Published Date: 06 January 2020

"Banking (Amendment) Bill 2019" - Second Reading Speech by Mr Ong Ye Kung, Minister for Education, on behalf of Mr Tharman Shanmugaratnam, Senior Minister and Minister-in-charge of the Monetary Authority of Singapore, on 6 January 2020

1     Mr Deputy Speaker, I beg to move, "That the Bill be now read a second time".




2     In a constantly changing environment, our legislation needs to be reviewed regularly to keep pace with changes. The Monetary Authority of Singapore (MAS) therefore reviews the Banking Act from time to time to ensure that the regulatory framework for banks continues to foster safety and soundness in Singapore’s banking system while making sure that requirements are not unduly burdensome.


3     In this round of amendments, MAS is changing two long-standing regulatory practices which have lost relevance over time.

a) First, the Bill will remove the requirement for banks to segregate their accounting books into the Domestic Banking Unit (DBU) and the Asian Currency Unit (ACU). This DBU-ACU divide has traditionally been used to distinguish the domestic and offshore operations of banks and merchant banks.

b) Second, the Bill will rationalise and consolidate the regulation of merchant banks under the Banking Act and subject them to a licensing regime, under which they will be licensed as a class of financial institutions distinct from banks. 


4     The Bill also makes other amendments to enhance MAS’ regulatory and supervisory powers to tackle new and emerging risks. These include expanding the grounds for revoking bank licences, and introducing new powers for MAS to impose requirements on outsourcing arrangements of banks and merchant banks.


5     I will now go through the main amendments in the Bill.


Removal of DBU-ACU Divide


6     First, the removal of the DBU-ACU divide. MAS has engaged the industry extensively on the proposed amendments and has taken into consideration their feedback on the implementation timeline. 


7     The divide has existed since 1968. DBU and ACU have their origins in the creation of the Asian Dollar Market in Singapore. Like the Eurodollar market centred in London, the Asian Dollar Market served as a major source of funding for investment, trading and risk-management needs for the region and beyond.


8     The DBU is used to book domestic transactions, which are mostly denominated in Singapore dollar. The ACU is used to book offshore transactions and these are denominated in foreign currency.


9     MAS’ regulatory requirements for banks and merchant banks in turn apply depending on whether the activity was booked in the DBU or the ACU.


10     So foreign banks that wished to participate in the Asian Dollar Market through their ACU had to meet high standards of admission and have reputable home regulators exercising oversight of their global operations. Those that also engaged in domestic businesses in Singapore through the DBU were subject to additional prudential requirements from MAS, such as limits on large exposure and equity investment.


11     The DBU-ACU divide provided a way to safeguard domestic financial stability, without unduly impinging on the growth of offshore banking activities conducted out of Singapore.


12     It also provided a simple basis for awarding developmental incentives to encourage the growth of offshore banking activities out of Singapore.


13     While the DBU-ACU divide has served us well for decades, it is no longer relevant and will be removed because of the following reasons:

a)   First, regulatory reforms since the global financial crisis have put all banks on a sounder footing. These developments mean that there is less need to distinguish between banks’ offshore and domestic banking activities. All home regulators including Singapore will now require their banks to meet enhanced standards on a group-wide and global basis, which includes their branches and subsidiaries in Singapore. For example, new global rules have raised the amount and quality of capital with the introduction of a minimum 4.5% Common Equity Tier 1 capital adequacy ratio requirement, and have introduced minimum standards on the amount of liquidity buffers that banks need to hold. Global regulators have also agreed on a common framework to control large exposures to a single counterparty or a group of connected counterparties, limiting these exposures to 25% of Tier 1 capital. 

b)   Second, MAS has also enhanced its regulatory framework over time which has made the divide less meaningful. For example, banks in Singapore are required to meet liquidity requirements based on all-currency and Singapore dollar criteria, rather than DBU or ACU. MAS has also introduced the framework for domestic systemically important banks. Designated banks are subject to additional supervisory measures covering both their domestic and offshore businesses.

c)   Third, MAS’ developmental incentives have broadened. In the past, MAS’ incentives were focused on the ACU to encourage the growth of offshore banking activities out of Singapore. Today, MAS assesses the developmental merits of an activity much more broadly, and no longer based on domestic versus offshore distinction.


14     As a result, the DBU-ACU divide is no longer useful, and will impose a compliance burden on banks with little benefits to prudential soundness or systemic stability.


