Singapore – Highlights Of Proposed Amendments To The Banking Regulations And Banking (Corporate Governance) Regulations.

 

2 March, 2017

Introduction

 

This article aims to provide a brief overview of the consultation paper released by the Monetary Authority of Singapore (“MAS”) on 7 February 2017 on the proposed amendments to the Banking Regulations and the Banking (Corporate Governance) Regulations. These proposed amendments are intended to support the amendments introduced by the Banking (Amendment) Act 20161 (“B(A) Act”), as discussed in our March 2016 article here. We highlight five of the key proposed amendments in this article.

 

1. New Place of Business for Non-Banking Activities

The B(A) Act introduced a requirement for banks to obtain MAS’ approval to establish new places of business where non-banking activities which are regulated by MAS are conducted. In this regard, MAS proposes to include money -changing and remittance businesses in the list of prescribed businesses under Part IX of the Banking Regulations. This will allow MAS to ensure that banks have in place appropriate risk management controls to mitigate and address risks such as money laundering and terrorism financing. As long as such new places of business only conduct non-banking activities, they will not be counted towards the numerical quota on places of business which a bank may be subject to under MAS Notice 603.

 

2. Risk Management Practices and Controls

 

New provisions will be introduced to reinforce banks’ risk management practices and controls. These practices and controls have to be commensurate with the nature, scale and complexity of the bank’s business and are drafted largely similar to the existing provisions in the Securities and Futures (Licencing and Conduct of Business) Regulations and the Financial Advisers Regulations. Some of the proposed minimum risk management standards proposed to be inserted under a new regulation 34 of the Banking Regulations are:

 

• compliance with effective written policies on all operational areas, including financial policies, internal auditing as well as accounting and internal controls;
• compliance function and arrangements including specifying the roles and responsibilities of the bank’s officers and employees in ensuring compliance with all applicable laws and codes of conduct;
• identifying, addressing and monitoring the risks associated with the business activities of the bank;
• adequate compliance checks and internal audit on the bank’s business activities;
• sound risk management processes and operating procedures that integrate prudent risk limits with appropriate risk management systems for identifying, measuring evaluating, monitoring, reporting and controlling risks;
• written record of the steps taken by the bank to monitor compliance with its policies, accounting operating procedures and limits on discretionary powers; and
• effective controls and segregation of duties to mitigate potential conflict of interests.

 

The proposed penalty for contravention of the risk management standards is a fine not exceeding S$250,000 and if the offence is continuing after conviction, a further fine of S$25,000 for every day or part thereof.

 

3. Statement of Credit Facilities, Exposures and Transactions for Senior Management Group
 

Under the proposed new regulation 35 in the Banking Regulations, any person in a senior management group2 of the bank will be a prescribed person under section 27 (1) of the Banking Act. This mean that the bank must prepare a statement in respect of each quarter of a year, showing as at the end of that quarter all the credit facilities from and all the exposures of the bank to and all the transactions of the bank with that person.

 

4. Head of Treasury
 

Regulation 18 of the Banking (Corporate Governance) Regulations will be amended to require MAS’ approval for the appointment of head of treasury3 for banks incorporated in Singapore. MAS has also proposed inserting a new regulation 32 in the Banking Regulations relating to the approval for the appointment of head of treasury for banks incorporated outside Singapore. The approval for appointment of head of treasury for all banks in Singapore was previously addressed in MAS Notice 753.

5. Customer Privacy Obligations for Merchant Banks
 

Under the Third Schedule to the Banking Regulations, a merchant bank is permitted to disclose customer information to such persons or class of persons specified in that Schedule (“specified persons”) for a specified purpose. Part II to that Schedule, titled “Further Disclosure Prohibited”, prohibits the specified persons from further disclosing customer information to any other person, except as authorized under that Schedule or if required to do so by an order of court.

 

Four new categories of further prohibited disclosures will be added to Part II to that Schedule:

 

• disclosure solely in connection with the transfer or proposed transfer of the business of the merchant bank to a company under section 30AAG of the Monetary Authority of Singapore (Cap. 186) (“MAS Act”), whether or not the transfer is subsequently carried out or completed;
• disclosure solely in connection with the transfer or proposed transfer of the business of the merchant bank to a company under Division 2 of Part IVB of the MAS Act, whether or not the transfer is subsequently carried out or completed;
• disclosure solely in connection with the transfer or proposed transfer of the shares in the merchant bank under Division 3 of Part IVB of the MAS Act, whether or not the transfer is subsequently carried out or completed; and
• disclosure solely in connection with the restructuring or proposed restructuring of the share capital of the merchant bank under Division 4 of Part IVB of the MAS Act, whether or not the restructuring is carried out or completed. 

 

Professional advisers appointed in any of the above-mentioned transactions fall within one category of specified persons to whom disclosures of customer information may be made.

 

Conclusion
 

The proposed amendments highlighted above are intended to strengthen the corporate governance, and ensure adequate risk management controls, of all banks and financial institutions operating in Singapore, as per the policy intent of the B(A) Act. Interested parties who wish to provide any feedback or input to MAS should do so by the close of the public consultation on 10 March 2017.

1 The Banking (Amendment) Act 2016 has not yet been published in the Government Gazette Acts Supplement.
2 Senior Management Group means in relation to a bank in Singapore, a group of persons comprising: (a) any senior management of the bank, (b) every firm or limited liability partnership in which the senior management is a partner, a manager, an agent, a guarantor or a surety, (c) every individual of whom, and every company of which, the senior management is a guarantor or surety, and (d) every company in which the senior management is an executive officer; owns more than half of the total number of issued shares, whether legally or beneficially; controls more than half of the voting power; or controls the composition of the board. For more information and other definitions, please see page 60 of the MAS consultation paper.
3 Head of Treasury means any person who is in direct employment of, or acting for, or by arrangement with, the bank and is principally responsible for the management and conduct of the treasury operations of the bank in Singapore.