The Monetary Authority of Singapore ("MAS") has issued a Consultation Paper on Proposed Enhancements to Resolution Regime for Financial Institutions in Singapore ("Consultation Paper"). The proposed resolution regime is guided by the Key Attributes of Effective Resolution Regimes for Financial Institutions adopted by the Financial Stability Board in October 2011.
This update sets out an overview of the proposed resolution regime.
Recovery and Resolution Plans | |
Financial Institutions to submit Recovery Resolution Plans | The MAS will be empowered to require a financial institution that has been so notified by it to propose, maintain and submit Recovery and Resolution Plans ("RRPs"). Such plans set out the procedures and establish the systems necessary to restore the financial strength and viability of the financial institution in the event of financial pressure or stress. |
MAS may require change to plan | Only financial institutions that are systemically important or that maintain critical functions will be required to formulate and submit such plans to the MAS. The MAS may, after reviewing the submitted RRP, require the financial institution to make specific changes to its plan to address any material deficiencies in it or any impediments to its implementation. The MAS will also be empowered to require these financial institutions to implement the recovery measures where necessary. |
Other measures may also be required | Financial institutions
may also be required to do the following:
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Temporary Stays on Early Termination Rights | |
Three classes of contracts affected by temporary stays | The entry into resolution of a financial institution may trigger early termination rights. In order to ensure that this does not derail the resolution, the MAS has proposed that such rights be temporarily stayed. Three classes of contracts are proposed to be affected by this temporary stay: financial contracts, insurance contracts, and non-financial contracts for essential services and functions. |
Financial Contracts | |
Power to stay early termination rights of counterparties | The MAS will be empowered to temporarily stay early termination rights of counterparties to financial contracts entered into with a financial institution over which MAS may exercise its resolution powers. Any such stay will be subject to safeguards (which are enumerated in the Consultation Paper). |
Equivalent regimes in US and Canada | The Consultation Paper
does not state what types of financial contracts should be covered
by the regime, but has noted what the equivalent regimes in the US
and Canada cover:
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Duration of stay for financial contracts | The duration of the stay
for financial contracts is proposed to be up to two business days
or the earlier of the following dates:
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MAS to have flexibility over duration of stay | The MAS also proposes to have the flexibility to specify a longer duration when imposing the stay, and is considering the circumstances in which it may be necessary to extend the duration of the stay in order to achieve an effective resolution or to support the stability of the financial system. |
Insurance Contracts | |
Powers of MAS | It is proposed to
empower the MAS:
|
Non-Financial Contracts | |
Powers to suspend termination rights of non-financial contracts of service providers | The MAS proposes to introduce powers to suspend the termination rights of non-financial contracts of service providers that provide essential services and functions to the entity in resolution. It may also require these contracts to continue to be performed on the same terms and conditions that were in place prior to the resolution. |
Statutory Bail-In Regime | |
Regime will first apply to Singapore- incorporated banks and bank holding companies | The MAS proposes introducing statutory powers to enable it to write down, or convert into equity or other instruments of ownership, all or part of unsecured and uninsured creditor claims. Such a proposed statutory bail-in of liabilities will first be applied to Singapore-incorporated banks and bank holding companies. The MAS will consider later whether it will extend such a regime to non-bank financial institutions. |
Liabilities Within the Scope of Bail-In | |
Statutory bail-in regime will not apply to certain liabilities | It is proposed to apply
the statutory bail-in regime to unsecured subordinated debt and
unsecured subordinated loans, issued or contracted after the
statutory bail-in regime comes into effect. It would not be applied
to liabilities such as:
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Consequences of bail-in to be disclosed | As the statutory bail-in regime would affect debtholders rights, it is proposed that banks should be required to prominently disclose the consequences of a bail-in of the relevant debt to the debtholders. |
Requirements where debts governed by foreign law | Where the debts are
governed by the law of a foreign jurisdiction, banks would have to
comply with the following requirements:
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Creditor Safeguards | |
Framework to compensate creditors who are worse off in resolution than liquidation | The MAS proposes to establish a framework to compensate creditors who are worse off in resolution as compared to liquidation. It would apply to creditors of banks, merchant banks, finance companies, insurers, capital market infrastructures, designated payment systems ("DPS") operators and their settlement institutions, and financial holding companies regulated by the MAS. Such a determination would be made by a qualified independent valuation agent. Creditors should be provided with the right to appeal against their determined compensation eligibility or entitlement. |
Resolution Funding | |
Resolution funding arrangements to be implemented | The MAS proposes
implementing resolution funding arrangements which may be used to
support any costs incurred in implementing resolution measures, and
to address any creditor compensation claims that may arise. The
framework proposed is premised on the following principles:
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Banking Entities | |
Expanding use of Depositor Insurance Fund | The MAS proposes
expanding the use of the Depositor Insurance ("DI") Fund
to include the implementation of resolution measures, for existing
DI Scheme Members. This is subject to the following safeguards:
Ex post levies should be applied on the rest of the banking sector, (i.e., all other banks, merchant banks and finance companies, other than the banking entity in resolution). |
Insurers | |
Reliance on PPF Funds for insurers | For insurers, the MAS proposes relying on the PPF Funds, which can already be used to implement resolution measures. Ex post levies may also be imposed and applied by classes of insurers, i.e., direct life insurers, direct general insurers and reinsurers. Captive insurers and Lloyd's will not be covered under this scheme. |
Capital Market Infrastructures and DPS Operators | |
Ex post recovery mechanism proposed | As there are no ex ante mechanisms for capital market infrastructures and DPS operators, the MAS proposes an ex post recovery mechanism for such market players. It has suggested the imposition of levies, either on participants or on transactions. |
DPS Settlement Institutions | |
The MAS proposes that DPS Settlement Institutions be resolved as banks; this means that the resolution funding arrangements for the banking entities would apply to DPS Settlement Institutions. | |
Cross-Border Recognition of Resolution Actions | |
Resolution framework to enable cooperative solution with foreign resolution authorities | Given the cross-border nature of the financial institutions operating in Singapore, the resolution framework should enable a cooperative solution to be reached with foreign resolution authorities. MAS is evaluating the necessity of a recognition process in view of existing powers to take supportive measures to achieve a cooperative solution with foreign resolution authorities in a group-wide resolution of cross-border financial institutions. |
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