MAS proposes changes to code on collective investment schemes to facilitate fund product innovation

1

© RAJAH & TANN SINGAPORE LLP

CAPITAL MARKETS | FUNDS & INVESTMENT MANAGEMENT

MAS Proposes Changes to Code on

Collective Investment Schemes to Facilitate

Fund Product Innovation

Executive Summary

The Monetary Authority of Singapore ("MAS") is seeking feedback on proposed changes to the Code on Collective Investment Schemes ("CIS Code") to enable a wider range of new fund product types to be authorised for retail offer. The proposals are set out in the "Consultation on Proposed Amendments to the Code on Collective Investment Schemes to Facilitate Retail Fund Product Innovation"

("Consultation Paper") which is open for feedback until 10 August 2026. In the Consultation Paper,

MAS indicates that it intends to apply the proposals to two new fund types that have received market interest, namely, futures based single-commodity funds and single-country government bond funds.

MAS proposes the following changes to the CIS Code which aim to facilitate fund product innovation and cater to a broader range of investment objectives:

1. New Alternative Funds Appendix: A new Alternative Funds Appendix that: (i) permits innovative fund types to deviate from the investment guidelines and borrowing limits for a collective investment scheme ("CIS") ("existing investment requirements") set out in Appendix 1 of the

CIS Code if they satisfy certain factors ("Deviation Factors"); and (ii) imposes alternative regulatory safeguards on them.

2. Amendments to existing investment requirements: Proposed changes to the CIS Code and its

Appendices to provide flexibility for future amendments to the existing investment requirements, enabling safeguards to be introduced for new fund types that remain largely in line with traditional funds but which do not fall within the new alternative fund framework.

This Update summarises the key proposed changes to the CIS Code and their practical implications as described in the Consultation Paper.

2

New Alternative Funds Appendix

Authorisation Requirements

Under the proposed new Alternative Funds Appendix, MAS will consider the following Deviation

Factors in determining whether to allow an innovative fund type to deviate from the existing investment requirements in Appendix 1 of the CIS Code:

1. IOCSO compliance: The new fund type's compliance with the principles of the International

Organization of Securities Commissions ("IOSCO"), as encapsulated by legislative requirements in the Securities and Futures Act 2001 and the Chapters of the CIS Code, which include having sufficiently liquid assets to facilitate fund redemptions. The key IOSCO principles include: (i)

ensuring high standards of competence, integrity and fair dealing, including having effective liquidity risk management processes; (ii) ensuring proper segregation and protection of investors'

funds and assets; (iii) providing adequate disclosures to investors; and (iv) ensuring a proper and disclosed basis for asset valuation, pricing and redemption of units in a CIS.

2. Similar products in other jurisdictions: The listing or offer history of products in other jurisdictions that are similar to the new fund type.

3. Proposed safeguards: Safeguards such as: (i) product-level safeguards; (ii) enhanced disclosures and distribution safeguards to mitigate the risks arising from the new fund type's novel or new structure, risk or investment policy, as well as any deviation from the existing investment requirements; and (iii) measures to ensure that the CIS will have sufficient liquidity to meet fund redemptions.

For the avoidance of doubt, MAS has clarified that the following core requirements and responsibilities will continue to apply to the new fund types and their fund managers:

1. Key fundamental requirements set out in the Chapters of the CIS Code: These cover areas such as asset safeguarding and liquidity standards.

2. Fair dealing outcomes: Fund managers' and distributors' obligations to focus on fair dealing outcomes in the design and distribution of fund products to retail investors.

3. Complex funds distribution safeguards: Distribution safeguards under the complex products regime will apply to new fund types that are classified as complex products accordingly.

Authorisation Process

Where MAS decides that it is appropriate to allow for a new alternative fund type to be authorised for retail offer, such a fund type will be allowed through a circular issued under the proposed Alternative

Funds Appendix. The circular will set out: (i) the modified investment requirements; (ii) the alternative safeguards; and (iii) enhanced disclosures, for that specific fund type. Funds authorised as such will be required to carry a clear and prominent statement in their prospectuses, product highlights sheets and marketing materials relating to the fund, stating that the fund is offered under the new Alternative

Funds Appendix as an alternative fund ("Alternative Fund Statement").

