MAS introduces more efficient risk-based capital framework for SGX members and modular licence fees for capital market intermediaries
Singapore, 17 April 2002. The Monetary Authority of Singapore (MAS) announced today two new initiatives as part of its on-going efforts to strengthen Singapore's capital markets. MAS is introducing a new risk?based capital (RBC) framework for Singapore Exchange (SGX) members with capital requirements more directly related to the risks arising from the business activities of each firm. The new framework has been benchmarked against international best practices, tested with actual data from SGX members and will require lower amounts of initial capital than existing requirements.
2 MAS has also announced a new licence fee structure that will apply under the Securities and Futures Act (SFA) and Financial Advisers Act (FAA). The new fee structure is designed to align the current fees to the licensing regime introduced under the SFA and FAA. The fee structure is based on the types of regulated activity that the licensed entity undertakes. It is expected to be revenue neutral.
New Risk-Based Capital Framework for Members of the Singapore Exchange
3 The new RBC framework will enhance the capital efficiency of SGX members. The financial resources of members will be better aligned to their business risks. This means that it will also better serve MAS? regulatory objectives. The new capital requirements lower the entry hurdle for legitimate and qualified players to be admitted into the Singapore market.
4 The new RBC framework will form part of the Securities and Futures Regulations 2002, which will be released at end-June 2002. It is a single, harmonised capital regulatory framework, replacing the existing adjusted net capital regimes applicable to members of Singapore Exchange Securities Trading Limited (SGX-ST) and Singapore Exchange Derivatives Trading Limited (SGX-DT).
5 Under the framework, a member will need to comply with two capital requirements: a fixed-dollar, Minimum Capital Requirement and a risk-based Financial Resource Requirement. A member will be required to hold specific capital for specific risks arising from the business activities undertaken by the member. Risks that will attract capital are counterparty risk, position (or market) risk, large exposure risk, underwriting risk and operational risk.
6 The RBC framework is benchmarked to international best practices, and has been tested with actual data from SGX members. We will build up our local experience over the next 12 to 24 months and assess the need for further refinement. To facilitate a smooth migration to the RBC framework, existing members will be given a 12-month grace period to transit to the new capital regime.
New Licence Fee Structure under SFA and FAA
8 Under the new modular fee structure, an intermediary will pay a licence fee according to the regulated activities it carries out, and the licence fee for each regulated activity takes into account the supervisory efforts required of MAS.
9 The new fee structure under the SFA and FAA has been formulated to be consistent with the licensing frameworks under the respective Acts.
10 Under the SFA, a single Capital Markets Services (CMS) licence will be issued to intermediaries for the various regulated activities they engage in. These regulated activities are: dealing in securities; trading in futures contracts; leveraged foreign exchange trading; advising on corporate finance; fund management; securities financing and providing custodial services for securities. Licence fees will be levied on each activity undertaken. The amount of licence fees payable by a corporate licensee will therefore correspond to the types of regulated activities it undertakes.
11 A representative of a CMS licence holder will pay a flat annual licence fee, regardless of the number of regulated activities the representative is permitted to conduct.
12 Under the FAA, corporate licence holders will pay a flat annual licence fee for carrying out financial advisory services. Their representatives also pay a flat annual licence fee.
13 The new fee structure takes into account the supervisory efforts MAS undertakes in respect of the various regulated activities under the SFA and FAA. While some of the existing licensees may have to pay higher license fees, the increases are moderate and reasonable. The fee revisions as a whole are not intended to impose any new regulatory costs on the industry. They are expected to have a neutral impact on MAS' fee revenue.
1 Licences issued under the SFA and FAA are due for renewal once every 3 years.