Explanatory Brief: Banking (Amendment) Bill 2016
1 Minister for National Development, Mr Lawrence Wong, today moved the Banking (Amendment) Bill 2016 (the “Bill”) for First Reading in Parliament.
2 The Monetary Authority of Singapore (MAS) is introducing legislative amendments to enhance prudential safeguards, corporate governance and risk management controls in the banking industry. These amendments strengthen and align MAS’ regulatory and supervisory framework with international best practice. Amendments are also being made to formalise MAS’ existing requirements and clarify MAS’ policy intent.
3 MAS conducted public consultations on the significant policy changes (November 2013) and a draft Bill (January 2015) and has incorporated the feedback into the Bill where appropriate.
KEY AMENDMENTS IN THE BILL
4 The Bill touches on three key areas.
(I) Prudential safeguards
5 The Bill will introduce two main measures to strengthen prudential safeguards and enhance depositor protection. First, the Bill will empower MAS to require foreign banks to locally incorporate all or part of their banking business, if MAS is of the opinion that it is necessary or expedient in the interest of the public, the depositors of the bank, or the financial system in Singapore. Since the global financial crisis, there is greater recognition of local incorporation as a useful prudential measure. A bank that is incorporated in Singapore will be subject to Singapore’s capital standards and corporate governance requirements. The requirement for local incorporation forms part of a suite of supervisory measures for domestic systemically important banks (D-SIBs) that MAS announced on 30 April 2015. These measures aim to strengthen the resilience of D-SIBs and enhance systemic stability.
6 Second, the Bill will empower MAS to set prudential requirements that cap banks’ leverage (leverage ratio requirement) and ensure that they maintain sufficient liquidity (liquidity coverage ratio requirement), in line with international standards.
(II) Corporate governance
7 The BA(A) Bill will enhance the corporate governance of banks by:
- Empowering MAS to remove key appointment holders of banks if they are found to be not fit and proper. The grounds for removal of such key appointment holders will be aligned with the criteria for approving their appointment;
- Providing a provision to protect banks’ external auditors who disclose, in good faith, information to MAS in the course of their duties from any liability that may arise from such disclosure;
- Empowering MAS to direct banks to remove their external auditors if they have not discharged their statutory duties satisfactorily; and
- Empowering MAS to prohibit, restrict or direct a bank to terminate any transaction that the bank enters into with its related parties if it is deemed to be detrimental to depositors’ interests.
(III) Risk management controls
8 The Bill will also formalise MAS’ expectation for banks to institute risk management systems and controls that are commensurate with their business profiles and operations. MAS can impose penalties on banks that fail to do so.
9 The Bill will introduce a requirement for banks to obtain MAS’ approval to establish new places of business where non-banking activities (such as money-changing and remittance) are conducted.1 This allows MAS to exercise better oversight of banks’ activities, such as by ensuring that the bank institutes adequate measures to prevent money laundering and terrorism financing before commencing business at new locations.
(IV) Other amendments
Duty to inform MAS of material adverse developments
10 As a bank supervisor and regulator, MAS needs to be kept promptly informed of all adverse developments that may materially affect a bank, in order to take timely and appropriate supervisory action. The Bill will formalise MAS’ expectation for banks to inform MAS, as soon as possible, of the following:
- Any development that materially affects the bank adversely, and in the case of locally incorporated banks, any development that materially affects the bank or its related entities adversely;
- Any development that could affect the suitability of their key appointment holders; and
- In the case of locally incorporated banks, any development that could affect the suitability of their substantial shareholders and controllers.
Other technical amendments
11 The Bill will also introduce several technical amendments aimed at regularising MAS’ existing requirements and effecting revisions relating to operational matters:
- Providing MAS with the express power to inspect the overseas subsidiaries of a bank incorporated in Singapore;
- Enabling MAS to collect application fees for new bank licences and the registration of representative offices; and
- Aligning the range of penalties in the Banking Act for consistency across the various requirements in the Act.