"Monetary Authority of Singapore (Amendment) Bill 2017" - Second Reading Speech by Mr Ong Ye Kung, Minister for Education (Higher Education and Skills) and Second Minister for Defence, on behalf of Mr Tharman Shanmugaratnam, Deputy Prime Minister and Minister-in-charge of the Monetary Authority of Singapore, on 4 July 2017
1 Madam Speaker, on behalf of the Minister-in-charge of MAS, I beg to move, "That the Bill be now read a second time".
2 The basic aim of MAS’ regulatory regime is to ensure that the financial system is sound and resilient, especially in relation to external shocks. Our methods have been broadly effective, as Singapore has withstood tumultuous episodes such as the Asian Financial Crisis of 1997 and Global Financial Crisis of 2008. The IMF, in its last Financial Sector Assessment Programme of Singapore in 2013, concluded that Singapore’s regulatory and supervisory regimes for its financial system are amongst the best globally.
3 Notwithstanding, we need to update our laws and regulations that deal with resolution, so as to ensure effective handling of a financial institution (FI) that gets into serious trouble, and especially to avoid contagion or a loss of confidence in the system. Our entire supervisory system is geared to reduce the risk of an FI in Singapore failing, but it is not possible to rule out such an eventuality, especially as our financial system is closely integrated with the global financial system.
4 In 2013, MAS introduced a resolution regime for FIs in Singapore, with the provision of resolution powers in the MAS Act, the Banking Act and the Insurance Act. These included powers to restructure the share capital of an FI, and to transfer the shares or business of an FI to a bridge entity.
5 International standards and good practices have since evolved. The Financial Stability Board (FSB) updated the Key Attributes of Effective Resolution Regimes for Financial Institutions in 2014, and has since issued further guidance on its implementation. MAS has been an active participant in shaping an international consensus on these guidelines. Today’s MAS (Amendment) Bill 2017 introduces additional powers and tools to enhance Singapore’s resolution regime and bring it up to date with these international developments.
6 The Bill also introduces legislative amendments to address other MAS operational matters.
7 Madam Speaker, I will now go through the main amendments proposed in the Bill.
Enhancements to the Resolution Regime for FIs in Singapore
8 In 2015 and 2016, MAS consulted the industry and the public on the proposed enhancements to the resolution regime for FIs. MAS has taken in the feedback in finalising the enhancements.
Recovery and Resolution Planning
9 The Bill introduces explicit powers for MAS to require FIs to prepare recovery plans and submit such information to MAS for resolution planning.
10 This is necessary because robust and credible recovery and resolution plans can reduce the risks that a distressed FI poses to the stability of the financial system. They help to ensure the continuity of critical functions and services to the economy, and allow distressed FIs to regain their financial strength, restructure, or exit from the market in an orderly manner.
11 MAS will apply recovery and resolution planning requirements to FIs that are systemically important or that maintain critical functions in Singapore.
Temporary Stays on Early Termination Rights
12 The Bill also introduces legal provisions for MAS to temporarily block counterparties’ rights to terminate contracts with an FI in resolution. These provisions are necessary to ensure orderly resolution of the FI. Nevertheless, certain counterparties, such as central banks, payment systems, approved or recognized clearing houses, and depositories, will not be subject to these powers.
Statutory Bail-In Regime
13 The Bill introduces a statutory bail-in regime to enable MAS to write down or convert an FI’s debt into equity. The bail-in tool can help recapitalise distressed FIs, and reduce the risk to depositors and reliance on public funds to “bail out” distressed FIs.
14 For now, the bail-in tool will be applied to locally-incorporated banks and bank holding companies. The scope of bail-in will be limited to unsecured subordinated debt and loans, contingent convertible instruments, and other existing instruments that already have bail-in clauses.
15 The statutory bail-in regime will be complemented by regulations to provide greater certainty that instruments governed by foreign laws can be bailed-in by MAS.
Cross-Border Recognition of Resolution Actions
16 A coordinated approach towards resolving FIs that operate in multiple jurisdictions is important for safeguarding financial stability across home and host jurisdictions. The Bill introduces a statutory framework for MAS to recognise resolution actions taken by a foreign resolution authority on FIs in Singapore.
17 But such recognition will be subject to conditions, such as that it must not prejudice domestic financial stability, result in inequitable treatment of Singapore creditors and shareholders, run contrary to Singapore’s national or public interest, or have material fiscal implications.
Creditor Compensation Framework
18 In general, liquidation is more disruptive than a resolution because the former means the FI basically cease to operate. The aim of resolving an FI is to minimise the impact from the FI’s failure on financial stability, and ensure, as far as possible, that the FI’s critical services and function can continue to be provided. In the event of a resolution, the Bill introduces a compensation framework for creditors who are more adversely affected in a resolution than they would have been in a liquidation.
19 The framework will apply only when MAS exercises powers to effect a compulsory transfer of business or shares to say a bridge entity, or effects a compulsory restructuring of share capital or a bail-in, or when MAS recognises similar foreign resolution actions.
20 To determine the amount of compensation payable, valuations will be performed by a valuer appointed by the Minister-in-charge of MAS. The compensation amount will be payable out of a Resolution Fund, which I will elaborate on next.
