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Singapore – MAS Proposes Amendments To The Banking Act (Cap 19).

3 February, 2015


In November 2013, the Monetary Authority of Singapore (“MAS”) issued a public consultation paper in which it had proposed to make certain key changes to the Banking Act (“BA”).
Following the closure of that consultation, MAS has, on 15 January 2015, published its responses to the feedback received on that consultation. In addition to its responses, MAS has also released a further consultation paper setting out the proposed Banking (Amendment) Bill for further feedback.
This update highlights MAS’ key responses to the consultation paper of November 2013 and the specific measures to be contained in the proposed Banking (Amendment) Bill.
Purpose Of Amendments
Generally speaking, MAS’ proposed amendments to the BA aim to:
  • formalise the notification requirements imposed on banks by MAS to, inter alia, inform MAS of material adverse developments and information in relation to banks, their shareholders and controllers, and key appointment holders;
  • strengthen and extend MAS’ control over banks’ key appointment holders and auditors, including the right to remove these said holders and auditors where appropriate;
  • codify the obligations imposed on banks to implement adequate risk management systems and controls; and
  • strengthen MAS’ supervisory oversight and control over banks.
Notification Requirements
New notification requirements will be placed on banks in relation to material adverse developments, their key appointment holders and their shareholders.
With respect to material adverse developments, in summary, banks will be statutorily obliged to immediately notify MAS of any material adverse developments that the bank has reasonable grounds to believe is likely to materially and adversely affect the bank in Singapore. In this regard, MAS has proposed the following guidelines:
  • For banks incorporated outside Singapore, MAS will only require notification where the adverse development is likely to materially and adversely affect the bank’s branch in Singapore.
  • For Singapore-incorporated banks, notification to MAS will be immediately required where the bank has any reasonable grounds to believe that a development is likely to materially and adversely affect the bank in Singapore or any entity or trust in its bank group or designated financial holding company group.
  • A bank is expected to:
    • immediately notify MAS as soon as it becomes aware of any information that might suggest a breach of laws or regulations administered by MAS or any requirements imposed by MAS;
    • notify MAS of breaches or potential breaches of other laws or regulations, if the breach or potential breach is believed to result in a material adverse impact on the bank or, in the case of a Singapore-incorporated bank, any entity within its group;
    • notify MAS of any development which the bank reasonably believes may affect its financial soundness or reputation; or
    • notify MAS of any development which the bank reasonably believes may affect its ability to serve its customers on a business-as-usual basis
  • A bank is not expected to inform MAS of non-regulatory operational breaches of its own internal policies or guidelines unless such breaches lead to developments which would materially affect the bank as set out above.
With respect to notification requirements relating to the fitness and propriety of banks’ key appointment holders, MAS will require banks to immediately notify MAS as soon as they become aware of any material information that may negatively affect the fitness and propriety of any officer whose appointment had been previously approved by MAS. MAS has further stated that:
  • while the notification requirements will be codified, the Guidelines on Fit and Proper Criteria will continue to be applicable in providing guidance to the banks towards assessing whether an individual is fit and proper, but the factors listed therein will not be conclusive;
  • banks are to independently assess whether the information they have casts doubts on the fitness and propriety of key appointment holders and notify MAS of the same; and
  • notifications would be expected where key appointment holders are subject to any potential or actual proceedings, pending or otherwise, of a regulatory, disciplinary or criminal nature.
With respect to notification requirements relating to substantial shareholders and controllers, only Singapore-incorporated banks are required to immediately notify MAS: (a) as soon as the bank becomes aware of person(s) who has/have become substantial shareholder(s) and controller(s) without seeking the prior approval of MAS; and (b) as soon as the bank is aware that its shareholder(s) and controller(s) is/are not fit and proper on an ongoing basis.
In relation to the requisite level of knowledge required to trigger the abovementioned obligations to notify, MAS has taken the position that:
  • The bank would be imputed to have known the particular information once its directors and senior management have been made aware of it. In determining whether the bank is said to have knowledge of the particular information, the threshold will be limited to actual knowledge and will not extend to constructive knowledge, if reasonable steps have been taken to ensure compliance.
  • The bank is expected to inform MAS only when it has reasonable grounds to believe the accuracy of the information. If the bank becomes aware of any relevant information, it must take reasonable steps to ascertain the accuracy of such information, regardless of the source of the information. As such, the analysis of hearsay information may be necessary in certain situations.
  • Where investigations have been initiated, the bank should assess if there are reasonable grounds to believe that a material adverse development has occurred and notify MAS accordingly.
However, MAS will not be prescribing the manner by which banks are to implement and comply with the notification requirements. Banks are expected to establish sufficiently robust and adequate due diligence or internal processes to ensure compliance on an ongoing basis and will have the flexibility to determine for themselves the content of such processes.
MAS has also said it will take into account any confidentiality restrictions that a bank may be subject to, in determining whether a bank has breached its notification requirements. Nevertheless, MAS has emphasised that banks must also ensure that any confidentiality agreements or undertakings they enter into do not inhibit them from making disclosures mandated under the BA or other law.
Control Over Key Appointment Holders And Auditors
Key Appointment Holders
MAS will move the existing requirements, for banks to obtain prior approval for their key appointment holders, from the Banking (Corporate Governance) Regulations to the BA. MAS will be able to impose conditions on approvals granted and prescribe responsibilities of the key appointment holders.
In accordance with previous practice, MAS will continue to assess the suitability of and approve the appointment of a bank’s key appointment holders, principally on whether an individual is fit and proper in accordance with the Fit and Proper Guidelines.
MAS will also be able to remove key appointment holders when they are no longer fit and proper for the positions they hold. In assessing whether a director or executive officer should be removed, the bank will also have to consider other factors, includingwhether the director or executive officer has wilfully caused the bank to breach the BA, public interest and the need to protect depositors’ interests.
MAS will be able to penalise auditors for their failure to discharge their statutory duties as set out in the BA.
  • In addition to their duties to carry out audits in compliance with the Companies Act, MAS may require auditors to enlarge the scope of their audits and report the matters set out in section 58(8) of the BA where the auditors come across such information in the performance of their audits.
  • To enable MAS to enforce the statutory obligations of auditors under the BA, an auditor’s failure to discharge his duties will be a criminal offence.
  • However, an auditor will only be liable for an offence where: (i) they fail to carry out an audit; (ii) they fail to make a report on the financial statements of the bank in accordance with the Companies Act; (iii) they fail to discharge additional audit duties imposed by MAS; or (iv) although satisfied that the matters set out in section 58(8) of the BA exist, they fail to report such matters to MAS.
  • In determining whether to impose a penalty, MAS will consider whether the auditor’s failure was wilful, reckless or careless.
In addition to the above, MAS will also be empowered to direct banks to remove external auditors who have not satisfactorily performed or discharged their statutory duties.
  • Such a direction from MAS will prevail over the existing Companies Act provision which mandates that auditors are to be removed only by shareholders’ resolution at a general meeting.
  • The power of removal will only be exercised in relation to an audit firm and not the audit partner specifically.
  • MAS will exercise its powers to direct the removal of auditors judiciously, after careful consideration of all the relevant circumstances with a specific consideration of the audit firm’s duties in respect of the particular bank.
The Implementation Of Adequate Risk Management Controls And Systems
The banks’ duties to implement adequate risk management systems and controls will now be codified into regulations.
MAS has made clear in its response to the feedback received that there will be no change to MAS’ existing approach in assessing the adequacy of banks’ risk management systems.
  • MAS will continue to take into consideration the principle of proportionality with reference to the existing Guidelines on Risk Management Practices.
  • Banks can also continue to rely on their respective group’s global risk management framework if the application of such framework is appropriate to their business in Singapore. However the responsibility for compliance with this requirement and the institution of adequate controls still remains with the bank in Singapore.
Detailed risk management requirements in the form of regulations will be issued for public consultation at a later stage.
Increased Supervisory Oversight for the Enhancement of Depositor Protection
In line with its intention to create a more robust supervisory oversight over banks, MAS has proposed amendments to the BA which will enhance depositor protection as follows:
  • MAS may now require any bank that is incorporated outside Singapore to be incorporated in Singapore if MAS is of the opinion that: (i) it is necessary or expedient in public interest; (ii) it is in the interest of the depositors of the bank; or (iii) it is in the interest of the financial system in Singapore for such an incorporation to be effected. In requiring the aforementioned, the following will be observed:
    • MAS’ direction for incorporation in Singapore will be made by way of a notice in writing to the relevant bank in which a reasonable time period will be given for compliance.
    • MAS has also reserved its right to take into consideration all necessary factors in reaching its opinion by providing in the new Section 8A of the BA that it will have regard to “such criteria as may be specified” in its written notice to the relevant bank incorporated outside Singapore in reaching its opinion that an incorporation in Singapore is necessary.
  • MAS may now impose Leverage Ratio requirements on banks by notice in writing and may in the said notice: (a) prescribe the manner of the process for the calculation of the leverage ratio; (b) impose additional leverage; and (c) vary requirements for different banks within that class, having regard to the risks arising from the activities of each bank and such other factors as MAS may deem relevant.
  • Requirements on the minimum Liquidity Coverage Ratio or Liquid Assets to be maintained in a bank can also now be imposed by MAS.
  • Safe harbour provisions will be introduced to protect external auditors from liability arising from disclosure, in good faith, of confidential information provided to MAS. This protection is extended to both the audit firm and its employees.

