MAS Notices on Non-Internationalisation of the Sing dollar (S$) 

Frequently Asked Questions

OVERVIEW AND DEFINITIONS

1. What is MAS' policy on non-internationalisation of the S$?

MAS' policy on non-internationalisation of the S$ essentially restricts the lending of S$ to non-residents for speculation in the S$ currency market.  The policy stems from the use of the exchange rate as the principal tool of monetary policy. It is aimed at ensuring that the growth of the S$ market is commensurate with the development of the economy and that the effective conduct of MAS' monetary policy is not compromised. 

The non-internationalisation policy does not constitute a form of capital or exchange control. Since 1978, all exchange controls in Singapore have been abolished, and both residents and non-residents are free to remit S$ funds into and out of the country. They are also free to purchase or sell S$ in the foreign exchange market.

2. Which classes of financial institutions (FIs) in Singapore are governed under the S$ non-internationalisation policy?

The classes of FIs governed by this policy and the applicable MAS Notices are:

3. Does the definition of a resident stipulated in MAS Notice 757 and equivalent Notices apply to other MAS Notices and regulations?

No, the definition of a Singapore resident stipulated in MAS Notice 757 and equivalent Notices is relevant only for the purposes of the S$ non-internationalisation policy.

CREDIT FACILITIES

4. Why has MAS fully liberalised cross-currency swaps, yet retained restrictions on FX swaps? 

MAS has liberalised cross currency swaps to facilitate capital market development in Singapore.  There is no restriction where the need for cross currency swaps arises from capital market, economic and financial activities.  However, note that the S$5m FX swaps restriction still applies. Cross currency swaps should not be used by financial institutions in Singapore to circumvent the S$5M FX swaps restriction.

5. The new Notice 757 and equivalent Notices dated 20 March 2002 do not make any reference to asset swaps, cross-currency swaps and repos, or FX options.  Have restrictions on such activities been lifted?

Restrictions on FX options, asset swaps, cross-currency swaps and repos have been lifted. No other restrictions or guidelines will apply to the use of S$, other than those explicitly stated in the revised Notices and as clarified in the FAQs.

6.  Does the purchase by a bank of S$ bonds issued by non-resident entities constitute an extension of a S$ credit facility?

No.  For the purposes of the non-internationalisation policy, the purchase of S$ bonds issued by non-resident entities does not constitute an extension of a S$ credit facility.

7. Re para 2.2, how should FIs treat non-resident entities that may carry out activities similar to those carried out by financial entities specified in para 2.2, but that may not be licensed as such?

Non-resident entities that carry out activities substantially similar to those undertaken by any of the broad classes of financial entities specified under para 2.2 should be considered as financial entities.  These include "financial services companies" that carry out a range of financing, credit and insurance activities.

8.  Para 2.3 of MAS Notice 757 and equivalent Notices states that FIs may "lend S$ to non-residents for any purpose" as long as the aggregate S$ credit facilities do not exceed S$5m per entity". What is the definition of a single entity?

'Single entity' refers to the same legal entity. For FIs, each subsidiary is considered a separate entity while the Head Office and all overseas branches are collectively regarded as one entity.

9. How should FIs observe the guideline that they should not extend S$ credit facilities exceeding S$5 million "should there be reason to believe that the S$ proceeds might be used for S$ currency speculation"?

FIs are expected to institute appropriate internal controls and processes to comply with this restriction.  These could include but not limited to:

• Written confirmation from the non-resident financial entity specifying the purpose of funding.

• Formal evaluation process of the client profile, which provides a clear basis for assessing that the client is unlikely to use the S$ proceeds for currency speculation.

10. Is the limit of S$5 million per entity on S$ credit facilities to non-residents a gross or a net limit?

The S$5 million limit is a gross limit. FIs should not offset their S$ credit facility extended to one branch against the receipt of S$ from another branch. For example, if Bank A based in Singapore transacted a S$5 million sell/buy S$ FX swap with its London branch and a S$5 million buy/sell S$ FX swap with its New York branch, Bank A would have extended S$5 million in credit facilities to its overseas branches. The FX swaps between the two overseas branches cannot be netted off.

11. Overdrafts of S$ vostro accounts may arise due to non-receipt of pre-advised funds. How should this be treated?

The S$ lending restrictions spelt out in Section 2 of MAS Notice 757 do not apply to overdrafts of S$ vostro accounts arising from non-receipt of pre-advised funds. Banks may extend temporary overdrafts of any amount to non-resident banks to prevent settlement failures due to non-receipt of pre-advised funds. However, such overdrafts must be matched against corresponding MT210 notices from the vostro account holder. Banks must also take all reasonable efforts to ensure that the overdrafts are covered within 2 business days.

