Monetary Authority of Singapore finally regulates gold buy-back schemes

In perhaps one of the most overdue regulatory safeguards for Singapore investors, Monetary Authority of Singapore (MAS) finally announced that precious metal buy-back arrangements will be regulated either as debentures or investment funds, depending on their features. This announcement was made after its consultation paper published on 21 July 2014.

This move to regulate the precious buy-back schemes is a result of the spate of gold ponzi schemes offered by Genneva Gold, The Gold Guarantee and Suisse International in Singapore. Seduced by the so called guaranteed payouts of 20% or incredibly high buy-back prices, many unwitting investors were sold on these gold buy-back schemes. Many of these victims didn’t realize that they were actually walking into traps devised by cheats.

In the aftermath, many victims sought to enlist the help of the authorities to claim back their investments but were shocked to find out that these financial instruments were not regulated at all. There were even reports that some victims sank more than hundred of thousands of dollars of their hard-earned savings into these gold-back schemes. Some even pooled money with their families to join these schemes.

The reason why many Singapore investors were conned was because many of them were attracted to buying gold when it reached its peak during the period 2010 to 2011. Many of them don’t realize the counter-part risk involved and the actual dynamics of the paper gold market.

In future, MAS will regulate this type of non-conventional investment products, and the regulators states that “such arrangements are equivalent to collateralised borrowing and will be regulated as debentures under the Securities and Futures Act (“SFA”). The scope will be limited to arrangements involving gold, silver and platinum, as these are widely regarded as financial assets and are commonly used as collateral for such arrangements”.

To put things into perspective, the industry will always move ahead of the regulators, in terms of product innovation and developments. So it means that retail investors should be mindful that regulatory safeguards are not substitutes for investors’ responsibilities. Ultimately, investors must take responsibilities and understand the underlying risks in trading the paper gold market. I have seen so many investors running to government and expecting bailouts after losing money in exotic investment schemes. Their point of view is that all financial instruments should be regulated and controlled. But as a financial hub, it will not be feasible to do so because if the government restricted market innovation and limited access to capital markets, the financial industry will not grow. There must be a balance, in terms of regulation and market growth, so that Singapore can truly be a global financial hub.

For the man in the street, it is better to buy physical precious metals because gold is money and there is no counter-part risk. And it is important to buy gold and silver bullion from respectable dealers in Singapore, such as BullionStar, which don’t engage, trade or speculate on any paper markets, financial markets, commodity exchanges, commodity platforms or anything similar. BullionStar don’t engage in forwards, futures, spot commodity trading or anything of the kind.

BullionStar merely purchases fabricated precious metals items, and to a smaller extent numismatics and jewellery, from wholesalers, mints and refineries and retails these items.

Magically yours,

SG Wealth Builder