ANNUAL REPORT 2002 / 2003


THE FINANCIAL SECTOR - KEY REGULATORY AND SUPERVISORY INITIATIVES

Since 1998, MAS has embarked on a strategic shift in our regulatory and supervisory philosophy. MAS has now established a regulatory framework that aims to be more flexible and integrated. Supervision of financial institutions has also been transformed from a bottom-up, audit-based approach to one that is more holistic and forward-looking.

Risk-Based Regulatory Regime

Fine-tuning of risk-based regulatory frameworks for banks, insurers and securities companies continued apace. For banks, the New Basel Capital Accord (“New Accord”) is expected to be finalised by the end of 2003. The New Accord emphasises risk management and will require banks to have improved risk assessment capabilities. MAS welcomes the New Accord and intends to follow the implementation schedule set by the Basel Committee on Banking Supervision.

To ensure a smooth transition to the new capital standard, MAS has been in close consultation with the Singapore-incorporated banks to assess the impact. MAS will explore how the proposals can be best adapted for local market conditions within the supervisory discretion provided in the New Accord. We are fine-tuning our framework for setting individual bank capital adequacy requirements according to the risk profile and risk management capabilities.

For securities and futures intermediaries, a risk-based capital framework came into force in October 2002. The new framework applies to capital markets services licence holders, with the exception of non-member securities dealers and futures brokers. A similar framework for the latter will be developed in the coming year.

For the insurance industry, a risk-based capital framework was rigorously tested last year and will be applied in 2004. The major changes in the investment environment in the past decade and the wider range of products have increased the risks borne by insurers, and they need a sufficient financial buffer to manage this risk.

The new framework measures asset and liability risk more effectively, with early indicators of weaknesses that will trigger closer supervisory attention. Last year, MAS also introduced a Liquidity Supervision Framework for individual banks. Banks opt for a risk-determined minimum liquid asset requirement specific to themselves. This is subject to MAS’ periodic assessment of the bank’s liquidity risk management system and processes, its liquidity risk exposure and cashflow volatility.

 

Risk-Based Regulatory Regime  Prudential Policies Enhancing MAS' Supervisory Role Greater Consistency in Standards Across Sectors
Building Strong Pillars for Good Corporate Governance  Additional Requirements Building Confidence with Sound Market and Business Conduct
Upholding Professional and Ethical Standards Laying Strong Foundation for Financial Innovation Managing Technology Risks
Improved Securities Trading and Clearing System Safer Settlement System for Foreign Exchange Payment Systems

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