Compliance

Defining Professional Investors: Focus On Dubai, Singapore And Hong Kong

Chris Hamblin, Compliance Matters, Editor, 6 November 2013

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THE CLASSIFICATION STAGE

What, then, qualifies someone to be a ‘professional client’ in Dubai?
COB 2.3.2(1) states that it can only happen if:

  • (a) the client has net assets, held directly or indirectly, of at least
    $500,000 (excluding the value of his primary residence), or if he is,
    or has been in the previous two years, an employee of an
    authorised firm; and
  • (b) reasonably appears to the firm to have ‘sufficient experience’ of
    financial markets, products, transactions and risks; and
  • (c ) has not elected to be a retail client.

COB 2.3.2(2) goes on to list a great many things that might be tantamount
to the ‘sufficient experience’ of (b), but these only apply
to corporations that might also be ‘professional clients’. It is likely
that most of Dubai’s so-called professional clients are not natural
persons at all, although the jurisdiction has no shortage of wealthy
operators and traders in financial markets.


THE EXPERT INVESTORS OF SINGAPORE

The Singapore Financial Advisers Regulations regulate financial
advisers and their representatives. Section 25 dictates that every
licensed financial adviser should keep books in English. It says that
for the purposes of s45(2) Financial Advisers Act 2001 [which states
that a licensed financial adviser shall (a) keep books to explain his/its transactions and financial position in Singapore and allow true
and fair profit-and-loss accounts and balance-sheets to be prepared
from time to time; and (b) keep them so they can be audited properly]
a licensed financial adviser must keep books which contain the
following:

  • (a) the particulars of every one of his/its clients;
  • (b) details of all transactions he/it has carried out for his/its clients;
  • (c and d) a copy of every written agreement he/it has struck with
    any of his/its clients;
  • (e) a copy of every written agreement he/it has struck with any
    product provider;
  • (f) everything he/it has distributed to existing or prospective clients;
  • (g) all his/its income and expenses; and
  • (h) all his/its assets and liabilities and information about whether
    they are held as security against any loan(s).

The Financial Advisers’ Regulations, however, exempt the financial
advisor and his/its representatives – such as relationship managers
– from s25 if he/it is advising an accredited or expert investor. Section
33 states explicitly that it will not apply to an advisory service
in respect of any designated investment product that is a capital
markets product, to an expert investor. Section 33(2) obliges the
advisor to tell the expert investor about the exemption unless that
expert investor is also a corporation (which is possible) or someone
“connected to the licensed financial adviser.” There are criminal
penalties for breaking s33(2), so it is imperative to get it right.

What, then, is an expert investor? Section 2 of the Financial
Advisers Regulations states that s4A(1)(b) Securities and Futures Act
has the answer. This defines such a person as someone whose business
involves the acquisition and disposal, or the holding, of capital
markets products, whether as principal or agent; the trustee of
such trust as the Monetary Authority of Singapore may prescribe,
when acting in that capacity; or someone else whom that authority
may prescribe. In this Act, ‘prescribe’ means ‘describe’, as proven
elsewhere in s2, when the Act talks about the authority ‘prescribing’
things as capital markets products. In Singapore, therefore, one
can be appointed as an expert investor and not just revealed to be
one.

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