15 May, 2018
On 26 April 2018, the Monetary Authority of Singapore (“MAS”) released for public consultation, a proposal for a new set of Guidelines on Individual Accountability and Conduct (“Guidelines”). This update outlines the key proposals and the policy rationale behind the new Guidelines.
Introduction
The new Guidelines supplement existing regulatory legislation and guidelines, particularly in the following three key areas:
(a) Promoting individual accountability of senior managers of financial institutions;
(b) Strengthening management oversight of financial institution employees engaged in material risk functions; and
(c) Embedding within all financial institution employees related standards of proper conduct.
Scope of Application of the new Guidelines
It is proposed that the new Guidelines would apply to the following classes of financial institutions:
- Banks;
- Merchant banks;
- Finance companies;
- Insurance companies;
- Foreign insurers operating under a foreign insurer scheme established under Part IIA of the Insurance Act;
- Approved exchanges;
- Approved clearing houses;
- Approved holding companies;
- Capital markets services licensees;
- Financial advisers; and
- Trust companies.
For banks and insurance companies incorporated in Singapore, MAS proposes that they would have to comply with the new Guidelines on a group basis in line with the existing regulatory approach of consolidated supervision.
The Content of new Guidelines
Recognising that financial institutions are all organised differently even if they are of the same class, MAS has announced that they would adopt an outcomes-based approach in designing the new Guidelines, so that each financial institution has the flexibility to adopt different means for achieving the specified outcomes, while abiding by the benchmarks set out within the new Guidelines.
Set out below, are the five accountability and conduct outcomes, and our comments on them.
Outcome 1 – Clear identification of senior managers who have responsibility for core management functions
MAS considers that clarity in individual responsibilities within a financial institution’s management structure is critical in ensuring the senior managers are held accountable for matters under their purview. To help in the identification of such senior managers, MAS has set out within Annex B of its consultation paper (provided at the end of this update), a list of what it considers to be core management functions with a financial institution.
Outcome 2 – Fitness and propriety of senior managers for their particular roles, with them assuming responsibility for the actions of their staff and for the conduct of the function under their purview
Outcome 3 – A clear and transparent governance framework that supports and is conducive to senior managers’ performance of their roles and responsibilities
At the moment, certain senior management appointments within certain classes of financial institutions already require regulatory approval. In addition to existing requirements, the new Guidelines will underline the broader expectation by MAS that all managers of some seniority ought to be subject to governance rules to ensure proper accountability. MAS has also emphasised within the consultation paper that these measures are not intended to absolve management committees (which typically comprise of management staff from different departments and disciplines) of their collective responsibilities.
Outcome 4 – Fitness and propriety of employees in material risk functions, with them being subject to effective risk governance, abiding by appropriate standards of conduct and incentive structures
MAS is also conscious not to forget about employees who may not have senior management roles within a financial institution, but who are nevertheless in roles or performing functions that could have a major impact on their employer’s safety and soundness, or could cause harm to customers and other stakeholders. MAS is proposing to define material risk functions as functions that could materially impact a financial institution’s risk profile. Employees in material risk functions would include those in various business functions, risk management and control. The roles could be within the front office, middle office or back office. Given the risks posed by such employees, Outcome 4 is intended to ensure that a financial institution pay adequate attention to the management of the performance of such employees.
Outcome 5 – An operating framework that promotes and sustains the desired conduct amongst all employees
While the rationale behind this particular specified outcome may be fairly self-evident, and there is already a variety of regulatory instruments in place dealing with the subject, nevertheless, MAS has felt that such an outcome should be specified if only to stipulate a benchmark by which a financial institution’s overall governance framework is to be judged.
Conclusion
Overall, our assessment is that these new Guidelines are a favourable development for the financial sector in Singapore. In a sense, the Guidelines do not really forge new ground. Individuals who might be concerned about potential personal liability should have no reason to fear the new Guidelines. We are not at the stage where individual senior managers within a financial institution are going to be readily hauled to court to answer for the slightest regulatory infractions committed by their institutions.
Indeed, much of what the Guidelines provide for should already be in place within any well-structured financial institution. What is particularly helpful about the Guidelines is that it establishes a broader baseline for governance framework across all classes of financial institutions.
The consultation runs until 25 May 2018. Once finalised, it is expected that the new Guidelines would be issued sometime in the fourth quarter of 2018.
A copy of the consultation paper can be assessed here.
