Changes to the definitions of Accredited Investors (AIs) and Institutional Investors (IIs), part of the Monetary Authority of Singapore’s (MAS) proposed changes to its capital markets regulatory framework and followed a consultation paper issued on 21 July 21 2014, will impact Singapore-based financial institutions on their policy, documentation, systems, and procedures.

The first reading of the refinements to the AI definition took place in parliament last month, and the second reading is expected to happen sometime this month or January 2017.

To tighten the wealth criteria for an individual to qualify as an AI, the net equity of the individual’s primary residence can only contribute up to S$1 million of the current S$2 million net personal assets threshold. Alternatively, individuals will be able to qualify as an AI if they have S$1 million of financial assets (net of any related liabilities). Individuals whose wealth is mainly based on their primary residence and have little liquid assets will no longer qualify as AIs. An “opt-in” regime will be introduced to investors who meet the prescribed AI wealth or income thresholds, that they will be given a choice to benefit from the regulatory safeguards for retail investors. It will also avoid situations where an AI-eligible investor may be classified as an AI without his awareness or consent.

The IIs definition will be widened to include persons professionally active in the capital markets, such as financial institutions regulated by foreign regulators, foreign central governments and sovereign wealth funds. However, statutory bodies, other than prescribed statutory boards, will no longer be deemed as IIs.

Singapore-based financial institutions will have to be prepared for what is to come, requiring a review of their policy, documentation, systems, and procedures. Financial institutions will also have to review the status of their existing clients, where: i) existing AI clients who continue to be AI-eligible, where a client has opted out of AI status, and would need to treat the client as a non-AI client; ii) non-AI clients who are assessed to have the potential to become AIs and to transition these clients to the AI regime; iii) existing AI clients who would no longer be AI-eligible (e.g. due to the S$1 million cap modification to the net personal assets test),to continue to treat them as AIs only in respect of existing investments predicated on their AI status; and iv) statutory bodies who meet the relevant monetary thresholds, and opt in to be treated as AIs, FIs to continue serving them in respect of existing investments predicated on their II status. 

Like Singapore, financial regulators globally are concerned with AI definition in their respective jurisdictions. An example of which is that on 18 December 2015, the Securities and Exchange Commission (SEC) staff issued a report regarding its first review of the AI definition under the Dodd-Frank Act (which requires review of the definition every four years). The report recommended a revision to the financial thresholds requirements for natural persons to qualify as AIs, and to allow individuals to qualify as AIs based on other measures of sophistication. A list-based approach for entities to qualify as AIs was also recommended. 

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