Issuers should consult with MAS on the new fund types sought to be offered to retail investors before applying for authorisation. Within about three months, MAS expects to be able to determine the

3

© RAJAH & TANN SINGAPORE LLP LAWYERS WHO KNOW ASIA necessary guardrails and to design the alternative set of requirements for most new fund types, which will be published via a circular to provide market clarity and transparency on the applicable safeguards for future interested issuers. Thereafter, funds of the same type will take 21 days to be authorised if they fulfil the same requirements.

Amendments to Existing Investment Requirements

To cater for a new fund type that remains largely in line with traditional funds, instead of classifying this as an alternative fund, MAS proposes to amend Chapter 4 of the CIS Code to provide flexibility for future possible amendments to the existing investment requirements in the CIS Code's Appendices

("Amendment Proposal").

MAS will only permit such amendments if the Deviation Factors are fulfilled, and such amendments will be made in a manner that seeks to ensure that safeguards on fund investments (such as risk limits and disclosures) remain adequate. However, the flexibility for such amendments will only apply to the

Appendices of the CIS Code and not the key fundamental requirements set out in the Chapters of the

CIS Code, including the best practices on the management, operation and marketing of the CIS, that managers, approved trustees, directors and custodians of a variable capital company are expected to observe.

Other Matters

As illustrative examples, the Consultation Paper provides for the set of investment requirements and alternative safeguards that MAS intends to apply to two new fund types which have garnered significant market interest and which have been offered in other jurisdictions such as the European

Union and Hong Kong:

1. Futures-based single-commodity funds: These are funds that invest in only one type of commodity through futures contracts. MAS proposes to permit such funds with appropriate product-level and naming and disclosure safeguards, under the proposed Alternative Funds

Appendix.

2. A wider array of single-country government bond funds: While such funds are currently permitted where the issuer is a government that complies with certain requirements, including a minimum credit rating, MAS has received feedback on the limitations of such credit rating requirements. MAS proposes to amend the existing investment requirements in Appendix 1 of the

CIS Code, to remove the credit rating requirements, while retaining and introducing appropriate product-level and disclosure safeguards.

For consistency, MAS will also recognise foreign funds that are comparable to new fund products that it authorises (including those authorised under the proposed Alternative Funds Appendix) and facilitate the cross-listing of a wider range of listed funds ("Foreign Funds Proposal").

MAS seeks views on: (i) the proposed Deviation Factors; (ii) the proposed Alternative Funds

Appendix, including its proposed title and suggestions on other, more suitable titles; (iii) the proposed

Alternative Fund Statement; (iv) the Amendment Proposal; and (v) the Foreign Funds Proposal.

4

Key Insights

The proposed changes to the CIS Code reflect MAS' approach of treading the fine line between enabling fund product innovation to increase investor choice (on the one hand) and ensuring that adequate safeguards are in place for the retail investors involved (on the other hand).

For fund issuers and fund managers, the proposals create a clearer framework for bringing innovative products to market, including futures-based single-commodity funds and a wider range of single-country government bond funds. Those who wish to leverage on the first-mover advantage should consider engaging MAS early in the product development process, given MAS' expectation of a three-month period to design the applicable requirements for most new fund types. Those seeking to obtain authorisation for specific new fund types should ensure compliance with the Deviation Factors and that appropriate safeguards are locked in, and should also be mindful of post-authorisation requirements such as the Alternative Fund Statement required to be prominently displayed. Finally, for retail investors in Singapore, the proposals are expected to broaden the range of investment options available locally thereby equalising the playing field with other jurisdictions such as the European

Union and Hong Kong, and they should carefully consider and take advice on the different risk profiles of these new fund types when compared to traditional funds.

If you have any queries on the above, please reach out to our team set out on this page.

For regional Capital Markets matters and regional Funds & Investment Management matters, please see Rajah & Tann Asia's Regional Capital Markets Practice and Regional Funds & Investment

Management Practice respectively for more information.

