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In
June 2010, MAS issued a monograph “Tenets
of Effective Regulation” to communicate
MAS’ approach to developing effective
regulation.
Following the global financial crisis
of 2008/09, the importance of regulation
to a stable financial system has taken
on renewed importance. International regulatory
standards are now being reviewed and tightened
significantly. MAS supports and participates
in these international reviews. While
new international regulatory standards
will mean some tightening too in Singapore,
the shift will not be dramatic. This is
because in Singapore, our regulatory framework
is prudent and the financial system is
stable.
The “Tenets of Effective Regulation”
guides the design and formulation of regulation
and explains our balanced regulatory approach,
which continues to be relevant and effective
in achieving the outcome of a sound and
progressive financial services sector.
The six Tenets are:
Tenet 1: “Outcome Focused”
requires MAS to uphold sound regulation
of a high standard and to give consideration
to all of the six Tenets concurrently.
Where the Tenets do not pull in the same
direction, to exercise appropriate judgment
as to how and in what measure the Tenets
should be applied in the particular circumstances
of each new regulation so that good regulatory
outcomes can be achieved.
Tenet 2: “Shared Responsibility”
acknowledges that regulation alone is
insufficient to deliver good regulatory
outcomes. In many areas, good outcomes
are most effectively achieved with MAS,
financial institutions, investors and
consumers each taking on specific responsibilities
for and shared ownership of regulatory
objectives and outcomes.
Tenet 3: “Risk Appropriate”
advocates that while MAS establishes standard,
baseline regulatory requirements for broad
application, it should be able to exercise
supervisory judgment to set higher standards
or to grant exemptions, where justified,
in the particular circumstances of an
individual financial institution or transaction.
The consequences for regulatory breaches
should be proportionate to the risks posed
to regulatory objectives.
Tenet 4: “Responsive to
Change and Cycles” recognises
the need for the regulatory framework
to be updated to keep pace with changes
in the industry and as new risks emerge.
Regulations should also require the pre-emptive
build-up of prudential buffers in financial
institutions to weather a downturn or
stress events, including financial, operational
and business conduct risk events, as well
as be able to respond to macroprudential
risks across the financial system.
Tenet 5: “Impact Sensitive”
requires that the costs and impact of
major new regulatory initiatives be assessed
and a judgment made of the balance of
costs and benefits. Regulation should
be targeted clearly at specific and material
risks to the objectives of financial supervision.
Regulation should be designed with due
regard to its market and cost impact so
that it is not unduly burdensome whilst
maintaining a high standard consistent
with established international standards
and practices.
Tenet 6: “Clear and Consistent”
explains that regulation should be clear
so that institutions have certainty and
predictability as to their legal obligations.
Regulation should be consistent over time
and not be subject to frequent or sudden
change that causes disruption. Where appropriate,
there should be consistent treatment of
like activities conducted by institutions
of different sectors.
These Tenets are intended to be generally
applicable to all areas of our regulatory
development work. This means that, in
totality, we strive to achieve a sound
regulatory framework which is consistent
with international standards, with shared
responsibility for regulatory outcomes
among financial institutions and other
stakeholders, which is sensitive to the
risks it is aimed at and the impact it
creates, as well as more responsive to
changes in the industry, risks and cycles,
and which also provides sufficient flexibility
to set requirements that are commensurate
with the risk profile and unique circumstances
of a particular financial institution.
Success in achieving effective regulation
requires more than MAS setting demanding
standards of itself. The industry has
a critical role to play by taking shared
responsibility for and ownership of the
regulatory objectives, as well as instituting
high standards of governance and controls
for itself. Articulating this set of Tenets
is a further step towards fostering shared
understanding and ownership of our regulatory
approach and objectives. |
