Singapore, 18 March 2010...The Monetary Authority of Singapore (MAS) has issued a consultation paper that sets out proposed enhancements to the MAS Corporate Governance (CG) Framework which comprises the Regulations ^[1] and Guidelines^[2] for locally-incorporated banks, financial holding companies and direct insurers.

2   Since the implementation of MAS CG Framework in 2007, there has been increased emphasis on effective corporate governance internationally. The recent financial crisis has further highlighted the importance of effective risk management oversight at the Board level. MAS has been closely monitoring developments on this front and intends to enhance the existing Framework.

3   The main thrusts of the proposals emphasize the importance of the role of the Board and the need for directors to be equipped with the appropriate skills and have the commitment to oversee the operations of the financial institutions. In addition, independent directors play an important role on the Board as they serve as the check and balance to management and majority shareholders and protect the interests of the financial institutions as a whole. Accordingly, MAS has proposed including an additional criterion on the length of board service in the definition of independence and changes to the composition of the board and board committees. Specifically the key proposals in the consultation paper relate to: 

(i) Continuous Development
The Nominating Committee (the NC) must assess the current skills of the Board on an annual basis and should establish a continuous development programme for its directors;

(ii) Time Commitment
The NC should set internal guidance on the time commitment expected of each director to ensure that directors are able to devote the time needed to perform their oversight roles;

(iii) Director Independence
 A director will be considered non-independent after he/she has served on the Board for a continuous period of nine years; financial institutions should consider appointing a lead independent director if the Board Chairman has other relationships with the financial institution; the financial institution shall not appoint a person who is a member of the immediate family of the CEO as the Board Chairman. This does not affect existing Board Chairmen who do not meet this requirement, subject to annual approval by MAS; 

(iv) Composition of Board and Board Committees
 To raise the number of independent directors on the Board, the NC and the Remuneration Committee (the RC) from one third to a majority;

(v) Governance over Remuneration Framework and Practices
 To include additional factors that the RC must consider in the design and operation of the remuneration framework and additional guidance for financial institutions to adopt the Principles and Standards on Sound Compensation Practices of the Financial Stability Board (FSB);

(vi) Governance over Risk Management
The Board must establish a dedicated risk management committee and financial institutions must seek MAS’ approval for the appointment of the Chief Risk Officer. MAS will provide additional guidance on our expectations on roles, responsibilities and skills of the Board in overseeing the financial institution’s risk management system.

4   Ms Teo Swee Lian, Deputy Managing Director, Prudential Supervision Group said "One of the lessons from the recent financial crisis is the importance for institutions to have a firm-wide integrated approach towards corporate governance. Board and senior management must take responsibility to ensure that the institution has the competency and depth to put in place a robust governance culture. MAS has consistently emphasized the need for effective governance and we will continue to engage the financial institutions on enhancements in this area."

5   MAS expects that most of the proposals in the enhanced CG Framework will take effect from the first Annual General Meeting of each financial institution held on or after 1 January 2011. Exceptions will be given to proposals on the introduction of a new requirement for a director to be deemed non-independent after he/she has served for a continuous period of nine years on the Board; and the raising of the number of independent directors on the Board, NC and RC from the current one-third to a majority.   MAS proposes for these two changes to take effect no later than from the first Annual General Meeting of each financial institution held on or after 1 January 2012.  This is to take into consideration that financial institutions may need time to reconfigure their Boards and Board Committees to meet the proposed requirements on independence and composition.

6   Detailed proposals relating to the Regulations and Guidelines of the CG Framework are contained in the consultation paper which is available on MAS website. [Click here to view the consultation paper] (703.1 KB) Interested parties should forward their comments on the proposals in the consultation paper by 19 April 2010.

^[1]  MAS' proposals relating to the Banking Regulations are applicable to banks incorporated in Singapore and relevant financial holding companies as defined in regulation 2(1) of the Banking Regulations.  The Insurance Regulations are applicable to significant insurers as defined in regulation 4 of the Insurance Regulations.

^[2] The Guidelines are applicable to banks, direct insurers and relevant financial holding companies incorporated in Singapore.

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