Ownership restrictions and implicationsControlling interest
Describe the legal and regulatory limitations regarding the types of entities and individuals that may own a controlling interest in a bank (or non-bank). What constitutes ‘control’ for this purpose?
The acquisition and ownership of interests in Singapore-incorporated banks and non-banks that are financial institutions are subject to various approval requirements.Foreign ownership
Are there any restrictions on foreign ownership of banks (or non-banks)?
While there are no express restrictions on foreign ownership of banks (save in respect of digital full banks that must remain controlled by Singaporeans), the acquisition and ownership of interests in Singapore-incorporated banks remain subject to various approval requirements. In addition, a Singapore-incorporated bank must have a minimum number of directors who are Singapore citizens or permanent residents.
As for other non-bank financial institutions regulated by the Monetary Authority of Singapore (MAS), there are generally no express foreign ownership requirements save for certain exceptions (eg, money-changing licensees have to ensure that more than 50 per cent of their equity shareholdings are beneficially owned and effectively controlled by Singapore citizens).Implications and responsibilities
What are the legal and regulatory implications for entities that control banks?
Entities controlling Singapore-incorporated banks are expected to remain fit and proper in accordance with MAS-issued guidelines. For example, the Minister for Finance is empowered to require controllers of a Singapore-incorporated bank to take such steps necessary so as to cease to hold such control if, among other things, MAS is satisfied that such controller is not fit and proper. The acquisition and ownership of interests in entities that control licensed banks in Singapore may also be subject to approval requirements.
What are the legal and regulatory duties and responsibilities of an entity or individual that controls a bank?
An entity controlling a Singapore-incorporated bank that is designated as a ‘financial holding company’ will be subject to various governance requirements (eg, in relation to its composition of its board of directors and various board committees). The Financial Holding Companies Act 2013 (No. 13 of 2013) will impose further obligations on designated financial holding companies (eg, disclosure of interests of directors, exposure limits and capital adequacy requirements) when it comes into force. In addition, MAS has also indicated that designated financial holding companies that hold D-SIBs may become subject to capital-adequacy and higher loss-absorbency requirements that will apply at the holding company’s group level.
What are the implications for a controlling entity or individual in the event that a bank becomes insolvent?
MAS is empowered to exercise various resolution powers if a licensed bank becomes insolvent (or is likely to become insolvent), which may have an impact on the bank’s shareholders, including the ordering of a transfer of a licensed bank’s shares to a third party, and a reduction of the licensed bank’s share capital.
Changes in controlRequired approvals
Describe the regulatory approvals needed to acquire control of a bank (or non-bank). How is ‘control’ defined for this purpose?
Approval from the Minister for Finance is required to acquire control over a Singapore-incorporated bank. A person must obtain approval prior to becoming:
- a substantial shareholder of a Singapore-incorporated bank: this broadly refers to a person who holds at least 5 per cent of the voting power in the licensed bank;
- a 12 per cent or 20 per cent controller: this refers to a person who holds at least 12 per cent or 20 per cent of the issued shares of the licensed bank or who is in a position to control at least 12 per cent or 20 per cent of the voting power in the licensed bank; and
- an indirect controller: this refers to any person who:
- is in a position to determine the policy of the licensed bank; or
- is in a position to cause the directors of the licensed bank to regularly act in accordance with his or her wishes.
It should be noted that for the purposes of the various control thresholds described above, a person may be deemed to ‘hold’ shares in a licensed bank even if it does not directly hold such shares (eg, a person who has entered into a contract to purchase or has the right to acquire shares in a licensed bank will be deemed to hold the relevant shares).
Similar approval requirements would apply to entities seeking to acquire control over other types of regulated non-bank financial institutions, although the relevant thresholds and specific approval requirements would differ.Foreign acquirers
Are the regulatory authorities receptive to foreign acquirers? How is the regulatory process different for a foreign acquirer?
There are no restrictions in the Banking Act that currently apply specifically to foreign acquirers or foreign shareholders of Singapore-incorporated banks. However, one of the factors to be considered by the Minister for Finance and the Monetary Authority of Singapore (MAS) in reviewing an application to acquire control over a Singapore-incorporated bank is whether the acquisition is in the national interest. Further, in the context of the recently issued digital full bank licences, MAS does expect such digital full banks to be controlled by Singaporeans.
Under what circumstances can a foreign bank (or non-bank) establish an office and engage in business? For example, can it establish a branch or must it form or acquire a locally chartered bank?
Foreign banks may establish a branch in Singapore or incorporate a Singapore subsidiary to seek a banking licence under the Banking Act (BA) – the former option is typically taken owing to the lower capital commitment required.
Notwithstanding the above, where a foreign bank operating in Singapore through a registered Singapore branch has a significant retail presence in Singapore, MAS may require the bank to operate its retail business through a locally incorporated entity.
As for other types of foreign non-bank financial institutions, whether it needs to establish a local presence would vary depending on the relevant regulatory regime governing their activities in Singapore.Factors considered by authorities
What factors are considered by the relevant regulatory authorities in an acquisition of control of a bank (or non-bank)?
The key factors considered in the review of an application to acquire control over a Singapore-incorporated bank are:
- the fitness and propriety of the controller;
- the likelihood of the licensed bank continuing to conduct its business prudently and to comply with the BA having regard to the likely influence of the controller; and
- whether the acquisition of interest is in the national interest.
The above factors in (1) and (2) are also generally relevant when MAS decides whether or not to approve the acquisition of other types of non-bank financial institutions regulated by MAS.Filing requirements
Describe the required filings for an acquisition of control of a bank.
The Minister of Finance’s prior written approval must be obtained for a person to become a substantial controller, 12 per cent controller, 20 per cent controller or an indirect controller in a Singapore-incorporated bank. Such approval may (in addition to certain other factors being fulfilled) be granted if the Minister is satisfied that it is in the national interest to do so. There is no prescribed form or process for the purposes of such an application and the applicant would need to write to the Minister to seek such approval.Time frame for approval
What is the typical time frame for regulatory approval for both a domestic and a foreign acquirer?
The time frame required to obtain regulatory approval will depend on, among other things, the identity of the acquirer and the nature and the nature and complexity of the transaction.
Law stated dateCorrect on
Give the date on which the information above is accurate.
5 February 2021.