The Banking (Amendment) Bill 2016 (“the Bill”) has been presented to Parliament for First Reading.
The Monetary Authority of Singapore (“MAS”) has proposed making several legislative amendments to enhance prudential safeguards, corporate governance and risk management controls in the banking industry. These amendments are aimed at strengthening MAS’ regulatory and supervisory framework, and aligning them with international best practice. Certain amendments have also been proposed to formalise MAS’ existing regulatory expectations and to clarify the regulatory policy intent on certain matters.
The Bill proposes amendments to the Banking Act (Cap. 19) in respect of the following areas:
- Prudential safeguards;
- Corporate governance;
- Risk management controls;
- Duty to inform MAS of material adverse developments; and
- Other technical amendments.
(i) Potential Safeguards
The Bill proposes two main measures to strengthen prudential safeguards and enhance depositor protection.
First, the Bill proposes to empower MAS to require foreign banks to locally incorporate all or part of their banking business. The amendment will enable MAS to require this if it is of the opinion that it is necessary, or expedient, in the interest of the public, the depositors of the bank, or the financial system in Singapore. Since the global financial crisis, there has been greater recognition of local incorporation as a useful prudential measure. A bank that is incorporated in Singapore will be subject to Singapore’s capital standards and corporate governance requirements. The requirement for local incorporation forms part of a set of supervisory measures for domestic systemically important banks, announced by MAS on 30 April 2015, that are designed to strengthen their resilience and promote systemic stability. Even without this statutory change, Citibank has already been operating as a Singapore banking subsidiary for the past several years, and HSBC is on its way to doing so.
Second, the Bill proposes to empower MAS to set limits on banks’ leverage ratios, and to ensure that banks maintain sufficient liquidity, in line with international regulatory standards.
(ii) Corporate Governance
The Bill proposes to enhance the corporate governance of banks through the following measures:
- MAS to be able to remove key appointment holders of banks on the basis of the fit and proper criteria. The grounds for removal will be aligned with the criteria that is used by MAS when approving their appointments;
- Protect banks’ external auditors who disclose information, in good faith, to MAS in the course of their duties as auditors;
- MAS to be able to direct banks to remove their external auditors if MAS considers that the auditors have not discharged their statutory duties satisfactorily; and
- MAS to be able to prohibit, restrict or direct a bank to terminate any related party transaction if MAS considers this to be detrimental to depositors’ interests.
(iii) Risk Management Controls
The Bill proposes to formalise MAS’ expectation for banks to have in place risk management systems and controls that are commensurate with their business profiles and operations. Currently, MAS implements this via the issuance of guidelines. By putting this on a statutory footing, MAS will be able to directly impose penalties on banks that fail to comply.
The Bill proposes to introduce a requirement for banks to obtain MAS’ approval to establish new places of business where non- banking services (such as money changing and remittance) might be offered.
(iv) Duty to Inform MAS of Material Adverse Developments
The Bill proposes to formalise MAS’ existing expectation for banks to notify MAS of any material adverse developments, including matters that affect the fitness or probity of its key officers, substantial shareholders and controllers.
(v) Other Technical Amendments
The Bill proposes several technical amendments, including:
- Empowering MAS to inspect the overseas subsidiaries of a bank incorporated in Singapore;
- Enabling MAS to collect fees for new bank licensing applications and for the registration of bank representative offices; and
- Updating and aligning the range and quantum of penalties within the Banking Act.
2. Second Reading
The Bill is expected to have its Second Reading in Parliament on 29 February 2016.