On 31 July 2015, the Monetary Authority of Singapore (the “MAS”) published a consultation paper on “Proposed Notice on Liquidity Coverage Ratio (“LCR”) and Minimum Liquid Assets (“MLA”) Requirements for Merchant Banks”. The consultation closes on 4 September 2015.

The consultation paper contains a draft MAS Notice that will introduce a new liquidity requirement framework for merchant banks from 1 January 2016. This new liquidity requirement framework implements the Basel III LCR rules, the minimum standard for liquidity risk endorsed by the Group of Central Bank Governors and Heads of Supervision, together with a revision of the MLA rules. The draft reporting forms for the new framework for merchant banks are also set out in the consultation paper.

The draft MAS Notice will apply to all merchant banks approved under section 28 of the Monetary Authority of Singapore Act. A merchant bank that is incorporated and headquartered in Singapore or a merchant bank which has been notified by the MAS that it is a domestic systemically important bank (D-SIB) will be required to comply with the LCR requirements. Other merchant banks may, upon giving prior written notice to the MAS, choose to comply with the LCR or MLA requirements provided that certain conditions prescribed in the draft MAS Notice have been complied with.

By way of background, on 28 November 2014, the new MAS Notice 649 on “Minimum Liquid Assets and Liquidity Coverage Ratio” was issued to introduce a similar liquidity requirement framework for banks. Banks incorporated and headquartered in Singapore are required to comply with the new framework from 1 January 2015 and all other banks in Singapore from 1 January 2016. These initiatives follow earlier consultation exercises conducted by the MAS in 2013 which proposed to replace the then MLA framework with the LCR framework. The new liquidity requirement framework that is being implemented takes into account industry feedback on the MAS’ original proposals.

Reference materials

Please click here for the MAS consultation paper on the draft Notice to merchant banks which isavailable on the MAS website www.mas.gov.sg.

For more information about MAS Notice 649 issued to banks and the MAS consultation papers in 2013 seeking comments on the implementation details of the new LCR framework, please click on the links below for articles in previous issues of the Allen & Gledhill Financial Services Bulletin: