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M5 — RES5 — Rules, Ethics & Skills for Financial Advisory Services

MAS Notices — Product & ILP Regulation

How MAS regulates investment-linked policies and product distribution under MAS Notice 307 (and Notice 302): fund launch/change notifications, valuation and pricing, reporting timelines, redemption windows, valuation-error compensation, breach reporting and disclosure. Watch the split — Part I requirements are mandatory ('shall'); the operational standards for redemption, valuation frequency, pricing and valuation-error compensation sit in Part II ('should').

8 sections~5 min read

Must-know for the exam

MAS Notice 307 (ILPs) is issued under s64(2) Insurance Act and applies to any direct insurer licensed for life business; it took effect 23 Sep 2011 (last revised 28 Jun 2021), replacing the 2004 Notice. Part I = mandatory ('shall'); Part II = non-mandatory standards ('should') MAS still expects observed.
Launch notification: at least 21 days before an ILP sub-fund is established; significant changes: no later than 1 month before they take effect (existing policyholders informed in the same window).
'Feeds significantly' into an underlying fund = 30% or more of the sub-fund's NAV; a rise in other fees/charges counts as a significant change at 0.1% or more of NAV.
Semi-Annual Report sent within 2 months, and the Relevant Audit Report within 3 months, of the last date of the period covered.
Specified ILP (annual Statement to Policyholders within 30 days of the policy anniversary) = regular-premium ILPs, plus single/recurrent-single-premium ILPs with death+CI benefit 150%+ of premium; other ILPs get a monthly Statement.
Terminated/matured sub-fund: audit certificate completed within 6 months, copy to MAS within 30 days of completion, retained 5 years (given to a policyholder within 30 days of a request made in that 5-year window).
Redemption proceeds (Part II standard): T+4 bond/money-market, T+7 feeder into another CIS, T+6 other sub-funds; day T = next pricing after all required documents/information received.
Units valued every business day (at least monthly if not daily-dealing; property sub-fund full valuation at least yearly); unit value published at least once every dealing day; deal at least one dealing day a month — all Part II standards.
Valuation error of 0.5% or more of NAV per unit (after adjustment): compensate affected policyholders AND compensate the sub-fund; single-policyholder compensation not required if the amount due does not exceed $20.
Valuation error below 0.5%: no compensation required, but if one policyholder is compensated, all must be compensated on the same basis; compensation expenses must not be paid out of the sub-fund.
Cash-rebate and soft-dollar restrictions are Part I MANDATORY (paras 43–46): the manager must not retain cash/commission rebates; soft dollars only where they aid the manager's advice, trades are on best available terms and no unnecessary trades are churned.
Breach notification: the insurer should inform MAS within 3 business days of becoming aware of any breach of the Notice's requirements and standards (para 91).
Dealing may be suspended only in exceptional circumstances in policyholders' best interest; notify MAS immediately; suspension should cease within 21 days (any extension reviewed weekly).
ILPs issued on/after 8 Oct 2021: upfront charges consolidated and disclosed as a single 'premium charge'; the term 'premium allocation rate' must not be used; no marketing on information not updated within the prior 12 months.
At maturity of a capital-guaranteed sub-fund, units are redeemed at the higher of the guaranteed amount or NAV per unit; rounding differences on price/units are credited to the sub-fund.

What MAS Notice 307 governs

MAS Notice 307 — Investment-Linked Policies (ILPs) is issued under section 64(2) of the Insurance Act and applies to any direct insurer licensed to carry on life business. It took effect 23 September 2011 (last revised 28 June 2021) and replaced the earlier 2004 Notice. It sits alongside life-policy disclosure notices (e.g. Notice 302) and, for advice, the FAA Notices.

The Notice has two parts — and knowing which requirement sits where is examinable:

•Part I — Mandatory Requirements ('shall'): notification to MAS, valuation of units, audit, statements/reports, disclosure, payments from the sub-fund, and the cash-rebate/soft-dollar rules. Breach can put the insurer in breach of the Notice.
•Part II — Non-Mandatory Standards ('should'): investment/borrowing guidelines, redemption timelines, valuation of assets, pricing, valuation frequency, dealing/suspension, valuation-error compensation, and fund-management conduct. A failure here does not of itself breach the Notice or trigger criminal proceedings, but it may be relied on in civil/criminal proceedings and may lead MAS to direct withdrawal of a sub-fund.

An ILP sub-fund is each separate fund inside an ILP to which a policyholder can allocate premiums. When applying the Code on Collective Investment Schemes, references to 'scheme/fund' are read as the ILP sub-fund and references to 'trustee' as the insurer. NAV = total assets less total liabilities (excluding policyholders' interest if classified as a liability).

Product disclosure & free-look (MAS Notice 302)

MAS Notice 302 governs product disclosure for life policies (participating and non-participating), complementing Notice 307 which deals with ILP sub-fund operations.

•Before a life policy is bought, the client must receive a Product Summary and a Benefit Illustration that shows guaranteed and non-guaranteed benefits separately.

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Traps that cost marks

The Notice binds the issuing life insurer, not the adviser or the external fund manager.
The 21-day launch window is separate from the 1-month advance notice required for significant changes.
Distribution-channel changes are not on the significant-change list; investment-objective, manager and structure changes are.
The default is one month in advance, not after the event; 'as soon as practicable' is only the exception.
Two months for the Semi-Annual Report; do not confuse it with the 3-month window for the Relevant Audit Report.
The audit report gets 3 months; the semi-annual report only 2 months.
Feeder-into-CIS is the longest window at T+7, not T+6.
Bond/money-market is the quickest (T+4); don't default to the T+6 'other' figure.

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Exam-style questions

A single-premium ILP has a single premium of $80,000 and an aggregate death plus critical-illness benefit of $100,000. Is this a 'specified ILP', and how often must the Statement to Policyholders be sent?Answer explained →Any rounding differences that arise when calculating the price of units, or the number of units, of an ILP sub-fund must beAnswer explained →A valuation error of 0.7% of an ILP sub-fund's NAV per unit occurs. Two policyholders are affected: policyholder P is owed $18 of compensation and policyholder Q is owed $50; the sub-fund itself also suffered a loss. What must the insurer do?Answer explained →For a 'specified ILP', the Statement to Policyholders must be sentAnswer explained →A manager fails to observe one of the non-mandatory Part II standards of Notice 307. Which statement best describes the consequences?Answer explained →

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