SINGAPORE: When Singapore financial services firm Chocolate Finance suspended instant withdrawals earlier this week, some customers were concerned if their funds were safe, and what would happen if the company were to collapse.
On online forums and social media, users highlighted that – unlike for bank deposits – money placed with such investment platforms is not covered by the Singapore Deposit Insurance Corporation's (SDIC) Deposit Insurance Scheme.
The SDIC scheme insures Singapore-dollar deposits of up to S$100,000 per customer held at full bank or finance companies in Singapore. Foreign currency deposits and investment products such as the ones offered by Chocolate Finance, are not insured by SDIC.
Chocolate Finance, which is licensed by the Monetary Authority of Singapore (MAS), emphasised that its customers’ funds are safe and held separately by custodians. It also said it was normal and aligned with industry standards for withdrawals to take a few days, when it comes to fund management models such as Chocolate Finance's.
Any company that wants to manage funds needs a capital markets services licence from regulator MAS, because fund management is a “regulated activity” under the Securities and Futures Act 2001.
MAS considers factors such as the fitness, track record and management expertise of applicants, as well as business plans and projections.
Companies also need at least two directors, one of whom must be a resident in Singapore. The firm’s chief executive officer needs to have at least 10 years of relevant experience, and be a Singapore resident.
Two full-time, Singapore-based individuals must also be appointed for each regulated activity the company wants to conduct.
Most prominent investment platforms in Singapore are. This includes companies such as Endowus, StashAway and Chocolate Finance.
A Financial Institutions Directory can be used to find out whether a company is regulated or licensed by MAS, though the need for a license depends on a firm's business model.
MAS also maintains an Investor Alert List. It's not exhaustive, but includes companies and people who may have been wrongly perceived as being licensed, authorised or regulated.
Companies licensed by MAS are likely to be in better financial shape, said Professor Sumit Agarwal of the National University of Singapore’s business school.
They are also less likely to collapse, and consumers don't have to worry as much if the company does go under, he added.
“It gives … the consumer confidence that, look, there is some regulatory oversight for the company,” said the professor of finance, economics and real estate.
For firms with a capital markets services license for fund management, MAS requires their customers’ funds to be separated from the company’s monies.
Customers’ funds must be placed under independent custody. a
And the company is required to put in place a risk management framework as well as provide clear and transparent disclosures on the terms of its services.
In the case of Chocolate Finance, customers’ monies are held in “segregated, ringfenced accounts” with the company and Allfunds, a fund distribution platform.
Allfunds Singapore CEO David Perez de Albeniz said on Wednesday (Mar 12) that the firm’s “robust custodian framework” ensures all investments remain protected and accessible to Chocolate Finance.
In response to a statement released by Chocolate Finance and Allfunds, MAS said customer monies must remain intact and cannot be used to meet the liabilities of digital advisors like Chocolate Finance, “at all times”.
In the event that a licensed investment platform collapses, Prof Sumit of NUS believes customers’ money will be somewhat protected, especially if the company is big enough.
“If it’s a tiny issue then they don’t get bailed out, but if it’s a significant enough issue, then the government will bail them out,” he said, referring to past examples of banks and financial companies taking a hit during financial crises.
The company may also be liquidated, so that there are funds to pay consumers.
“There is some level of implicit guarantee, even if (not) explicit ... that the government will bail the consumers out," said Prof Sumit.
When MoneyOwl in Singapore decided to wind down its financial advisory business in 2023, its investment and insurance businesses were transferred to iFAST Financial, which was the custodian of MoneyOwl clients' investments accounts.
iFAST said then that MoneyOwl clients would have digital access to their existing portfolios and be able to transact on iFAST's portal.
Another local digital advisory that has shut down was Smartly in 2020. According to media reports at the time, the company aimed to return money to clients' bank accounts in three to six business days.
The Business Times reported then that customers being forced to liquidate their portfolios could suffer losses, due to the heightened market volatility caused by the COVID-19 pandemic.
Want an issue or topic explained? Email us at digitalnews [at] mediacorp.com.sg. Your question might become a story on our site.
Continue reading...