5

Contacts

CAPITAL MARKETS

Howard Cheam 詹兴豪

HEAD, CAPITAL MARKETS

D +65 6232 0685

howard.cheam@rajahtann.com

Tan Mui Hui

DEPUTY HEAD, CAPITAL MARKETS

D +65 6232 0191

mui.hui.tan@rajahtann.com

Lee Xin Mei

HEAD, DEBT CAPITAL MARKETS

D +65 6232 0618

xin.mei.lee@rajahtann.com

FUNDS & INVESTMENT MANAGEMENT

Anne Yeo

HEAD

D +65 6232 0628

anne.yeo@rajahtann.com

Jasmine Chew 周洁敏

CO-DEPUTY HEAD

D +65 6232 0454

jasmine.chew@rajahtann.com

Philip Yeo

CO-DEPUTY HEAD

D +65 6232 0487

philip.yeo@rajahtann.com

Please feel free to also contact Knowledge Management at RTApublications@rajahtann.com.

6

Regional Contacts

Cambodia

Rajah & Tann Sok & Heng Law Office

T +855 23 963 112 | +855 23 963 113

kh.rajahtannasia.com

Myanmar

Rajah & Tann Myanmar Company Limited

T +951 9253750

mm.rajahtannasia.com

China

Rajah & Tann Singapore LLP

Representative Offices

Shanghai Representative Office

T +86 21 6120 8818

F +86 21 6120 8820

Shenzhen Representative Office

T +86 755 8898 0230

cn.rajahtannasia.com

Philippines

Gatmaytan Yap Patacsil Gutierrez & Protacio

(C&G Law)

T +632 8248 5250

www.cagatlaw.com

Singapore

Rajah & Tann Singapore LLP

T +65 6535 3600

sg.rajahtannasia.com

Indonesia

Assegaf Hamzah & Partners

Jakarta Office

T +62 21 2555 7800

F +62 21 2555 7899

Surabaya Office

T +62 31 5116 4550

F +62 31 5116 4560

www.ahp.co.id

Thailand

Rajah & Tann (Thailand) Limited

T +66 2656 1991

th.rajahtannasia.com

Vietnam

Rajah & Tann LCT Lawyers

Ho Chi Minh City Office

T +84 28 3821 2673 | +84 28 3521 2832

Hanoi Office

T +84 24 3267 6127 | +84 24 3267 6128

vn.rajahtannasia.com

Lao PDR

Rajah & Tann (Laos) Co., Ltd.

T +856 21 454 239

la.rajahtannasia.com

Malaysia

Christopher & Lee Ong

T +603 2273 1919

F +603 2273 8310

www.christopherleeong.com

Rajah & Tann Asia is a network of legal practices based in Asia.

Member firms are independently constituted and regulated in accordance with relevant local legal requirements. Services provided by a member firm are governed by the terms of engagement between the member firm and the client.

This Update is solely intended to provide general information and does not provide any advice or create any relationship, whether legally binding or otherwise.

Rajah & Tann Asia and its member firms do not accept, and fully disclaim, responsibility for any loss or damage which may result from accessing or relying on this Update.

7

Our Regional Presence

Rajah & Tann Singapore LLP is one of the largest full-service law firms in Singapore, providing high quality advice to an impressive list of clients. We place strong emphasis on promptness, accessibility and reliability in dealing with clients. At the same time, the firm strives towards a practical yet creative approach in dealing with business and commercial problems. As the Singapore member firm of the Lex Mundi Network, we are able to offer access to excellent legal expertise in more than 100 countries.

Rajah & Tann Singapore LLP is part of Rajah & Tann Asia, a network of local law firms in Cambodia, China, Indonesia, Lao PDR, Malaysia, Myanmar, the Philippines,

Singapore, Thailand and Vietnam. Our Asian network also includes regional desks focused on Brunei, Japan and South Asia.

The contents of this Update are owned by Rajah & Tann Singapore LLP and subject to copyright protection under the laws of Singapore and, through international treaties, other countries. No part of this Update may be reproduced, licensed, sold, published, transmitted, modified, adapted, publicly displayed, broadcast (including storage in any medium by electronic means whether or not transiently for any purpose save as permitted herein) without the prior written permission of Rajah & Tann

Singapore LLP.

Please note also that whilst the information in this Update is correct to the best of our knowledge and belief at the time of writing, it is only intended to provide a general