"The Monetary Authority of Singapore (Amendment) Bill 2013" - Second Reading Speech by Mr Tharman Shanmugaratnam, Deputy Prime Minister, Minister in charge of MAS
1 Mdm Speaker, I beg to move that the Bill be now read a second time.
2 The principal impetus for this Bill comes from international developments in financial regulation following the recent global financial crisis. An important dimension of this, as advanced by the Financial Stability Board (“FSB”), involves enhancing the powers of regulators and widening their options in dealing with domestic and international financial institutions in distress. Singapore is a member of the FSB and has contributed actively to its deliberations.
3 The FSB has issued a set of principles in this regard, which are called ‘Key Attributes of Effective Resolution Regimes for Financial Institutions’. In keeping with these principles, member countries are expected to equip their national authorities with the capacity to respond effectively and swiftly when a financial institution is in distress.
4 The Monetary Authority of Singapore (MAS) had itself embarked on a review of its regulatory framework for financial institutions, with a view to strengthening our framework for financial stability and ensuring robust protection of depositors, insurance policy holders and consumers of financial services. As part of the review, MAS took into account the FSB’s Key Attributes where they are relevant to Singapore. In addition, MAS has relooked its own objects and functions, to ensure they are up-to-date and well aligned with global standards. Further, MAS has reviewed the framework for the issuance of securities by MAS.
5 This Bill, therefore, proposes changes to the MAS Act in four key areas: (a) to extend the principal objects of MAS and to amplify its functions; (b) to expand the range of tools available to MAS for the resolution of distressed or insolvent financial institutions; (c) to update the regulatory framework for the issuance of securities by MAS, including the regulation of primary dealers of these securities and (d) house-keeping changes to enable better administration of the MAS Act.
6 MAS has consulted the industry and the public on these changes. The feedback received has been carefully considered and incorporated into the Bill where practicable and appropriate. MAS has published on its website its responses to feedback on the Bill which were of wider interest.
7 Mdm Speaker, I will now go through the key amendments in the Bill.
ENHANCING THE OBJECTS AND FUNCTIONS OF MAS
8 First, the objects and functions of MAS. As a central bank and integrated financial supervisor, MAS safeguards and seeks to maintain a high level of public confidence in the stability of Singapore’s financial system. Therefore, to strengthen and clarify MAS’ powers to act in relation to maintaining financial stability, Clause 4 of the Bill amends section 4 of the MAS Act to provide expressly that MAS has the objective of promoting financial stability.
ENHANCING MAS’ TOOLKIT FOR RESOLUTION OF FINANCIAL INSTITUTIONS
9 The second set of changes concerns MAS’ powers of resolution with regard to institutions in distress. While MAS seeks to promote financial stability through high standards of licensing, regulation and supervision, it does not aim to prevent the failure of financial institutions in all circumstances. A “zero-failure” regime is neither feasible nor desirable. It will lead to considerable moral hazard, and financial institutions taking excessive risks. To minimise the chance of such behaviour, a regulator would have to impose a heavy regulatory burden on financial institutions, which will inevitably increase costs for consumers or borrowers.
10 The alternative and better approach is to accept that failure cannot be avoided even in a well-regulated financial system, and ensure that the regulator is able to deal effectively with a financial institution in distress in order to minimise losses to depositors and other creditors, and to maintain stability in the financial system.
11 The Banking Act and the Insurance Act were amended in 2007 and 2010, respectively, to empower MAS, with the approval of the Minister in charge of MAS, to (a) direct the sale of the business of a bank or insurance company, and (b) where such an institution is incorporated in Singapore, to require the issuance of new shares, to restructure the share capital or to sell existing shares to other investors. I shall refer to these collectively as “resolution powers”.
12 The Bill extends these resolution powers’ over a wider range of financial institutions, and also enhances MAS’ resolution options. These financial institutions include finance companies, merchant banks, operators and settlement institutions of designated payment systems, approved exchanges, approved clearing houses, licensed trade repositories1 as well as designated financial holding companies (which will be regulated under a new Financial Holding Companies Act). I shall refer to this group, as “other financial institutions”.
