Is it a bank? Is it a fund manager? Chocolate Finance meltdown highlights need for clear distinction
Source: Business Times
Article Date: 21 Mar 2025
Author: Benjamin Cher & Isabelle Chong
The two may have overlapping traits, but industry watchers say the differences must be made obvious to customers.
For less-savvy investors, wealth investing platform Chocolate Finance appears to offer some sweet deals. But industry watchers warn that customers must always read the fine print.
On its homepage, Chocolate Finance dangles the prospect of “a new place for your spare cash”, with “happy returns” of 3.3 per cent a year on the first S$20,000, and 3 per cent annually on the next S$30,000.
Customers are also promised that they can withdraw their money any time, with no restrictions or penalties. And there is the Chocolate Visa debit card, which allows you to “spend with ease” and enjoy “probably the best FX rates in town”.
Some observers say the firm had marketed itself like a bank. While it did not call the cash that investors put into the platform “deposits” – as a bank would – customers would have to do some digging into the frequently asked questions page and terms and conditions to realise that they are actually buying investment products, and that their money would be invested into a portfolio of fixed-income funds.
To be clear, Chocolate Finance is not a bank, but a fund manager with a capital markets services (CMS) licence from the Monetary Authority of Singapore (MAS).
Its website does carry a number of notices saying that it is not a bank – neither is it insured by the Singapore Deposit Insurance Corporation. But it is easy to see why customers could be lulled into thinking otherwise.
For one, the platform has the characteristics of a bank, with an interest-bearing account that customers can transact with using a Visa-issued debit card.
“While a licensed fund manager may be empowered to take deposits within the remit of its work, it should not principally be seen as a deposit-taking and interest-yielding platform,” TSMP Law partner Leon Lim told The Business Times.
These institutions, such as holders of CMS licences, are permitted to accept deposits only to the extent that “it is solely incidental to the carrying on of the businesses for which they were licensed”, he added.
Customers should be certain about what business a financial institution is in, and not treat every licensed entity as if it were a bank, he said.
Stephanie Magnus, principal and financial services regulatory head at Baker McKenzie Wong & Leow, added that a bank must be licensed by MAS under the Banking Act, which stipulates requirements on deposit-taking, advances, capital adequacy, liquidity and risk management.
Meanwhile, the engagement terms, fee structures and return profiles of fund managers associated with funds in general are different from those of a traditional bank-customer relationship, said Daniel Yong, joint managing partner and funds practice partner at Withers KhattarWong.
Members of the public can check whether an institution claiming to carry out a banking business in Singapore has been legitimately licensed to operate as a bank on the MAS website, said Boey Swee Siang, RPC Premier Law partner.
Although the role of fund managers does overlap with that of banks, they are distinct, he added. “Primarily, fund managers provide investment advisory services, while banks focus more on financial transactions.”
He also noted that MAS does not allow fund managers to operate as banks.
“While some fund managers can issue debit cards, which can be drawn against the value of the investment made by the individual investor, fund managers are not able to issue credit cards, operate savings accounts, pay or collect on cheques, or make loans to customers.”
Anyone who operates a banking business which has not been properly licensed is committing an offence under the Banking Act and can be prosecuted for it, he added.
Another “perceived overlap” may arise in the context of private credit funds, said Yong of Withers KhattarWong.
Instead of investing in public or private equities or other asset classes such as real estate, credit funds provide debt financing to their portfolio companies, often through the issuance of debt securities such as bonds and notes.
“Unlike banks, whose principal relationship with banking customers is receipt of deposits and providing checking facilities and more, fund management companies actively manage capital raised from their investors,” Yong said.
In an earlier statement, MAS said that Chocolate Finance is an online robo advisory service operated by Chocfin Pte Ltd, which holds a CMS licence for fund management.
Source: The Business Times © SPH Media Limited. Permission required for reproduction.
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