MAS must be the greatest enemy of scammers everywhere. Partly due to their being a central bank, but mostly due to the psychotic frustration that must come from talking to the zillionth scam victim. Their new safeguards ought to help:
What are the New Safeguards?
The new MAS safeguards will offer better protection, against the growing range of complex (read: often risky) products in the market. It also protects investors in less conventional schemes, such as gold buybacks.
This will restrict retail investors’ (regular people like you and me) access to risky products.
MAS might also extend more protection to Accredited Investors (AIs). Previously AIs weren’t given the same degree of protection as Joe Average, because it was assumed they were financially savvier, had more assets, and were more able to take care of themselves.
Some of the affected areas include:
- Some investments linked to physical assets
- Buyback arrangements for precious metals
- Product Ratings
1. Some Investments Linked to Physical Assets
Most investments that revolve around physical assets (e.g. land, platinum) will no longer be available to retail investors.
This is due to firms like Profitable Plots (which, by the way, is the best name ever for a bunch of swindlers). They cheated investors out of over $3.1 million. It wasn’t hard, considering most retailer investors won’t fly abroad to check the land.
Still, the enforcement seems a bit limited. MAS doesn’t appear to be forcing standards on such land-banking investments – they’re just fencing off more vulnerable investors, and leaving the accredited ones stick their necks out if they want to.
2. Buyback Arrangements for Previous Metals
These are investments linked to buyback schemes, for gold, silver, etc.
The general arrangement is that you pay the company for the physical asset (e.g. gold bars), hold on to it, and then later sell it back to them at a higher price. You may also get interest pay-outs.
But some of these companies are selling you the assets at an inflated price (20 – 30% above market value). They make a huge profit the moment you buy the asset, and then vanish shortly after. That could leave you with a chunk of gold / silver that you overpaid for, and can only sell at a loss.
Others may struggle to make payouts, or be unable to afford the buyback later. Genneva ripped off a bunch of people this way, in 2012.
The schemes will now be regulated as debentures – one change is that they’ll have to include certain disclosures in their prospectus, which make their risks more apparent.
3. Product Ratings
MAS wants ratings on various investment products. This will be based on (1) how painfully incomprehensible and unpredictable the product is, and (2) the risk of losing the money invested.
The sellers will have to disclose the ratings in product’s marketing material, along with credit ratings and the product’s history of volatility. This will certainly work, because the best way to help confused amateurs is to show them even more numbers and charts.
There will be a public consultation over these changes, which will take place between now and 1st September 2014.
Think the new regulations will help? Comment and let us know!
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