7 December, 2015
On 26 November 2015, the Monetary Authority of Singapore ("MAS") issued its Response to Feedback Received on its proposed Merchant Bank Notice, which MAS had previously consulted on in July 2015.
In August 2013, MAS issued the Consultation Paper on Local Implementation of Basel III Liquidity Rules – Liquidity Coverage Ratio ("Basel III Liquidity Rules") with its proposal to implement a new MLA and LCR framework for all banks in Singapore licensed under the Banking Act (Cap. 19), finance companies under the Finance Companies Act (Cap. 108), and merchant banks approved under the Monetary Authority of Singapore Act (Cap. 186) ("the August 2013 Consultation Paper"). In August 2014, MAS published its Response to Feedback Received in relation to the August 2013 Consultation Paper along with the draft wording of the MAS Notice on MLA and LCR which is applicable to all licensed banks in Singapore ("MAS Notice 649"). MAS Notice 649 was published in November 2014 and came into effect on 1 January 2015 for a licensed bank incorporated and headquartered in Singapore, and will come into effect on 1 January 2016 for all other licensed banks in Singapore.
Requirements under the Merchant Bank Notice
Merchant banks are not currently subject to existing MLA requirements. However, MAS intends to extend the new Basel III Liquidity Rules to merchant banks, in order to strengthen their liquidity risk management. The requirements are set out in the Merchant Bank Notice, which broadly mirrors the requirements in MAS Notice 649:
(a) Two-tier liquidity requirement framework: MAS will implement a LCR and a MLA framework. As MAS regards the LCR framework to be more comprehensive and risk-sensitive, a merchant bank incorporated and headquartered in Singapore (e.g. merchant banks which are owned by a parent group based in Singapore or has a group head office in Singapore), or a merchant bank which has been notified by the MAS that it is a domestic systemically important bank ("D-SIB") will have to comply with the LCR framework. Other merchant banks may choose to comply with either the LCR or MLA framework. Briefly, the Merchant Bank Notices provide that:
(i) the LCR framework: a merchant bank subject to or which chooses to comply with the LCR framework must maintain a prescribed minimum Singapore Dollar LCR and an all currency LCR, and to notify the MAS before utilising its high quality liquid assets if that will cause the merchant bank's LCR to fall below the prevailing minimum requirements in a liquidity stress situation;
(ii) the MLA framework: any other merchant bank must maintain sufficient liquid assets to comply with the prescribed minimum Singapore Dollar MLA requirement and all currency MLA requirements, to hold a minimum percentage of Tier-1 liquid assets, and to notify the MAS before utilising its MLA in a liquidity stress situation.
(b) Frequency of calculation and reporting: Merchant banks must prepare the appropriate liquidity returns as of the last calendar day of each month and submit such returns to the MAS not later than 10 calendar days after the last day of each month. Merchant banks complying with LCR on a group level or are approved for country-level group compliance must submit the group or country-level forms not later than 10 calendar days after the end of each month, but will be allowed to submit entity-level forms not later than 20 calendar days after the last day of each month.
Timeline for implementation
To allow merchant banks time to implement systems necessary to support daily liquidity monitoring and reporting, the Merchant Bank Notice will only come into effect on 1 January 2017. However, to facilitate MAS' understanding of the merchant banks' liquidity positions before that, merchant banks will be required to submit headline MLA or LCR figures on a monthly basis from 1 January 2016. The headline figures need only be produced on a best effort basis based on available internal information.
In October 2015, the MAS had also consulted on proposed public disclosure requirements applicable to licensed banks which are D-SIBs incorporated in Singapore in relation to their LCR. The requirements are intended to facilitate market participants' understanding of the liquidity risk profile and management of D-SIBs incorporated in Singapore. On this issue, MAS has consulted in respect of licensed banks in Singapore.
For further information, please contact:
Stephanie Magnus, Principal, Baker & McKenzie.Wong & Leow