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

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

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

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

If you didn’t pass the test, you wouldn’t have been allowed to proceed. Yikes! And you thought the years of dehumanising standardised 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 shares, such as derivatives or products with a mindbending way of calculating your returns or losses.

SIPs can include the following types of products:

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

These products are considered “too complicated” for layman investors.

By contrast, certain investment products are classified as Excluded Investment Products (EIPs) and considered simple enough to be understood by retail investors.

In other words, EIPs are the toys suitable for ages three and under that don’t present a choking hazard.

The most common types of EIPs you’ll come across include stocks and ETFs like the STI ETF. Note that just because a product is classified as an EIP doesn’t mean it’s low-risk, just low-complexity.

Listed vs unlisted Specified Investment Products (SIPs)

SIPs can be further classified as listed and unlisted.

1. Listed SIPs

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

Here are some examples of listed SIPs:

• 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 need to pass CKA. Such products are usually only available through banks or insurers.

Here are some examples of unlisted SIPs:

• Structured notes
• Certain unit trusts
• Leveraged foreign exchange
• Structured deposits
• Currency-linked investments
• Certain investment-linked life insurance policies (ILPs)

Customer Knowledge Assessment (CKA)

So, if you’ve been following up to here, you’ll know that you must pass the CKA in order to trade listed SIPs online.

Listed SIPs are in the wild wild west of the financial product world, so the test aims to ensure you have the knowledge you need to understand them.

You’ll have to answer questions about the following in the CKA:

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

In order to pass, MAS must be satisfied that you’re qualified and experienced enough to trade unlisted SIPs online.

As you can see, completing the CKA test is more like filling up a personal particulars form than doing an IQ test.

So, if you have a degree in finance or CFA qualifications, spent the last three years as an investment analyst and have already invested in unlisted SIP products like ILPs, you will probably pass.

On the other hand, if you have a degree in interpretative dance, 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 elapsed, you will need to take the test again the next time you buy an unlisted SIP.

Customer Account Review (CAR)

If you want to trade unlisted SIPs, you must pass the CAR before even being allowed to open an account. The questions for CAR are similar to those for CKA and will pertain 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 won’t get to trade SIPs online, although there are some ways around it (more on that in the next section).

But what if you pass? CKA and CAR have some implications for you aside from the mere fact of letting you trade SIPs.

For one thing, having passed CKA and CAR, you have proven that you’re someone who’s informed and qualified enough to trade complex products.

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

For the trading industry on the whole, CKA and CAR have pushed brokers, banks and insurers to offer simpler products for the rest of the hoi polloi who can’t trade SIPs.

And honestly, CKA and CAR’s primary objective of stopping people from trading products they don’t understand is also a valid one. So, if you failed CKA or CAR, maybe it’s a good thing?

I failed the CKA/CAR! Now what?

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

To trade certain unlisted SIPs, you must pass tests related to the specific product you wish to trade.

For instance, you can trade leveraged CFDs and forex by passing the ABS-SAS assessment on CFD and Foreign Exchange Margin trading respectively.

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

Finally, you can still invest in certain types of SIPs like unit trusts by going through a financial advisor. Get in touch with your broker or bank to see which products you can buy through a professional.

This article was first published in MoneySmart.