Supervisory Framework

MAS' risk-based supervision aims to foster the safety and soundness of financial institutions, and to promote transparency and fair dealing with their customers and counterparties by financial institutions, thereby contributing towards MAS’ overarching objective of a stable financial system.

The impact and risk model is at the heart of the framework. Each institution will be assessed and assigned two ratings. The impact rating rates the relative importance of an institution within the relevant financial services sector by assessing the potential impact of an institution, if it fails, on Singapore's financial system and economy, and on Singapore's reputation. Using a risk assessment system, the Common Risk Assessment Framework and Techniques (CRAFT), the risk rating rates the overall riskiness of an institution by assessing the inherent risks of the institution's business activities, its ability to manage and control these risks, effectiveness of its oversight and governance structure, and adequacy of its financial resources to absorb losses so that it remains solvent. Based on these two ratings, the model distinguishes institutions based on their potential to affect the achievement of MAS' supervisory objectives and determines the appropriate supervisory strategies and level of supervisory intensity for the institutions accordingly. A supervisory plan is then developed for each institution to address issues of supervisory concern identified through the risk assessment of the institution, and guides the day-to-day supervisory activities of supervisors. The ratings and supervisory plan for each institution are updated at regular intervals taking into account the new information obtained from on-going supervisory activities.

MAS' approach to supervision requires MAS, financial institutions and stakeholders to work closely together. The primary responsibility for the prudential soundness and professional market conduct of an institution lies with its board and senior management. MAS looks to the board and senior management to address issues of supervisory concern and supports the efforts of the institution to maintain an environment of sound risk management and internal processes commensurate with the institution's business activities and their risks.

Details of MAS' supervisory framework can be found in the monograph "MAS' Framework for Impact and Risk Assessment of Financial Institutions".