MAS Issues Banking (Amendment) Regulations 2004
Singapore, 5 May 2004...The Monetary Authority of Singapore (MAS) today issued regulations to set out the implementation details of the policy to separate financial and non-financial business of a bank, and to unwind cross-shareholdings within the local banking groups (i.e. the anti-commingling policy). The regulations spell out the rules for determining whether stakes in non-financial businesses held indirectly by banks through their affiliates have to be divested, and give effect to the policy restricting cyclical shareholding arrangements within banking groups. The regulations also prescribe the limited forms of property-related activities that banks are permitted to engage in under the anti-commingling policy.
Under the regulations, stakes held by a bank's affiliated entities1 are deemed as stakes of the bank. These indirect stakes will be aggregated with the bank's own direct stake to determine whether the bank holds a major stake2 in an entity. Banks are not allowed to hold major stakes in non-financial businesses, and all such stakes have to be divested by the deadline set by MAS3 .
However, investments by a bank and its affiliated entities that are held through insurance funds and investors' funds are not required to be aggregated with the bank's own stake, provided the rights conferred through these investments are held and exercised for the primary benefit of the policy owners or investors and not to accord influence or control to the bank. Where the affiliated entities are insurers, the exclusions do not apply to investments held through the general insurance fund, the non-participating fund, and certain portions of the participating fund and investment-linked fund as surpluses arising from these investments accrue to the banking group.
On cyclical shareholding arrangements within banking groups, affiliated entities of a bank can hold in aggregate no more than 2% voting power over the bank4. Similar exclusions for investments held through insurance and investors' funds will apply.
A bank can invest in properties subject to an aggregate of 20% of its share capital, but it is not allowed to engage in property development or management. However, a bank is permitted to manage those investment properties that are owned by the banking group, properties that have been foreclosed by the banking group in satisfaction of debts owed to it and properties used in the business of the banking group.
Background on the Anti-Commingling Policy
1 In June 2000, MAS announced a policy (the anti-commingling policy) to separate financial and non-financial business of a bank, and to unwind cross-shareholdings within the locally incorporated banking groups. The policy is aimed at limiting the risks of contagion from non-banking businesses to banks, enhancing market discipline, increasing transparency of transactions, and ensuring that bank management focuses its attention on core banking business amid increasingly competitive conditions. The unwinding of cross-shareholdings will further improve local banks' corporate governance through a clearer and more transparent ownership and control structure. It will also minimise conflicts of interest between bank and non-bank businesses. These measures benefit depositors and shareholders, and strengthen the financial system as a whole. Amendments to the Banking Act giving legislative effect to this policy came into force on 18 Jul 2001.
2 Banks are prohibited from acquiring or holding a major stake in any company without prior approval from MAS. MAS would not ordinarily grant its approval if the company carries on non-financial business.
***1 A bank's affiliated entities refer to its subsidiaries, companies in which the bank holds more than 20% interest, and companies under the control of the bank.
2 A major stake means greater than 10% stake in the share capital of a company; or control over more than 10% of the voting power in a company; or any interest in a company which gives the bank control over the company's directors, or otherwise puts the bank in a position to determine the policy of the company.
3 MAS had announced on 22 Aug 2003 that it would extend by two years the grace period for banks to divest their non-financial businesses. Banks which have applied to MAS for the extension have until 17 July 2006 to complete the required divestitures.
4 The restriction on cyclical shareholding arrangements within banking groups was proposed in a consultation paper released in May 2003.