On online forums and social media, users highlighted that – unlike for bank deposits – money placed with such investment platforms is not covered by the Singapore Deposit Insurance Corporation's (SDIC) Deposit Insurance Scheme.
The SDIC scheme insures Singapore-dollar deposits of up to S$100,000 per customer held at full bank or finance companies in Singapore. Foreign currency deposits and investment products such as the ones offered by Chocolate Finance, are not insured by SDIC.
Chocolate Finance, which is licensed by the Monetary Authority of Singapore (MAS), emphasised that its customers’ funds are safe and held separately by custodians. It also said it was normal and aligned with industry standards for withdrawals to take a few days, when it comes to fund management models such as Chocolate Finance's.
Related:
What are the requirements for investment platforms?
Any company that wants to manage funds needs a capital markets services licence from regulator MAS, because fund management is a “regulated activity” under the Securities and Futures Act 2001.
MAS considers factors such as the fitness, track record and management expertise of applicants, as well as business plans and projections.
Companies also need at least two directors, one of whom must be a resident in Singapore. The firm’s chief executive officer needs to have at least 10 years of relevant experience, and be a Singapore resident.
Two full-time, Singapore-based individuals must also be appointed for each regulated activity the company wants to conduct.
Which companies are regulated?
Most prominent investment platforms in Singapore are. This includes companies such as Endowus, StashAway and Chocolate Finance.
A Financial Institutions Directory can be used to find out whether a company is regulated or licensed by MAS, though the need for a license depends on a firm's business model.
MAS also maintains an Investor Alert List. It's not exhaustive, but includes companies and people who may have been wrongly perceived as being licensed, authorised or regulated.
What does it mean to be licensed?
Companies licensed by MAS are likely to be in better financial shape, said Professor Sumit Agarwal of the National University of Singapore’s business school.
They are also less likely to collapse, and consumers don't have to worry as much if the company does go under, he added.
“It gives … the consumer confidence that, look, there is some regulatory oversight for the company,” said the professor of finance, economics and real estate.
How are investments with such firms protected?
For firms with a capital markets services license for fund management, MAS requires their customers’ funds to be separated from the company’s monies.
Customers’ funds must be placed under independent custody. a
And the company is required to put in place a risk management framework as well as provide clear and transparent disclosures on the terms of its services.
In the case of Chocolate Finance, customers’ monies are held in “segregated, ringfenced accounts” with the company and Allfunds, a fund distribution platform.
Related:
Allfunds Singapore CEO David Perez de Albeniz said on Wednesday (Mar 12) that the firm’s “robust custodian framework” ensures all investments remain protected and accessible to Chocolate Finance.
In response to a statement released by Chocolate Finance and Allfunds, MAS said customer monies must remain intact and cannot be used to meet the liabilities of digital advisors like Chocolate Finance, “at all times”.
What happens if such a company still goes under?
In the event that a licensed investment platform collapses, Prof Sumit of NUS believes customers’ money will be somewhat protected, especially if the company is big enough.
“If it’s a tiny issue then they don’t get bailed out, but if it’s a significant enough issue, then the government will bail them out,” he said, referring to past examples of banks and financial companies taking a hit during financial crises.
The company may also be liquidated, so that there are funds to pay consumers.
“There is some level of implicit guarantee, even if (not) explicit ... that the government will bail the consumers out," said Prof Sumit.
When MoneyOwl in Singapore decided to wind down its financial advisory business in 2023, its investment and insurance businesses were transferred to iFAST Financial, which was the custodian of MoneyOwl clients' investments accounts.
iFAST said then that MoneyOwl clients would have digital access to their existing portfolios and be able to transact on iFAST's portal.
Another local digital advisory that has shut down was Smartly in 2020. According to media reports at the time, the company aimed to return money to clients' bank accounts in three to six business days.
The Business Times reported then that customers being forced to liquidate their portfolios could suffer losses, due to the heightened market volatility caused by the COVID-19 pandemic.
Want an issue or topic explained? Email us at digitalnews [at] mediacorp.com.sg. Your question might become a story on our site.
Continue reading...