Published Date: 04 November 2019

Explanatory Brief on Banking (Amendment) Bill 2019

1   Minister for National Development and Second Minister for Finance, Mr Lawrence Wong, on behalf of Mr Tharman Shanmugaratnam, Senior Minister and Minister-in-charge of the Monetary Authority of Singapore (MAS), today moved the Banking (Amendment) Bill 2019 (the Bill) for First Reading in Parliament.

2   MAS reviews and amends the Banking Act (BA) periodically to update and strengthen the regulatory framework for banks, merchant banks (MBs) and non-bank credit card or charge card issuers, in light of industry and international developments. This round of BA amendments will significantly rationalise banking regulation by removing the divide between the Domestic Banking Unit (DBU) and the Asian Currency Unit (ACU), and consolidate the licensing and regulation of MBs under the BA.

3   The Bill also proposes other key amendments, including the expansion of grounds for revoking bank licences and the introduction of new powers to regulate banks’ outsourcing arrangements, which are aimed at enhancing MAS’ prudential oversight of banks and MBs.

4   MAS has consulted the industry and public on the significant policy changes and draft legislative amendments for banks and MBs in February 2019 and May 2019 respectively. Feedback from the consultations were largely supportive. MAS has made refinements, where appropriate, in finalising the Bill.


(I) Remove the DBU-ACU divide

5   MAS’ regulatory requirements for banks and MBs are currently applied based on the DBU-ACU divide. Since 1968, all banks in Singapore have had to maintain two accounting units – the DBU and the ACU. The DBU may be used to book Singapore dollar (SGD) and foreign currency (FCY) transactions, while the ACU is used to book FCY transactions only. 

6   In 2015, MAS announced that it will remove the DBU-ACU divide. While the divide has served Singapore well, it has lost its relevance due to market developments and enhancements in regulatory standards over the years. First, in line with global regulatory developments, MAS has been subjecting banks’ offshore activities to broadly similar requirements as their domestic business. Second, as the divide between domestic and offshore banking has in practice become increasingly porous, continuing with the divide imposes a compliance burden on banks without materially enhancing prudential soundness or systemic stability. Third, developmental incentives have shifted from a simple domestic versus offshore distinction to a broader assessment of the developmental merits of an activity to Singapore.

7   The Bill will remove the DBU-ACU divide and make corresponding consequential amendments to the relevant provisions in the BA. These include amendments to –

(a) rank uninsured non-bank deposits in insolvency by the currency denomination of the deposits, which is in line with current priority ranking given that the DBU and ACU are broadly differentiated by currency;
(b) apply asset maintenance ratios on Singapore dollar non-bank deposits, instead of DBU non-bank deposits; and
(c) remove the general limits on equity investments, immovable property and large exposures that are currently imposed on branches of banks incorporated outside Singapore. MAS will continue to rely on the consolidated supervision by these banks’ home supervisors to monitor and control such risks at the bank entity level.

(II) Consolidate regulation of MBs under the BA

8   The Bill will consolidate the licensing and prudential regulation of MBs under the BA. MBs are currently subject to an approval regime under the Monetary Authority of Singapore Act (MAS Act) but conduct the bulk of their operations through the ACU, which is regulated under the BA. Bringing the entire regulation of MBs under the BA streamlines the existing regulatory framework.

9   Specifically, the Bill will introduce a new Part VIIB to set out the licensing regime for MBs, clarify their permitted scope of activities (including restrictions on acceptance of SGD deposits and borrowing in SGD), stipulate applicable prudential requirements, and provide for MAS’ regulatory and supervisory powers over MBs.

(III) Expand grounds for licence revocation

10   The Bill will expand the grounds for MAS to revoke a bank licence to include the following:

(a) contravention of provisions of the MAS Act, which contains key requirements to prevent money laundering and terrorism financing; 
(b) for a foreign-owned bank incorporated in Singapore, when the parent bank’s licence is withdrawn; and 
(c) when MAS assesses that it is in the public interest to do so. This will allow MAS to take timely action in unanticipated circumstances where public interest is threatened.

(IV) Strengthen oversight over outsourcing arrangements of banks and MBs

11   The Bill will provide MAS with new powers in the BA to strengthen its supervisory oversight of relevant services such as the outsourcing arrangements of banks and MBs. For example, banks and MBs will be required to include terms in their agreements with service providers in relation to the –

(a) right of MAS to audit the service provider;
(b) protection of customer information; and
(c) termination of outsourcing agreement under specified circumstances.

12   These powers are important for stronger supervisory oversight, in light of the increased prevalence and complexity of banks’ outsourcing arrangements, and the criticality of protecting customer information.