On 28 November 2013, the Monetary Authority of Singapore (MAS) released its Consultation Paper on the Review of the Banking Act (Consultation Paper). These proposed amendments aim to strengthen MAS’ supervisory oversight over banks and codify MAS’ expectations as to the risk management policies that banks should have in place. A public consultation is open until 15 January 2014.
This article summarises the key proposals of MAS in its review of the Banking Act (Cap. 19) (BA). With the last revision to the BA being around six years ago, the review this time round aims to ensure that the BA remains current and reflects MAS’ expectations of banks.
- Duty to Inform MAS of Material Developments
- Material Adverse Developments
To ensure that MAS makes suitable supervisory decisions based on updated information, the Consultation Paper proposes that banks be required to notify MAS as soon as they become aware of any material adverse developments affecting (a) the bank (including its head office and branches) or (b) any entity in its group, whether the entity is located in Singapore or elsewhere.
Material adverse developments are proposed to include, at a minimum, the breach or possible breach of any laws or regulations, business rules or codes of conduct, whether in Singapore or elsewhere. MAS should be notified as soon as there are reasonable grounds to suspect that a breach has occurred, for example, where the bank is under investigations for an offence but has not been convicted yet. In relation to fellow group entities, a bank is only required to notify MAS if it is aware of the adverse development.
- Fitness and Propriety of Officers
Currently, locally incorporated banks are required to obtain MAS’ prior approval for the appointment of directors, chief executive officers, deputy chief executive officers, chief financial officers and chief risk officers; and foreign-incorporated banks are required to obtain approval for the appointment of the chief executive officers and deputy chief executive officers. The Consultation Paper proposes that banks notify MAS as soon as they become aware of any material information which may negatively affect the fitness and propriety of any officer whose appointment was previously approved by MAS. This would allow MAS to reassess the officer’s suitability for his office on an ongoing basis and/or whether any supervisory action needs to be taken by MAS.
- Substantial Shareholders and Controllers
Sections 15A and 15B of the BA currently require a person to obtain the Minister’s approval before becoming a substantial shareholder (5%), a 12% controller, a 20% controller or indirect controller (collectively, controllers) of a Singapore-incorporated bank. The current legislation puts the onus on the new substantial shareholder or controller to obtain the Minister’s approval and a bank is not required to inform MAS even if it is aware that prior approval has not been obtained. The Consultation Paper proposes that Singapore-incorporated banks be required to notify MAS as soon as they become aware of persons who have become their substantial shareholders or controllers without the Minister’s prior approval. Such legislation will ensure that all substantial shareholders and controllers are fit and proper persons.
MAS also proposes that Singapore-incorporated banks be required to notify MAS when they become aware of any material information that may negatively affect the suitability of their existing substantial shareholders and controllers. This is in line with MAS’ bid to ensure the continued suitability of substantial shareholders and controllers of locally incorporated banks.
- MAS’ Control over Key Officers and Auditors
MAS may direct the removal of a director of a Singapore-incorporated bank or an executive officer of any bank in Singapore where MAS is satisfied that the director or executive officer has (a) wilfully contravened or wilfully caused the bank to contravene the BA; (b) without reasonable excuse, failed to secure the bank’s compliance with the BA, the Monetary Authority of Singapore Act (Cap. 186) (MAS Act) or any written law set out in the schedule to the MAS Act; or (c) failed to discharge any of the duties of his office (collectively, grounds for removal), or where MAS thinks that such removal is necessary in the public interest or for the protection of the depositors of the bank (collectively, premises for removal).
In order to align the grounds for removal of bank directors and executive officers with the key criterion for their initial and continued appointment i.e. fit and proper persons, MAS proposes to replace the current grounds for removal in the BA with a single criterion of the director or executive officer ceasing to be fit and proper. MAS is of the position that this single criterion encompasses the current three grounds for removal and in fact more accurately reflects the circumstances in which MAS will remove a bank director or executive officer.
Additionally, MAS proposes to include “interest of the Singapore financial system” as an additional premise for removal, so that MAS can take into account the reputation of and confidence in the financial system in determining whether to remove a particular bank director or executive officer.
In relation to bank auditors, MAS proposes to introduce a safe harbour provision into the BA to protect auditors which disclose information to MAS in good faith, in the course of performing their duties under the BA, from liability. Additionally, MAS proposes to prescribe the failure of auditors to discharge their statutory duties as an offence, and to introduce powers for MAS under the BA to remove bank auditors which have not satisfactorily discharged their statutory duties.
- Duty to Implement Adequate Risk Management Systems and Controls
In a bid to enhance its supervisory powers, MAS proposes to codify in the BA its expectation that all banks institute and maintain adequate risk management systems and controls. Specifically, banks will be required to establish a comprehensive risk management framework and internal control systems that match their risk profile as well as the scale and complexity of their operations. In determining whether the systems and controls are adequate, MAS will make reference to its Guidelines on Risk Management Practices.
The above proposals by MAS will enable it to enhance its supervisory oversight over banks and ensure that the BA is up-to-date with the developments in the banking landscape since the BA’s last revision six years ago.