suggest products that should go on the excluded list.

The latest consultation paper deals with sales to investors that are not deemed to be institutional, expert or accredited under the Securities and Futures Act (SFA) and Financial Advisers Act (FSA). Section 4A of the SFA imposes a means test which puts individuals with net personal assets of at least S$2 million or an income in the past year of $300,000 or more in this category.

For unlisted, non-excluded investment products, a 'customer knowledge assessment' (CKA) must be conducted by the intermediary before selling each product and approved by a person independent of the financial advisory function, proposes the MAS. If the customer is assessed under the CKA not to possess the relevant knowledge or experience, the intermediary must advise the customer whether such a product is suitable for the them. For execution-only transactions, the customer must be deemed by the CKA to have the relevant knowledge or experience.

"It appears that investment products that are derivatives or contain embedded derivatives will fall within the definition of 'non-excluded investment products'", said Chris Lee, head of risk management products intermediaries at UBS in Hong Kong.