There are many ways to skin a cat. One way to stop investors from investing in dangerous/sophisticated products they don’t understand is to make them sit for a test to make them fit or safe for the product. Another way of course is to make sure that dangerous/sophisticated products are safe before selling. Is making investors sit for the test not akin to passing the buck to the investors? This is better than caveat emptor. Disqualifying dangerous/sophisticated products leaves the responsibility with the regulator to make certain they are safe for consumption.
Which of the two methods is more efficient? One involves a lot of investors and potential investors to sit for the test. Now why would a customer want to buy a complicated/dangerous sports car if he has to sit for a test to ensure that he knows the danger of the car and cannot complain later? And why would potential investors want to sit for a test if they are not even sure of investing in the product? Does it mean that whenever a new product is launched, and if not covered by the test, the buyers must resit for another new test?
Would it be more efficient for the authorities to vet the products like the HSA checking edible products before allowing them into the market? Can’t imagine every individual would have to sit for a test before they are allowed to buy a new food product. Or should commuters be required to sit for a test, to know the nature of the train, before being allowed to board a train?
This kind of logic is Uniquely Singapore. The people must qualify themselves ie know the danger of the product they are buying before being allowed to buy it. The seller does not need to make sure that the products are safe. Can a seller sell snake oil if the buyer has passed a test on what is snake oil?
Below is an extract of an article by Kevin Lim of things to come.
By Kevin Lim
SINGAPORE, Dec 19 (Reuters) - Buying a mutual fund in
Singapore may not be a cakewalk anymore.
Under new investor-protection rules that take effect Jan 1,
investors in the tightly controlled city-state must possess
certain educational qualifications related to finance or have
relevant work or trading experience to buy funds directly.
Those who fail to meet the Monetary Authority of Singapore's
(MAS) requirements must take a series of on-line tutorials on
the Singapore Exchange website, and answer the
questions correctly in order to qualify to buy the funds, in
what could be a first for investors anywhere in the world.
Thousands of Singaporeans lost money investing in supposedly
low-risk Lehman Brothers-linked "Minibonds" in 2008. The new
rules follow a review by the country's monetary authorities.
The regulations have been sharply criticised by some fund
managers who fear a loss of business.
" Asking investors to pass a test to
invest could be a deterrent to investing," said Francois Mouzay,
head of fund development and services in Asia-Pacific for BNP
Paribas Investments Partners….