In December 2012, the Monetary Authority of Singapore (MAS) released its Consultation Paper on Proposed Amendments to the Monetary Authority of Singapore Act. These amendments aim to strengthen the regulatory framework of financial institutions and empower MAS in its dealings with failed financial institutions. A public consultation was conducted from 26 December 2012 to 12 January 2013 on the proposed amendments and the Monetary Authority of Singapore (Amendment) Bill 2013 was moved for the First Reading in Parliament on 5 February 2013.
This article summarises the key proposals of the Bill that contemplate the broadening of MAS’ powers in its resolution of failed financial institutions.
1. Migration and Expansion of the Resolution Regime
The existing resolution regime for failing banks is encapsulated under the Banking Act (Cap. 19) (BA). Under the BA, MAS has the power to take control of a bank. Subject to the Minister’s approval, MAS can make a determination for the sale or transfer of the assets and liabilities of a failing bank without prior consent of the bank’s depositors and creditors. It can also make a determination for the transfer of ownership of the bank either via a compulsory restructuring of share capital for Singapore-incorporated banks or the forced sale of shares of a failed bank.
When the above powers are exercised, MAS can apply to the High Court to impose a moratorium such that no resolution shall be passed and no order shall be made for the winding up of the bank, and no legal proceedings shall be commenced against the bank.
The Bill proposes that the existing resolution regime be migrated from the purview of the BA to the Monetary Authority of Singapore Act (Cap. 186) (MAS Act). More significantly, MAS has proposed that the coverage of the resolution regime be extended from banks and insurers to include various other types of financial institutions. These financial institutions (covered financial institutions) include, amongst others, any finance company licensed under the Finance Companies Act (Cap. 108), any person that is approved as a financial institution under section 28 of the MAS Act, any approved exchange, recognised market operator, approved or recognised clearing house, holder of a capital market services licence (other than a holder of a capital market services licence carrying on the business of providing credit rating services) under the Securities and Futures Act (Cap. 289) (SFA), and any trust company licensed under the Trust Companies Act (Cap. 336).
The Insurance Act (Cap. 142) (IA) provides a similar resolution regime for insurers and MAS is of the view that due to its unique nature, the resolution regime for insurers is best retained in the IA.
2. Broadening of MAS’ Powers in the Resolution Regime
The Bill proposes that MAS be further empowered with the following tools to enable them to better resolve a distressed financial institution, in a bid to cover certain areas of concern highlighted by the Financial Stability Board in its report titled “Key Attributes of Effective Resolution Regimes for Financial Institutions” published in October 2011. The key attributes highlighted in the report are aimed at reducing the risks of moral hazard and systemic disruption associated with resolving systemically important financial institutions.
First, the Bill recommends that MAS be vested with the power to issue directions to non-regulated operating entities of any financial institution group carrying on business in Singapore (wherever they may be located), where such entities are significant to the business of the financial institution group. This includes powers to ensure the continuity of essential services and functions provided by these non-regulated entities within the financial institution group.
Second, the Bill proposes that MAS’ existing powers relating to the removal of directors of a financial institution be extended to include the removal of executive officers where the executive officer has:
- wilfully contravened or wilfully caused the financial institution to contravene the MAS Act; or
- without reasonable excuse, failed to secure compliance with the MAS Act or any written laws set out in the Schedule to the MAS Act; or
- failed to discharge the duties of his office (such duties to be prescribed by regulations).
The Bill also proposes that MAS be given the power to claw-back the remuneration of a director or executive officer upon its application to court. This power would only extend to remuneration in the past 2 years, except that where the director or executive officer has acted recklessly, fraudulently or dishonestly, the court would have the discretion to extend beyond this 2 year look-back period.
MAS currently has the power to share information with a foreign resolution authority under the SFA, the Financial Advisers Act (Cap. 110) (FAA) and IA under certain circumstances stipulated in the various statutes. In this regard, the Bill proposes that such authority be mirrored in the MAS Act and the scope of authority extended to include any person, body or authority from the country of the foreign resolution authority as MAS may approve upon application, where MAS is satisfied that the on-disclosure by the foreign resolution authority is necessary, in the interest of the resolution of a financial institution and for the performance of the duties and functions of the entity to whom the disclosure is made. Such on-disclosure would be subject to similar conditions and safeguards imposed for the sharing of information under the SFA, the FAA and the IA.
3. Enhancement of MAS’ Powers to Issue Directions
In the Bill, MAS also proposes to clarify that directions (which includes notices or directives) issued to any covered financial institution or excluded financial institution which is approved, authorised, designated, licensed, recognised, registered or otherwise regulated by MAS and which has not been revoked by MAS, will continue to be in force notwithstanding that the financial institution has surrendered its approval, authorisation, licence, recognition or registration.
Excluded financial institutions comprise, amongst others, any exempt financial adviser under the FAA, any person exempt from holding a capital markets services license under the SFA and any trustee-manager of a business trust that is registered under the Business Trusts Act (Cap. 31A).
Additionally, the Bill proposes to amend the MAS Act to allow MAS to issue directions to financial institutions, whether covered or excluded, which are no longer approved, authorised, designated, licensed, recognised, registered or otherwise regulated by MAS. This is to facilitate a proper winding down of the failing or failed financial institution.
These proposed amendments take into account domestic and international developments in the financial sector, and will enable MAS to exercise a wider range of options in dealing with a failed financial institution.