Resolution Funding Arrangements
21 Timely access to funding is key to the successful and orderly resolution of a distressed FI. It is also in the interests of the private sector to ensure this, and to limit any contagion effect. MAS’ preferred approach is a private sector solution that does not require the injection of public funds. But it would be unwise to assume that private funds would always be readily available at the time of resolution. The Bill therefore proposes to put in place Resolution Funding Arrangements, to support the implementation of resolution measures.
22 The MAS, as the central bank, will first provide a temporary loan to the Resolution Fund for its immediate operating needs. Withdrawals from the Resolution Fund will subsequently be recovered from the industry via ex-post levies. MAS will be consulting the industry on the methodology for determining such levies.
23 The proposed Resolution Funding Arrangements do not have any implications on Singapore’s reserves, since the funds used will be fully recovered from the industry.
The Objects of MAS
24 Madam Speaker, let me now turn to the other amendments to the MAS Act.
25 The current principal objects of the MAS are -
(i) to maintain price stability conducive to sustainable growth of the economy;
(ii) to foster a sound and reputable financial centre and to promote financial stability;
(iii) to ensure prudent and effective management of the official foreign reserves of Singapore; and
(iv) to grow Singapore as an internationally competitive financial centre.
26 The Bill introduces a new provision that explicitly states that when carrying out its functions and duties, MAS’ development objective of growing Singapore into an internationally competitive financial centre is subordinate to its supervisory objective of fostering financial stability. This makes explicit in the Act, a principle that has in fact been observed by the MAS all along. It is in line with one of the recommendations from the IMF’s Financial Sector Assessment Programme in 2013.
Merger of the Currency Fund with other funds of MAS
27 Since the merger of MAS and the Board of Commissioners of Currency Singapore in 2002, backing for the currency in circulation through a separate Currency Fund has not been necessary. This is because the currency in circulation is effectively backed by the full financial strength and assets of MAS, which is much larger than the Currency Fund. As at 31 March 2017, MAS’ assets (S$395 billion) were more than seven times larger than the assets of the Currency Fund (S$55 billion).
28 The proposed amendment will merge the Currency Fund with the other funds of MAS and streamline MAS’ operations. The Government’s support for the currency in circulation, as set out in the Currency Act, remains unchanged.
MAS’ Financial Arrangements with the Government
29 The Bill introduces two amendments to provide more operational flexibility relating to MAS’ financial arrangements with the Government.
(i) The first amendment allows MAS to revise the level of its paid-up capital, but subject to the approval of the Government and the MAS Board. MAS’ paid-up capital can be increased if MAS evaluates that there is a need to strengthen its balance sheet. It can then seek the Government for a capital injection. Conversely, if MAS’ capital is significantly higher than its needs, the excess paid-up capital can be returned to the Government, providing the Government with greater flexibility to manage its assets.
(ii) The second amendment sets the condition under which MAS can return profits to the Government. MAS’ profits are channelled into a general reserve fund. Currently, MAS can only return profits to the Government if its general reserve fund is at least half of its paid-up capital. This was put in place to facilitate MAS building up its capital. It is no longer necessary today, as MAS now has a sizeable paid-up capital of S$25bn. Under the amended Act, MAS will be able to return profits to the Government so long as its general reserve fund is positive.
30 In determining both the appropriate level of MAS’ paid-up capital and the amount of profits to be returned on an annual basis, the MAS Board will ensure that MAS’ capital and reserves remain adequate for MAS to carry out its principal objects and functions.
Financial Sector Development Fund (FSDF)
31 The FSDF was established in 1999 under the MAS Act, following the demutualisation and merger of the Stock Exchange of Singapore, the Singapore International Monetary Exchange and the Securities Clearing and Computer Services to form the Singapore Exchange (SGX). Proceeds from the listing of the SGX were paid into the FSDF. The fund is used to support the development of the financial services sector in Singapore, for example through training workers in the sector and funding platforms to spur innovation and productivity.
32 Since 1999, MAS has been submitting to the President a summary of FSDF’s financial statements together with MAS’ financial statements and annual reports. However, the submission of the FSDF’s statements is not required under the Constitution. Article 22B of the Constitution requires statutory bodies such as MAS to present their financial statements to the President because these bodies hold reserves that are protected under the Constitution. This does not apply to the FSDF, which is a statutory fund that is separate from the funds of the MAS and does not hold any protected reserves.
33 The Bill sets out that FSDF’s audited financial statements and annual report shall be transmitted to the Minister-in-charge of MAS. MAS is operationally responsible for the FSDF, and since FY2014, AGO has already been providing a standalone audit report on FSDF’s financial statements for enhanced accountability.
Delegation of Managing Director’s powers in relation to the MAS common seal
34 The amendments will also allow the Managing Director to delegate his power in relation to signing documents which require the MAS common seal and witnessing the affixing of the seal, to an MAS officer who holds the appointment of Deputy Managing Director or its equivalent. Such documents include powers of attorney and those relating to the issuance of sukuks. This is to enhance operational efficiency.
35 Madam Speaker, this Bill introduces important enhancements to the resolution regime for financial institutions in Singapore, which will help MAS to resolve distressed institutions in an orderly manner. The Bill also introduces other timely updates to MAS’ mission statement, and amendments to achieve greater operational efficiencies within MAS.
36 Madam Speaker, I beg to move.