Singapore legislation
Regulation 18B
Regulation 18B
Product due diligence
Subregulation 1
Before selling or marketing any new product in Singapore to any targeted client, a financial adviser shall carry out a due diligence exercise to ascertain whether the new product is suitable for the targeted client.
Subregulation 2
A due diligence exercise required to be carried out under paragraph (1) shall include an assessment of all the following areas:
the type of targeted client the new product is suitable for and whether the new product matches the client base of the financial adviser;
the investment objective of the new product;
the key risks that a targeted client who invests in the new product potentially faces;
the costs and fees to be incurred by a targeted client investing in the new product as compared to other products with similar features sold by the financial adviser;
the processes in place for a representative of the financial adviser to determine whether the new product is suitable for the targeted client, taking into consideration the nature, key risks and features of the new product;
how the new product is intended to be marketed or sold;
whether any additional measures are necessary to mitigate any conflict of interest between a representative of the financial adviser and his targeted client, arising from the remuneration of such representative as a result of the sale of the new product to that targeted client;
the minimum qualifications or training required for a representative of the financial adviser before such representative commences financial advisory services in respect of the new product; and
whether the current systems of the financial adviser, including all relevant client sales documents, adequately support the sale of the new product to the targeted client.
Subregulation 3
No financial adviser shall sell or market any new product to any targeted client unless every member of the senior management of the financial adviser has, on the basis of the result of the due diligence exercise carried out on the new product under paragraph (1) —
personally satisfied himself that the new product is suitable for the targeted client; and
personally approved the sale or marketing of the new product to the targeted client.
Subregulation 4
Notwithstanding paragraph (3), the senior management of the financial adviser may, with the unanimous consent of all its members, designate —
a person who may or may not be a member of the senior management (referred to in this regulation as the designated person) to personally satisfy himself and approve in accordance with the requirements referred to in paragraph (3)(a) and (b); or
a committee (referred to in this regulation as the designated committee) comprising at least 2 persons, each of whom may or may not be a member of the senior management, and every member of the designated committee shall personally satisfy himself and approve in accordance with the requirements referred to in paragraph (3)(a) and (b),as the case may be; and every member of the senior management shall ensure that the designated person or every member of the designated committee, as the case may be, fulfills those requirements.
Subregulation 5
A failure by any member of the senior management to fulfill any of the requirements set out in paragraph (3) or (4) shall be deemed to be a failure of that member to discharge the duties or functions of his office under section 64(1)(c) of the Act.
Subregulation 6
Where the senior management of the financial adviser contravenes paragraph (4) by designating a designated person or designated committee without the unanimous consent of all of its members, every member of the senior management who consented to such designation will be deemed to have failed to discharge the duties or functions of his office under section 64(1)(c) of the Act.
Subregulation 7
Where a financial adviser complies with paragraph (3) with respect to a new product to be sold or marketed by the financial adviser, the financial adviser must maintain records of the following items for a period of at least 5 years after the date on which the last member of the senior management of the financial adviser gave his approval mentioned in paragraph (3)(b) in respect of the new product:
any due diligence exercise carried out under paragraph (1) in respect of the new product;
the approval mentioned in paragraph (3)(b) of all the members of the senior management of the financial adviser.
Subregulation 7A
Where the senior management of the financial adviser appoints a designated person under paragraph (4)(a) in respect of a new product to be sold or marketed by the financial adviser, and the designated person fulfils the requirements mentioned in paragraph (3)(a) and (b), the financial adviser must maintain records of the following items for a period of at least 5 years after the date on which the designated person gave his approval mentioned in paragraph (3)(b) in respect of the new product:
any due diligence exercise carried out under paragraph (1) in respect of the new product;
the unanimous consent of the members of the senior management to designate the designated person, as mentioned in paragraph (4);
the approval mentioned in paragraph (3)(b) of the designated person.
Subregulation 7B
Where the senior management of the financial adviser appoints a designated committee under paragraph (4)(b) in respect of a new product to be sold or marketed by the financial adviser, and all the members of the designated committee fulfil the requirements mentioned in paragraph (3)(a) and (b), the financial adviser must maintain records of the following items for a period of at least 5 years after the date on which the last member of the designated committee of the financial adviser gave his approval mentioned in paragraph (3)(b) in respect of the new product:
any due diligence exercise carried out under paragraph (1) in respect of the new product;
the unanimous consent of the members of the senior management to designate the designated committee, as mentioned in paragraph (4);
the approval mentioned in paragraph (3)(b) of all the members of the designated committee.
Subregulation 8
For the avoidance of doubt, no financial adviser shall sell or market any new product to any targeted client if the due diligence exercise required to be and carried out under paragraph (1) indicates that the new product is not suitable for the targeted client.
Subregulation 9
In this regulation —
Definition
“key risk” means any risk to a client’s investment in a new product, and includes any market risk, liquidity risk and product-specific risk;
Definition
“member of the senior management”, in relation to a financial adviser, means a person for the time being holding the office of —
chief executive officer or an equivalent person of the financial adviser; or
executive director or an equivalent person of the financial adviser,and includes a person carrying out the duties of any such officer if the office is vacant;
Definition
“new product”, in relation to a financial adviser —
means any investment product that has not been previously sold or marketed by the financial adviser, or any representative of the financial adviser, other than —
any spot foreign exchange contract other than for the purposes of leveraged foreign exchange trading;
any futures contract traded on an approved exchange, an overseas exchange or a recognised market operator; or
any specified product quoted on an approved exchange, an overseas exchange or a recognised market operator; and
includes any investment product other than the products referred to in paragraph (a)(i), (ii) and (iii), which varies in any manner (other than in respect of the maturity date of the investment product) from any investment product which has been previously sold or marketed by the financial adviser or any representative thereof;
Definition
“targeted client”, in relation to a financial adviser who intends to sell or market a new product, means any client to whom the financial adviser intends to sell or market the new product, other than a client that is any of the following:
an accredited investor;
an expert investor; (c)an institutional investor; (d)an ex-accredited investor who is an existing customer of the financial adviser, but only in respect of the financial adviser’s intention to sell or market the new product in the period from 8 October 2018 to 7 April 2019 (both dates inclusive).
Subregulation 10
Any financial adviser which, without reasonable excuse, contravenes this regulation shall be guilty of an offence and shall be liable on conviction to a fine not exceeding $25,000.