Banks are no longer required to report to the MAS any overdraft of S$ vostro accounts arising from non-receipt of pre-advised funds. However, banks must be able to produce adequate documentation (such as matching MT210 notices) to support such overdrafts when requested by MAS examiners.

12. Can FIs centrally book their S$ trades offshore?

Any FI that wish to centrally book their trades in the name of an offshore entity should write to the relevant supervisory department in MAS for approval. Approval will be given on a case-by-case basis and subject to certain prescribed conditions. FIs should not use central booking arrangements to circumvent MAS' policy on the non-internationalization of the S$.

13. If a non-resident had, before December 2000, taken up a foreign currency loan to invest in Singapore and now wants to convert its foreign currency loan to a S$ loan, can the non-resident convert the foreign currency loan to a S$ loan?

Yes, the non-resident may convert the foreign currency loan to the S$ loan.

14. Under MAS Notice 1201, are late payments by non-resident clients for their purchases of securities and contra losses incurred by non-resident clients considered S$ credit facilities?

Yes, late payment for shares by non-resident clients (other than individuals and non-financial entities) and contra losses constitute lending under MAS Notice 1201.

15. S$ Liquidity Providers, under the CLS liquidity provider agreement, may be called upon to provide S$ to CLS Bank via today/tomorrow FX swap. Is this permitted under MAS Notice 757?

MAS understands that a Settlement Member's failure to satisfy its pay-in obligations to CLS Bank creates an uncovered short position that must be funded by CLS Bank. This risk is mitigated by having committed liquidity providers provide funds in the needed currency to CLS Bank. By becoming committed liquidity providers, banks play a role in reducing FX settlement risks under the CLS environment.

The S$ lending restrictions in Section 2 of MAS Notice 757 will not apply to S$ Liquidity Providers when they provide S$ to CLS Bank under their obligations as a liquidity provider.
 
16. As a liquidity management measure, a Settlement Member of CLS Bank may transact intraday In/Out Swaps with another Settlement Bank. Such transactions may result in Singapore banks providing S$ to non-resident financial entities via intraday FX swap. Is this permitted under MAS Notice 757?

MAS understands that In/Out Swaps are used within the CLS environment to manage liquidity risks arising from possible large-value, time-sensitive pay-ins. They are essentially intraday transactions with no change in overnight funding position.

The S$ lending restrictions in Section 2 of MAS Notice 757 will not apply to intraday In/Out Swaps used for the purpose of managing liquidity risk arising from pay-in obligations to CLS Bank.

17. Relating to Q16, what if a Singapore bank enters into an intraday In/Out swap with a non-resident financial entity, and the entity fails to settle the 2nd leg of the In/Out swap within the same day, which causes the Singapore bank to extend inadvertently a temporary overdraft of more than S$5M to the entity? 

Banks must maintain adequate documentation of the intraday In/Out swap to demonstate that it is a genuine case of non-receipt of pre-advised funds.  The S$ lending restrictions as outlined in Section 2 of MAS Notice 757 will not apply to overdrafts arising from such non-receipt of pre-advised funds.   However, banks must take all reasonable efforts to ensure that the overdrafts are covered within 2 business days.

BOND ISSUANCE

18. When FIs arrange S$ bond issues for non-residents, must the entire S$ proceeds be swapped out immediately?

The requirement to swap out S$ proceeds from bond issues applies when the proceeds are to be used outside Singapore. Where the proceeds are to be used for future investments in Singapore, or where there is no immediate need for the proceeds for overseas purposes, the non-resident issuer may maintain the S$ proceeds with a bank in Singapore.

S$ DERIVATIVES

19. A non-resident financial entity has S$ options positions. Can a Singapore financial institution transact S$ forwards with the non-resident to enable the non-resident to hedge their S$ options positions?

For the purpose of this Notice, MAS makes a distinction between outright forwards and FX swaps. In the above scenario on hedging of S$ options positions, the use of S$ outright forwards is permitted. However, the S$5m restriction on FX swaps still applies.

REPORTING REQUIREMENTS

20. Must S$ credit facilities extended to exempted non-resident individuals and non-financial entities be reported?

No, as these entities are exempted from the restrictions of the notice, they are not to be included for reporting under Appendix I.

21. For S$ credit facilities extended to resident financial entities with central booking arrangements, would banks need to include such credit facilities for reporting under Appendix 1?

No.  There is no need to include S$ credit facilities extended to resident financial entities with central booking arrangements under Appendix 1.