Media Releases
 Published Date: 21 June 2000

New MAS Measures To Separate Financial And Non-financial Activities Of Banking Groups

 

Singapore, 21 June 2000...The Monetary Authority of Singapore has announced new regulations requiring the separation of financial and non-financial activities of Singapore banks. Speaking at the annual dinner of the Association of Banks Singapore, MAS Chairman DPM Lee Hsien Loong said that the measures are a necessary part of Singapore's ongoing reform initiative to strengthen the domestic banking sector.

DPM Lee said that the separation of non-financial activities from the banking groups and the unwinding of cross-shareholdings are aimed at limiting the risks of contagion to the banks, enhancing market discipline, increasing transparency and ensuring that bank management focuses its attention on the core business of banking. Ultimately, the banks improved performance will benefit depositors and shareholders, and strengthen the financial system as a whole.

The commingling of financial and non-financial activities has not resulted in serious problems so far, because the principal shareholders have run the banks prudently and properly. However, problems will manifest themselves only in times of stress, as the experiences of other countries have shown. DPM Lee said we are acting now when the banks are sound and must not delay or put off changes which are essential for minimising potential vulnerabilities and crucial to the banks' long-term strength.

The new regulations will require significant corporate re-structuring and divestment of non-financial assets from the banks. DPM Lee said there is no reason to force a fire sale, which would weaken the banks and diminish confidence, and would be against the interests of shareholders and depositors. MAS will give the local banks three years to implement the changes.

To minimise the tax impact on the banks arising from the divestment of assets as required by the new rules, the Government has decided on a set of one-off administrative concessions which will facilitate the exercise.

"The separation of financial and non-financial activities will be another major step forward in strengthening the local banks," said DPM Lee. He also urged all banks to continue to upgrade their capabilities and build up their management teams, in order to prepare themselves for the new opportunities and challenges arising from the rapid changes of technology and the market.

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The Changes and What They Mean

What are the changes?What do they mean?

  • Singapore banking groups must segregate financial and non-financial activities

  • MAS will require all the financial activities in each banking group to be grouped together, either under the bank or under a non-operating financial holding company (FHC). MAS will regulate the bank or FHC, but it will not regulate the non-financial activities.

  • MAS will determine the scope of activities which the bank or FHC will be permitted to undertake. Besides financial activities, they will include activities which have clear synergies with the bank's financial business.

  • Singapore banks must divest non-financial activities

  • The non-financial activities must be segregated from the banking group and divested. They can be sold to third parties, or alternatively to the principal shareholders of the bank, who will then own them directly, and not through any of the entities in the financial arm of the group.

  • Separation of ownership to be maintained

  • Currently, all the local banks are listed, and so are many of the non-banks in the groups. The banks and non-banks already have separate sets of share-holders.

  • MAS will require this separation of ownership to be retained. The bank or FHC in the existing banking groups must continue to be listed on its own.

  • No cross shareholding

  • The financial entities will not be allowed to own, directly or indirectly, the shares of non-financial firms affiliated to the same principal shareholder.

  • Within the financial arm, shareholdings should only be in one direction. We will not allow two companies in the financial arm to have mutual shareholdings in each other.

  • Separate management

  • To avoid conflicts of interest, the management of the financial entities should be separate from the management of its non-financial affiliates. There should be no sharing of executive directors and manage-ment staff, such as the chief financial officer and chief operating officer. On the board of directors of a regulated financial entity, a majority of the directors should not be holding directorships on the boards of the non-financial affiliates as well.

  • No name sharing

  • Reputational and contagion risks can result from sharing of names and corporate badges between the bank and its non-bank affiliates.

  • MAS will therefore disallow the sharing of names and logos between the financial and non-financial entities. MAS is considering amending the Banking Act, to prevent the use of names or acronyms by companies that may confuse the public, or give the impression that a company is related to or associated with any Singapore-incorporated bank.