General Measures for Increased Supervisory Oversight and Control

In addition to the requirements to protect depositors stated above, MAS has also proposed amendments to strengthen its oversight and control over banks as follows:
  • MAS will be clarifying its powers to inspect subsidiaries, including overseas subsidiaries, of Singapore-incorporated banks.
  • MAS will be able to penalise banks which fail to take reasonable care to ensure that their submission of information to MAS is accurate, even if the said information is not material.  MAS will be able to terminate, prohibit or impose restrictions on transactions with related persons that are detrimental to depositors’ interests.
  • MAS will be able to remove directors of Singapore-incorporated banks and executive officers of any bank where such persons are “not fit and proper”.
  • The scope of banks’ obligations to seek approval for places of business has expanded. While the current scope limits the need to seek approval to places of business where banks conduct any type of banking business, banks will now have to, in addition to that, seek approval for places of business where they conduct non-banking activities (like money-changing and remittance).
  • For the purposes of enhancing market discipline, MAS may now require a bank to disclose to the public any information relating to its operations, including: (a) its risk profile and management process; (b) aspects of its corporate governance; (c) its capital adequacy; (d) its leverage ratio; (e) the aggregation of the bank’s assets, liabilities, profits and losses; and (f) the assets, liabilities, profits or losses of the bank’s related corporations, entities and trusts.
  • MAS will provide for the privilege against self-incrimination in the provision of information under BA provisions.
  • MAS will implement a registration regime for representative offices and will be able to impose fees for new applications for representative offices.
Interested parties may submit their views or comments to MAS by 13 February 2015.
Shook Lin Bok LLP 

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