Accredited Investor (AI) – Opt-in Regime

The Securities and Futures (Amendment) Act 2017 which came into force in 2018 (hereinafter the Amendment Act) introduced changes to the definition of who is an “ accredited investor ” pursuant to section 4A of the Securities and Futures Act (cap. 289) (“SFA”), as well as an opt-in/opt-out regime. These recent legislative amendments aimed at enhancing regulatory safeguards for investors and will also encourage those who are truly aware of the risks and complexities to enter into the investments. In addition, such a person cannot be treated as an accredited investor even without his or her knowledge.

Accredited Investor: Previous Definition

i)   Individuals with personal net assets in excess of $2 million;
ii)   Individuals with an income of not less than $300,000 in the past 12 months;
iii)  Corporations with net assets exceeding $10 million in value, in their most recent balance sheet;
iv)  Trustees of trusts that the Monetary Authority of Singapore (MAS) approves; or
v)   Persons that the MAS may prescribe (Refer Securities and Futures Act 4A(1)(a)(iv))

The Amendment Act will tighten up the way an individual’s net personal assets are calculated. In addition, from 8 January 2019, new customers who qualify under the quantitative criteria to be accredited investors must specifically consent to being classified as AIs.

What is this New Regime– Eligible accredited investor can opt-in (choose) whether to be treated as a retail investor or an accredited investor

For an individual to be eligible Accredited Investor– His net personal assets exceed $2 million, subject to the value of the individual’s primary residence (net of any outstanding amounts in respect of any credit facility that is secured by the residence) can only account for up to $1 million of this sum.

  • His financial assets, net of any related liabilities, exceeds $1 million, or
  • His income in the preceding twelve months is not less than $300,000
  • Financial assets as abovementioned include deposits and investment products.

The new definition of an Accredited Investor includes:

  • An entity or incorporation with net assets exceeding $10 million
  • The trustee of a trust the subject matter of which exceeds $10 million
  • A corporation where all the shareholders are accredited investors
  • A partnership (other than a limited liability partnership) where all the partners are accredited investors
  • A trust where all the beneficiaries are accredited investors and
  • A trust where all the settlers are accredited investors and have reserved to themselves all powers of investment and asset management functions under the trust and have reserved to themselves the power to revoke the trust.
  • Only clients who were, before the legislative changes, assessed as accredited investors based on the value of their primary residence are affected. (Primary Residence means a home where the investor lives in most of the time. This can be located in Singapore or overseas.)
  • Accredited Investors who did not rely on the value of their primary residence to contribute more than $1 million of the $2 million net personal assets threshold would not be affected.
  • An individual or entity holding a joint Account with an accredited investor may be regarded as an accredited investor, wherein all relevant dealings are made through this account.

Accredited Investor- Opt-out Regime

  •  The existing clients of Financial Institutions (FIs) have an option to opt out of being treated by the FI as an Accredited Investor.
  • If no response has been received to the statement asking for consent of accredited investors by FIs (which is hereinbelow stated), FIs can continue to treat the client as an accredited investor.
  • For clients who are individuals, after 8 July 2020, an opt-in confirmation must be received in order to treat them as accredited investors. This requirement is not applicable to clients who are not individuals

How Financial Institutions will apply this change 

If the FI has assessed a new customer to be an Accredited Investor, the following statements must be provided to them

  • A statement that the client has been assessed to be eligible as an accredited investor
  • A statement that the client may consent to be treated as an accredited investor
  • A statement that the client may withdraw his or her consent at any time and FI after a reasonable time period must not treat the client as an accredited investor
  • A general warning statement as set out in schedule 1 of the Securities and Futures (Classes of Investors) Regulations 2018
  • A clear explanation to plain language of the effect of opting to be treated as an accredited investor

The client must then provide a written statement or a signed statement recorded by the financial institution stating that

  • The client knows and understands the consequences of being treated as an accredited investor
  • The client consents to being treated as an accredited investor
  • The client knows that he or she may withdraw his or her consent at any time.

Effect of the change

  • No additional independent documentary proof is needed from all their existing individual accredited investor clients
  • Main impact would be on those clients who were assessed as accredited investors based on the value of their primary residence
  • Where the FI has established that a client is unable to meet the revised accredited investor threshold, the FI must not enter into any new transaction with the client on the basis that the client is an accredited investor.

What is the applicable grace period for this before it is to be enforced?

  • FIs to provide existing clients with the option to opt out of being treated by the FI as an accredited investor before 8th April 2019
  • FIs that are onboarding new clients must ensure that clients are meeting requirements under new definition:-For individuals under sections 4A (1) (a) (i) and 4A (1A) of Securities and Futures Act –from 8th October 2018
  • Other clients under regulation 2 of the Securities and Futures (Classes of Investors) Regulations 2018– from 8th January 2019
  • FIs can start incorporating the opt-in procedures in its client onboarding process before 8 April 2019.
  • FIs need to obtain explicit opt-in as accredited investor from AI clients onboarded from 8 April 2019.

The change brought by the Amendment Act will offer more effective protection for investors and will also encourage those who are truly aware of the risks and complexities to enter into the investments. In addition, such a person cannot be treated as an accredited investor even without his or her knowledge.

How can Argus help?

Argus specializes in regulatory compliance and provides objective insights, subject expertise and a simple approach to all your compliance-related needs. We can help you prepare your business for these new regulations and how to deal with them. Our diversified client base spans start-ups to mature businesses. We will be happy to answer your queries, whether specifically to this article or any other regulatory compliance hurdles you may face. Do reach out to us at info@argusglobal.co

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