Regulation of Companies Promoting Investments in Precious Metals

Er Dr Lee Bee Wah asked the Prime Minister (a) whether the Ministry regulates the activities of companies that promote investment in gold and other precious metals to the public; (b) whether the Ministry is aware of companies that are actively promoting the investment of precious metals in public areas; and (c) whether the Ministry is aware that these companies are aggressively recruiting "agents" and offering them upfront commissions for projected sales.

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There is a wide range of products and schemes, both in Singapore and globally, that claim to offer consumers potential profits. Some of these are offered by entities that are regulated, while others are transacted outside the reach of financial regulators.

MAS regulates the financial markets and the activities of financial market participants. It seeks to protect investors by setting out the rules for issuers of shares, bonds, unit trusts or other capital market products. It also regulates the financial intermediaries and infrastructure operators, such as exchanges and clearing houses, for capital markets products.

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Regulations cannot cover every type of investment. MAS has to judge where to draw the line on what it regulates, taking into account the scale of the investment activity, its role in financial markets and whether failure by a firm will pose broader risks to the system. Like most other financial regulators around the world, MAS does not regulate schemes that involve investors acquiring direct ownership of physical assets, such as property, gold, art or wine. The gold buy-back schemes which Er Dr Lee Bee Wah enquired about are not regulated by MAS.

MAS will continue to monitor market practices and the investment landscape trends, and refine the regulatory framework where necessary over time.

However, regardless of whether these activities are regulated, it is an offence under the law to operate a fraudulent or deceptive scheme. As Members know, some of the operators offering gold buy-back schemes are currently under investigation by the Commercial Affairs Department (CAD). If there is evidence of fraud or other breaches of the law, CAD will take firm and appropriate action.

Schemes that claim to provide high returns with seemingly low risk will crop up from time to time. In the current low interest rate environment, people may, indeed, be more easily tempted to put their money into them. But there is a lot of sense in the old investment adage if an investment looks too good to be true, it is probably not true.

I, therefore, urge Singaporeans to exercise great care and vigilance before committing themselves to any investment scheme that claims to give high returns. There are a few things they should do.

First, they should check if an entity is regulated by MAS. MAS publishes a Financial Institutions Directory on the MAS website. It also publishes an Investor Alert List (IAL). The IAL contains a list of unlicensed entities which, based on information received by MAS, may have been wrongly perceived as being licensed or authorised by MAS. For example, Genneva Pte Ltd was listed on the IAL in February 2011.

For financial market investments, retail investors should deal only with firms regulated by MAS, such as banks, insurance companies, licensed financial advisers and brokers. Doing so will accord them several levels of protection. Regulated firms are subjected to prudential requirements which provide financial safeguards. Second, they are required to comply with market conduct rules which guard against mis-selling and require adequate disclosures, including how the products will generate the returns and the risks involved. Finally, should a dispute arise, there are established dispute resolution processes in the firm and with the Financial Industry Disputes Resolution Centre (FIDREC).

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Second, investors should consider how the returns in any investment scheme are generated. Are they realistic? Is the operator able to explain the risks of such investments, and is there any protection or recourse should the operator itself fail? Unless one is very knowledgeable about the product and understands and is willing to take the risks, it is better not to get involved in any scheme that offers very high returns. High returns are only possible with high investment risk. In some instances, they may also be fraudulent.

Through MoneySENSE, the national financial education programme, MAS has highlighted the risks of unregulated schemes, such as gold buy-back schemes, and the pitfalls of dealing with unregulated entities. There have also been newspaper articles to warn consumers against such gold buy-back schemes. More generally, MoneySENSE has repeatedly emphasised the need to exercise extra caution when consumers receive offers that seem too good to be true. We will put effort into this education campaign.

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