Reply to PQ on Regulatory Response to Global Financial Crisis
Question No 189 in Notice Paper No 218 of 2009
For Oral Answer
Date: For Parliament Sitting on 11 January 2010
Name and Constituency of Member of Parliament
Q189: Mr Christopher de Souza, MP for Holland-Bukit Timah GRC
Mr Christopher de Souza: To ask the Senior Minister in view of the past year's global financial crisis (a) whether the level of Government regulation of our financial market will increase; and (b) whether the Government's regulatory philosophy of the market has shifted due to the lessons gleaned from the crisis and, if so, (i) how has it shifted and (ii) what have been the lessons gleaned.
Note: The above Question was originally directed to the Minister for Finance (vide Q.*189 in Notice Paper No. 214 of 2009).
Mr Lim Hng Kiang, Minister for Trade and Industry and Deputy Chairman:
The general view that has emerged from the financial crisis is that following a period of deregulation of financial markets and fairly benign economic conditions in advanced economies in the US and Europe, there has been an over-reliance on markets to self-correct and on financial institutions to manage their own risks. As a consequence, a variety of risks were under-estimated and when these risks materialised, and interacted in unexpected ways, many financial institutions came under stress and had to be bailed out by their governments.
2. Mr de Souza asked what lessons we have drawn from the crisis and whether our regulatory philosophy has shifted. I should first point out that Singapore is at a different starting point from the advanced economies. We have always maintained a robust regulatory framework and rigorous supervisory approach which helped our financial system to remain resilient through the crisis. We also believe that a stable and dynamic financial system that serves the needs of the economy and the public cannot be built on regulation alone. Responsible and competent board and senior management who manage the risks of their financial institutions well are also critical. In addition, MAS also promotes transparency and market discipline in our financial system . This will improve the quality and comparability of financial information available to the public and investors.
3. In short, Singapore's regulatory philosophy is to maintain a sound regulatory framework but to complement this with board and senior management responsibility at financial institutions, as well as disclosure and market discipline. We believe that this continues to be relevant and appropriate.
4. Nevertheless, while our local financial institutions have generally weathered the financial crisis well, there is no room for complacency. International standard setters have been busy deliberating specific areas for strengthening regulation and board and senior management oversight, and MAS will continue to keep our regulations and industry abreast with global best practice. Let me explain more of what MAS is doing.
Strengthening the Regulatory Framework
5. In the area of prudential regulation, MAS already requires our banks to meet minimum capital requirements which are higher than international standards, as well as liquidity and provisioning requirements which were not widely adopted internationally prior to the crisis, but are now regarded as necessary and appropriate. In December 2009, the Basel Committee on Banking Supervision released a package of proposals to strengthen global capital and liquidity regulations for consultation. These are targeted for adoption internationally by end-2012. Our relatively conservative regulatory framework and the strong capital and liquidity positions of our financial institutions mean that we are well placed to meet new stringent international regulatory standards. Over the next one to two years, as details of the international proposals are firmed up, we will consult widely with the public and the financial industry and ensure that we adopt the new international standards in ways that are appropriate to our context.
6. Second, the crisis has led regulators in many countries to re-examine aspects of their approach regarding the sale and marketing of structured products. In Singapore, MAS undertook a review of the regulatory regime governing the sale and marketing of unlisted investment products. In March 2009, MAS published its policy consultation paper with proposals that covered issues such as promoting more effective disclosure, strengthening fair dealing in the sale and advisory process, introducing an enhanced regulatory regime for the sale of complex investment products, and enhancing MAS' powers. In its review, MAS has been careful not to come up with overly prescriptive rules and the approach is intended to continue giving Singaporeans choices in their investment options.
Strengthening Board and Senior Management Responsibility
7. MAS' regulation cannot replace the primary role of the Board and senior management to ensure that the requisite controls and risk processes are implemented robustly throughout their organisation. MAS will be reviewing the Corporate Governance Regulations and Guidelines for locally incorporated banks and significant life insurance companies. These guidelines were introduced in 2005 and which were implemented in 2007. The review will focus on the effectiveness of risk management at the Board level, including the role played by Boards in safeguarding the safety and soundness of their institutions, managing market conduct risks and setting remuneration policies to manage these risks effectively.
8. In summary, MAS and all financial sector stakeholders have important roles to play in strengthening financial stability and market confidence in our financial system. Investors too have a responsibility to understand the products they invest in.
9. MAS will take a balanced and pragmatic approach in reviewing any regulatory changes, and will complement this with a focus on Board and senior management effectiveness, including their role in safeguarding the safety and soundness of their institutions and in delivering fair dealing outcomes to their customers.
 MAS has required our local banks to adopt public disclosures in addition to their financial statements which provide detailed information of their risk profile and financial strength. More recently, Singapore has committed to align fully with International Financial Reporting Standards by 2012.