Jurisdiction - Singapore
Reports and Analysis
Singapore – Consultation On The Financial Holding Companies Bill.

10 November, 2012

 

Legal News & Analysis – Asia Pacific – Singapore – Regulatory & Compliance

 

INTRODUCTION

 

The Monetary Authority of Singapore (“MAS”) had previously announced plans to develop a regulatory framework for financial groups. In Singapore, such financial groups are typically headed by a financial institution such as a bank or an insurance company, or by a non-operational holding company commonly referred to as a financial holding company (“FHC”).
 
In early 2012, MAS published a consultation paper titled “Regulatory Framework for Financial Holding Companies” (“First FHC Consultation”), which discussed a proposed new regime for FHCs which have at least one Singapore-incorporated bank or insurance company within the group. Our legal update on the First FHC Consultation can be accessed here.
 
Following the First FHC Consultation, MAS has recently published a second consultation paper on the proposed new regime titled “Consultation on the Financial Holding Companies Bill” (“Second FHC Consultation”) which annexes the draft form of the Financial Holding Companies Bill (“FHC Bill”). 
 
The closing date for the Second FHC Consultation is 26 November 2012.
 
DRAFT FINANCIAL HOLDING COMPANIES BILL
 
The main areas addressed by the draft FHC Bill include the following:
 
  • (a) designating a FHC for regulation;
  • (b) restrictions on the activities of a designated FHC;
  • (c) changes in shareholding and control;
  • (d) limits on exposures and investments;
  • (e) disclosure of interests by directors of a designated FHC;
  • (f) capital, asset and leverage ratio requirements; and
  • (g) supervision by MAS.
 
Designating a FHC for regulation
 
Whether an entity comes under the new regulatory regime will be decided by MAS by designation. In deciding whether to designate an FHC incorporated in Singapore for regulation, the factors to be considered are whether the FHC is the ultimate holding company of a financial groupthat has a bank or insurance subsidiary in Singapore or whether it is an intermediate FHC whose bank or insurance subsidiaries in Singapore are significant either to the Singapore financial system or to the intermediate FHC group. 
 
In the case of an intermediate FHC whose ultimate FHC is incorporated outside Singapore, MAS may also consider the extent to which the ultimate FHC and its financial group are subject to supervision by the authorities in the home jurisdiction of the ultimate FHC.
 
Restrictions on the activities of a designated FHC
 
Besides holding the shares of its subsidiaries, the activities of a designated FHC would be restricted to the conduct of management, advisory, financing, accounting and information processing activities for the purposes of providing support to the business activities of its financial group companies. Any other business or activity would require the approval of MAS.
 
Changes in shareholding and control
 
For a designated FHC which has as its subsidiary a Singapore incorporated bank, approval is required for acquiring ownership and control at thresholds of 5%, 12% and 20%. For other designated FHCs, approval is required for acquiring ownership and control at thresholds of 5% and 20%.
 
Limits on exposures and investments
 
A designated FHC would be subject to restrictions on the scope and quantum of its investments and exposures including the following:
 
  • (a) a designated FHC would need to obtain the prior approval of MAS for holding or acquiring, whether directly or indirectly, a “major stake” in any company and the designated FHC would also need to notify MAS in advance of any divestments. A major stake in this instance refers to a beneficial interest exceeding 10% of the total number of issued shares in the company or control over more than 10% of the voting power in a company;
  • (b) a designated FHC would only be able to grant credit facilities to its financial group, or in the case of an intermediate FHC, to the financial group or its ultimate holding company;
  • (c) MAS may stipulate a limit on the aggregate exposure of a designated FHC’s financial group to another third party counterparty group;
  • (d) MAS may stipulate a limit on the equity investment by a designated FHC and/or its financial group in a single company; and
  • (e) a designated FHC would not be able to acquire or hold immovable property, except for property used to conduct its financial group’s business.
 
Disclosure of interests by directors of a designated FHC
 
Directors of a designated FHC who have any interest in an exposure of, or a proposed exposure of any of the companies within the designated FHC financial group shall declare the nature of their interest to the board of the designated FHC. A director who does not do so may be liable on conviction to a fine of up to $125,000 and/or toimprisonment for a term of up to three years.
 
Capital, asset and leverage ratio requirements
 
A designated FHC would have to comply with capital, asset and leverage ratio requirements including the following:
 
  • (a) a designated FHC shall have a minimum paid-up capital equivalent to the highest minimum paid-up capital requirement among its subsidiaries regulated by MAS;
  • (b) a designated FHC shall have “capital funds” of not less than the amount of its paid-up capital. Capital funds in this instance means the amount determined by adding the designated FHC’s paid-up capital to its published reserves and deducting any loss appearing in the accounts of the designated FHC;
  • (c) MAS may require a designated FHC to have a higher minimum amount of paidup capital and capital funds with regard to the risks arising from the activities of the group;
  • (d) MAS may stipulate capital adequacy requirements to be maintained by a designated FHC on a consolidated basis;
  • (e) MAS may stipulate the minimum amount of liquid assets to be held by a designated FHC; and
  • (f) MAS may impose leverage ratio requirements to be maintained by a designated FHC.
 
Supervision by MAS
 
It is proposed that the MAS will have various broad supervisory powers in respect of designated FHCs and their corresponding financial groups. For example, MAS would be able to require a designated FHC to submit its company and group audited accounts, conduct on-site inspections or investigations into the designated FHC group as well as require designated FHCs to inform MAS in the event that they are likely to become insolvent or are unable to meet their obligations. In addition, 
the appointment of key appointment holders of the designated FHC would be subject to MAS approval. 
 

 

For further information, please contact:

 

Eric Chan, Director, Drew & Napier 

eric.chan@drewnapier.com

 

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