Singapore: MAS Consults On Proposed Revisions To The Banking Regime

Last Updated: 26 February 2019
Article by Eric Chan
Most Read Contributor in Singapore, February 2019

On 7 February 2019, the Monetary Authority of Singapore ("MAS") issued a consultation paper on proposed amendments to the Banking Act. The proposals are aimed at strengthening the licensing and regulation of banks and credit card or charge card licensees, formalising existing supervisory requirements and clarifying other technical and administrative issues.

This update outlines the key proposals in MAS's public consultation.

Expansion of grounds for revocation of bank licences

Currently, MAS may revoke a bank's licence on the following grounds specified in section 20 of the Banking Act, such as where the licensee:

(a) has ceased its banking business in Singapore;

(b) is carrying on its business in a manner likely to be detrimental to the interests of the depositors of the bank, or has insufficient assets to cover its liabilities to its depositors or the public;

(c) is contravening the provisions of the Banking Act; or

(d) has (in the case of a foreign bank branch) had its licence in its home jurisdiction withdrawn by its parent supervisory authority.

However, currently a gap exists as MAS has no express power to revoke a bank's licence for breaches of the Monetary Authority of Singapore Act ("MAS Act"), or if the parent bank of a Singapore incorporated foreign bank has had its licence withdrawn.

To enhance MAS's enforcement powers over banks and to provide clarity on circumstances under which MAS may revoke a bank licence, MAS proposes to expand the grounds set out in section 20 of the Banking Act, to include:

(a) contraventions of provisions of the MAS Act, which contains requirements such as those relating to antimoney laundering;

(b) for a foreign-owned bank incorporated in Singapore, when the parent bank's licence is withdrawn. This is in line with MAS's powers over foreign bank branches in Singapore; and

(c) when it appears to MAS that it is in the public interest to do so. This ground is currently available for cancellation, revocation, or withdrawal of licences, approvals, or recognition in respect of most other financial institutions.

Powers for MAS to approve 20% controllers and key appointment holders, and to remove key appointment holders, of credit card or charge card licensees ("CC Licensees")

Currently, MAS requires CC Licensees, through licence conditions, to notify MAS of changes to its controllers, directors and prescribed executive officers. In order to enhance MAS's ability to ensure the fitness and propriety of controllers and key appointment holders of CC Licensees, MAS intends to formalise these requirements in the Banking Act.

Locally incorporated CC Licensees will require MAS's approval for:

(a) a 20% control of shareholding and voting power in the licensee; and

(b) appointments of directors, the chairman of the board of directors, the chief executive officer, deputy chief executive officer, and any other prescribed person.

A foreign incorporated CC Licensee will require MAS's approval for the Singapore chief executive officer, deputy chief executive officer and any other prescribed person.

MAS also proposes to have the power to remove a director, chairman of the board of directors, chief executive officer, deputy chief executive officer and any other prescribed person of a CC Licensee, where the person no longer fulfils the fit and proper criteria. This is in line with the removal powers MAS has in respect of most other regulated financial institutions.

Revision to requirement for auditors to report material adverse developments affecting banks' financial soundness to MAS

Currently, auditors are required to report to MAS when they are satisfied that a bank has incurred losses that reduce that bank's capital funds by 50%. With the removal of the DBU-ACU (domestic banking unit / Asian currency unit) divide, the definition of capital funds for bank branches will be deleted. As such, MAS proposes to require auditors to report material adverse developments relating to banks' financial soundness. Material adverse developments include, but are not limited to, developments that affect banks' statement of financial position and their continued operations or viability, such as material losses, and material uncertainty related to asset valuations, asset recoverability, or funding adequacy.

For banks incorporated in Singapore, MAS will retain the requirement for auditors to report losses, where such losses reduce these banks' capital funds by 50% or more.

Revision to requirement for banks to publish audited accounts

Under section 25(2) of the Banking Act, banks are required to publish their latest audited annual balance-sheet, profit and loss account and other information ("Accounts") in newspapers. In recognition of the high Internet penetration in Singapore, MAS proposes to allow banks the alternative of publishing their Accounts on their websites.

