The regulatory regime applicable to banks
Singapore-licensed banks come within the ambit of the Banking Act and the Monetary Authority of Singapore Act (MAS Act), and are supervised and regulated by MAS. Banks have to comply with the provisions in the Banking Act and the MAS Act and the subsidiary legislation issued thereunder, as well as with notices, circulars, guidelines, practice notes and codes issued by MAS from time to time.
There are three types of bank licences under the Banking Act: a full bank licence, a wholesale bank licence and an offshore bank licence.
Full banks may provide the whole range of banking business permitted under the Banking Act, which includes deposit taking, the provision of cheque services and lending. While a full bank may engage in the full range of both Singapore dollar and non-Singapore dollar-denominated banking business, foreign banks with full bank licences are restricted in the number of branches and automated teller machines (ATMs) that they may operate. However, a foreign bank with a full bank licence that has been conferred with qualifying full bank privileges may operate at more locations, share ATMs among themselves and relocate their sub-branches freely.
Wholesale banks may engage in the same range of banking business as full banks, except that they do not carry out Singapore dollar retail banking activities. They operate within the Guidelines for Operation of Wholesale Banks issued by MAS.
Offshore banks are subject to even stricter restrictions on Singapore dollar accounts as set out in the Guidelines for Operation of Offshore Banks issued by MAS. Offshore banks may, however, engage in the same activities as full banks and wholesale banks for businesses transacted through their Asian currency units (ACUs). The ACU is an accounting unit that the banks use to book all their foreign currency transactions conducted in the Asian dollar market. MAS's approval is required for the operation of an ACU. Banks' Singapore dollar transactions are separately booked in their domestic banking units.
Aside from the banking activities as outlined above, banks may also carry on any other business that is regulated or authorised by MAS (including capital market services, financial advisory services and insurance broking), or otherwise prescribed or approved by MAS. Banks are, however, prohibited from engaging in non-financial activities.
Besides the three categories of licensed banks, financial institutions may be approved by MAS to operate as merchant banks under the MAS Act. The operations of merchant banks are governed under MAS's directives to merchant banks. The scope of activities a merchant bank may undertake is generally narrower than that for licensed banks, but a merchant bank may also apply to MAS for approval to operate an ACU and thereby compete with licensed banks in the non-Singapore dollar banking market.