If you’ve tried investing in Singapore before, you may have come across something called a CKA (Customer Knowledge Assessment) or CAR (Customer Review Account) test.

CKA and CAR are two types of assessments administered by the Monetary Authority of Singapore (MAS).

These tests must be passed if investors want to invest in Specified Investment Products (SIPs), which are considered risky and difficult to understand.

Basically, the government wants to make it harder for people to invest in SIPs to keep them from losing money. Think of CKA and CAR as the $ 150 entry fee to MBS Casino.

If you had failed the test, you should not have proceeded. Ouch! And you thought the years of dehumanizing standardized tests like the PSLE ​​and O levels were behind you.

What are Specified Investment Products or SIPs?

Specified Investment Products (SIPs) are products that are considered more complex than your standard stocks and stocks, like derivatives or products with a mind-boggling way of calculating your returns or losses.

SIPs can include the following product types:

  • Futures
  • Options
  • Leveraged Forex
  • Contracts for Difference (CFD)
  • OTC metals
  • Exchange Traded Funds (ETFs)
  • Exchange Trade Notes (ETNs)
  • Certificates
  • Structured warrants
  • Callable BullBear Contracts (CBBCs)

For lay investors, these products are considered “too complicated”.

In contrast, certain investment products are classified as excluded investment products (EIPs) and are considered simple enough to be understood by retail investors.

In other words, EIPs are the toys that are suitable for children ages three and up that do not pose a choking hazard.

The most common types of EIPs include stocks and ETFs such as the STI ETF. Note that just because a product is classified as an EIP does not mean that it has low risk, only low complexity.

Listed vs. Unlisted Specified Investment Products (SIPs)

SIPs can be further classified into listed and unlisted.

1. Listed SIPs

Listed SIPs are listed on a public exchange such as SGX. To trade them, you must pass CAR. SIPs listed on the SGX website have the prefix @.

Here are some examples of the SIPs listed:

  • Futures
  • Certificates
  • Structured warrants
  • ETFs
  • ETNs
  • Callable Bull / Bear Contracts

2. Unlisted SIPs

Unlisted SIPS are NOT listed on an exchange. To trade them online you must pass CKA. Such products are usually only available through banks or insurance companies.

Here are some examples of SIPs not listed:

  • Structured Notes
  • Certain mutual funds
  • Leveraged Forex
  • Structured deposits
  • Currency-linked investments
  • Certain unit-linked life insurance policies (ILPs)

Customer Knowledge Assessment (CKA)

So if you have followed up this far you know that you must pass the CKA to trade listed SIPs online.

Listed SIPs are in the wild west of the financial product world, so the test is designed to ensure that you have the knowledge necessary to understand them.

The following questions must be answered in the CKA:

  • Your educational background
  • Your work experience
  • Your trading experience

To pass, MAS must be certain that you are qualified and experienced enough to trade unlisted SIPs online.

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As you can see, completing the CKA test is more like filling out a personal information form than taking an IQ test.

So, if you have a degree in finance or a CFA qualification, have worked as an investment analyst for the past three years, and have already invested in unlisted SIP products like ILPs, you will likely pass.

On the flip side, if you’ve got an interpretive dance degree, have spent the last 10 years creating content for Instagram, and have only ever “invested” in limited edition sneakers, good luck….

Your CKA results are valid for one year. After the year has expired, you will have to take the test again the next time you purchase a SIP that is not listed.

Customer account verification (CAR)

If you want to trade unlisted SIPs, you must pass the CAR before you are even allowed to open an account. The questions for CAR are similar to those for CKA and relate to:

  • Your educational background
  • Your work experience
  • Your trading experience

Your CAR results are valid for three years.

How does CKA / CAR affect you?

If you fail CKA and CAR, you will not be able to trade SIPs online, although there are a few options (more on that in the next section).

But what if you insist? CKA and CAR have some implications for you, aside from the mere fact that you can trade SIPs.

On the one hand, with CKA and CAR you have proven that you are well informed and qualified enough to trade complex products.

So if you make a bad investment and lose your money, you can probably forget to sue the bank or insurer who sold the product to you on the pretext of being misled or misinformed.

For the retail industry as a whole, CKA and CAR have pushed brokers, banks and insurers to offer simpler products for the rest of the hoi polloi that cannot trade SIPs.

And frankly, the main goal of CKA and CAR is to keep people from trading products that they don’t understand are also valid. So if you failed CKA or CAR, maybe that is a good thing?

I did not pass the CKA / CAR! What now?

If you fail the CAR or CKA, it is not the end of the world. You can still trade listed SIPs if you take the SGX Online Education Quiz and pass it.

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In order to trade certain unlisted SIPs, you will need to pass tests related to the specific product you wish to trade.

For example, you can trade leveraged CFDs and Forex by passing the ABS-SAS rating for CFD and Forex margin trading, respectively.

To prepare for the tests above, ask your broker or bank if they run courses.

Finally, you can still invest in certain types of SIPs like mutual funds by consulting a financial advisor. Check with your broker or bank to find out what products you can buy through a professional.

This article was first published in MoneySmart.