For banks that choose to publish their Accounts on their websites, MAS proposes to require that they publish a notification statement in at least four local daily newspapers (ie a Malay, Chinese, Tamil and English local daily newspaper) for full banks, and in at least one local English language daily newspaper for any other bank. This would allow members of the public who rely on newspapers as a primary source of information to be notified of the publication of the bank's Accounts. The notification statement shall include the following:

(a) a statement that the published information is now available on the bank's website, and the link to its website; and

(b) a statement that the published information is available to any person upon request.

Proposals in relation to outsourcing arrangements of banks

Enhancement of MAS's powers

MAS proposes to introduce powers in the Banking Act to strengthen its oversight of banks' outsourcing arrangements. This will empower MAS to direct banks to comply with requirements in respect of their outsourcing arrangements through the issuance of an Outsourcing Notice ("Proposed Outsourcing Notice").

Streamline outsourcing requirements

Currently, item 3 of Part II of the Third Schedule of the Banking Act allows a bank to disclose customer information to its service providers, if the disclosure is solely in connection with the performance of its outsourced operational functions. Where the bank is disclosing such information to a service provider which is performing the outsourced function outside Singapore, it is required to comply with the conditions set out in MAS Notice 634.

The Proposed Outsourcing Notice for banks will incorporate existing requirements under MAS Notice 634. In order not to subject banks to two sets of overlapping requirements on outsourcing arrangements, MAS Notice 634 will be repealed when the Proposed Outsourcing Notice for banks takes effect. In this connection, MAS also proposes to amend item 3 of Part II of the Third Schedule of the Banking Act, to require banks to comply with the Proposed Outsourcing Notice, before they may disclose any customer information to their service provider, regardless of the location of the service provider.

This reflects MAS's intent for banks to pay due care to any outsourcing arrangement that involves the disclosure of customer information, regardless of the location where the outsourced function is performed. MAS proposes to make similar amendments in respect of merchant banks.

Please refer to our article on MAS's outsourcing proposals for more information.

Other proposed amendments

Other amendments proposed by MAS include:

(a) allowing employees of the Accounting and Corporate Regulatory Authority ("ACRA") to obtain complete bank audit work papers for the sole purpose of allowing them to perform their duties in inspecting external auditors of banks

This proposal is meant to enable ACRA employees to effectively review the auditors' work during their inspections by allowing them access to complete bank audit work papers. Only ACRA employees involved in the review will be allowed access to the customer information received, and these employees are prohibited from further disclosing such information.

(b) empowering MAS to impose funding requirements

Currently, MAS imposes the Net Stable Funding requirements through MAS Notice 652. MAS proposes to formalise its current power to impose such funding requirements on banks by inserting a new provision into the Banking Act, to ensure that a bank has a stable and sustainable funding structure for its activities.

(c) empowering MAS to impose requirements on related party transactions ("RPT")

MAS issued Notice 643 to all banks in Singapore in November 2016, to set out its requirements relating to transactions between the bank or entities in its bank group, with the bank's related parties. MAS Notice 643 will take effect on 1 July 2019. MAS proposes to formalise its power to impose RPT requirements by notice in writing, to any bank or class of banks, in section 27 of the Banking Act. At the same time, MAS will consolidate in the Banking Act, the list of persons who are subject to MAS's RPT and reporting requirements across the Banking Regulations and Notices, so as to facilitate banks' compliance with these requirements.

(d) specifying persons or class of persons subject to large exposures limits by MAS Notice

MAS proposes to be able to prescribe or specify by notice, any person or class of persons that is subject to the large exposures limits. This will provide flexibility to set out detailed requirements through notice.

(e) imposing additional leverage ratio requirements within the same MAS Notice

MAS proposes to impose additional leverage ratio requirements within the same MAS Notice setting out the leverage ratio requirement, rather than in a separate MAS Notice. Having all requirements related to the leverage ratio in one MAS Notice will facilitate banks' compliance with the requirements.

Consultation Period

The consultation closes on 8 March 2019.

A copy of the consultation paper can be assessed here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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