13 One area of feedback during the public consultation was that the resolution powers to be exercised under the Bill may affect the contractual rights of parties under set-off and collateral arrangements in industry master agreements (such as the ISDA Master Agreement). The Bill addresses this concern. It introduces the power to prescribe safeguards from the exercise of resolution power, in the form of carve-outs that preserve such contractual rights.
14 Like the Banking Act and the Insurance Act which empower MAS to take over the management of bank or an insurance company in distress, or to appoint a statutory manager to do so, similar powers are proposed in respect of the other financial institutions. This will be effected through the Financial Institutions (Miscellaneous Amendments) Bill, which will be read for a Second time after this Bill.
15 The Bill also seeks to enhance MAS’ resolution tool-kit by adopting those recommendations set out in the FSB’s Key Attributes which are relevant to Singapore. The enhancements to MAS’ powers are as follows:
(a) MAS will be vested with the power to issue directions to a non-regulated entity that is incorporated or established in Singapore. This power will apply where the entity belongs to a group of companies of which a financial institution regulated by MAS is part of and where the entity is significant to the business of such a group;
(b) MAS may apply to the Court to claw back the salary, remuneration or benefits given to a director or executive officer under certain circumstances, for example when the director or executive officer has failed to discharge his duties;
(c) MAS may share information with a foreign resolution authority if the information is necessary in the resolution of a financial institution.
16 MAS will continue to monitor the global implementation of the Key Attributes, before making any further changes to the resolution regime for financial institutions in Singapore.
UPDATING THE FRAMEWORK FOR THE ISSUANCE OF SECURITIES BY MAS AND THE REGULATION OF PRIMARY DEALERS OF SUCH SECURITIES
17 Primary dealers play a critical role in underwriting primary auctions, serving as counterparty to monetary policy transactions and providing liquidity to Singapore dollar markets. MAS currently issues MAS book-entry securities pursuant to section 23(1)(k) of the MAS Act. However, the Act does not provide for a primary dealer framework for MAS book-entry securities. This is unlike the Government Securities Act which explicitly empowers the Government to regulate primary dealers and the government securities market.
18 To address this gap, Clause 11 introduces new Parts VA and VB to the MAS Act to give MAS similar powers over primary dealers and the MAS book-entry securities market. The proposed amendment will provide greater clarity to the legal and regulatory frameworks for MAS book-entry securities and the conduct of monetary policy operations by MAS.
EXPANDING THE BOARD OF MAS AND OTHER OPERATIONAL ASPECTS
19 Let me now turn to two operational aspects of the Bill.
20 (a) Clause 5 of the Bill amends section 7 of the MAS Act by expanding the maximum number of directors on the MAS Board from 10 to 14. This will enable MAS to benefit from the experience and perspectives of a wider group of individuals, and further strengthen the Board in dealing with future challenges in the financial and economic landscape, both globally and in Singapore.
21 (b) Clause 8 of the Bill amends section 23 of the MAS Act to provide that an MAS officer who is designated under the Corruption, Drug Trafficking and Serious Crimes (Confiscation of Benefits) Act (Cap 65A) as a Suspicious Transaction Reporting Officer (“STRO”) and has received information pursuant to his role of a STRO, is able to disclose such information to other MAS officers for the purpose of discharging MAS’ supervisory and regulatory functions. This will enable MAS to have a holistic assessment of money laundering risks posed by persons or institutions who wish to conduct financial activities under MAS’ purview.
22 Mdm Speaker, a stable and sound financial sector is an integral part of ensuring the success and resilience of the Singapore economy. These amendments to the MAS Act are part of the on-going process to enhance the robustness of our regulatory framework and ensure that it keeps up with global developments, including powers to enable swift and effective resolution of a financial institution in distress.
23 Mdm Speaker, I beg to move.
***1 Trade repositories will come under MAS’ regulation once the Securities and Futures (Amendment) Act 2012 comes into effect.