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.

  1. Duty to Inform MAS of Material Developments
  1. 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.

  1. 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.

  1. 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.

  1. 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.

  1. 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.

  1. Conclusion

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.