15     Therefore, the Bill will remove the DBU-ACU divide and make corresponding consequential amendments to the relevant provisions in the Banking Act. These include amendments to –

a)   rank uninsured non-bank deposits in insolvency by the currency denomination of the deposits, that is, Singapore dollar or a foreign currency, rather than by DBU or ACU;

b)   apply asset maintenance ratios on Singapore dollar non-bank deposits, instead of DBU non-bank deposits; and

c)   remove the regulatory limits imposed on the Singapore branches of foreign banks for equity investments, immovable property and large exposures. These limits are no longer necessary. MAS will rely on the consolidated supervision by these banks’ home supervisors to manage such risks at the bank group level.


Consolidation of merchant bank regulation


16     The second amendment is the consolidation of merchant banks’ regulation into the Banking Act.


17     Merchant banks are a class of financial institutions approved under the MAS Act. Unlike banks, merchant banks are not allowed to accept deposits or raise funds in Singapore dollar from the public.


18     Hence, when merchant banks were first introduced in Singapore in the 1970s, they engaged primarily in capital market services, such as corporate finance and fund management. They were therefore subject to a less stringent approval regime under the MAS Act.


19     Subsequently, we encouraged merchant banks to participate in the Asian Dollar Market, by allowing them to apply to operate an ACU for their foreign currency activities. They were then subject to certain requirements in the Banking Act.


20     Merchant banks have since been subject to two pieces of legislation, namely, the MAS Act as an approved financial institution and the Banking Act by virtue of their ACU activities.


21     As we remove the DBU-ACU divide, the Bill will also streamline the regulatory framework for merchant banks by consolidating them under the Banking Act. The Bill will introduce a new Part VIIB in the Banking Act to set out a new licensing framework for merchant banks as a class of financial institutions distinct from banks.


Regulatory Enhancements 


22     Third, the Bill will also introduce new or revised provisions to strengthen MAS’ regulatory oversight of banks and merchant banks. As these rules apply to both banks and merchant banks, I will refer to them collectively as banks in this section. The key highlights are as follows:


Expand grounds for revocation of bank licence


23     In line with international regulatory standards and practice, MAS has the power to revoke bank licences under certain circumstances, such as when a bank – 

a)   is carrying on its business in a manner likely to be detrimental to the interests of the depositors of the bank;

b)   is contravening the provisions of the Banking Act; or

c)   in the case of a foreign bank branch in Singapore, has had its licence in its home jurisdiction withdrawn by its parent supervisory authority.


24     As our banking landscape changes, new risks emerge, and our regulatory framework has to evolve to better manage these risks.  As a result, it becomes necessary to expand the grounds for MAS to revoke a bank licence to better protect depositors, enhance MAS’ enforcement powers over banks and uphold trust and confidence in our financial system.


25     The three new grounds are:

a)   contraventions of provisions of the MAS Act. The MAS Act contains important regulatory requirements such as those relating to anti-money laundering and countering the financing of terrorism, of which non-compliance is regarded as a very severe breach of our regulatory requirements;

b)   in the case of a foreign-owned bank incorporated in Singapore, when the parent bank’s licence is withdrawn by the parent supervisory authority. This is in recognition that foreign banks are increasingly operating in Singapore through subsidiaries instead of just branches. It mirrors the current power MAS has over foreign bank branches; and

c)   when MAS regards that it is in the public interest to do so. This is a ground that is currently available for revocation for most other financial institutions regulated by MAS, but not for banks. This additional ground is also in line with practices in other international jurisdictions such as Australia and Hong Kong.


Strengthen MAS’ oversight of outsourcing arrangements


26     Next, the Bill enhances MAS’ oversight of certain services such as outsourcing services obtained by banks.


27     When banks enter into outsourcing arrangements, MAS expects the bank to maintain the same risk management standards as if the services were performed by the bank itself. This includes similar standards and practices in ensuring customer information is safeguarded.


28     The Bill will enhance MAS’ oversight over outsourcing arrangements by introducing a new section 47A in the Banking Act.  The new section will empower MAS to impose on such arrangements, risk-proportionate, legally binding requirements, such as requiring a bank to include in its agreements with service providers:

a)   the right of MAS to audit the service provider;

b)   the obligations of the service providers to protect the customer information against unauthorised disclosure, retention or use; and

c)   the bank’s right to terminate the arrangement under specified circumstances.


29     MAS has considered the practices in other leading jurisdictions in setting out these requirements.


30     These powers are practised in Australia and the EU. They are timely in light of the increased prevalence and complexity of banks’ outsourcing arrangements.


31     The Bill will provide for the powers. MAS will be consulting on the detailed regulations in due course.


Other Amendments


32     Finally, the Bill will also introduce several other amendments to support MAS’ regulation and supervision of banks. These are:


33     First, in line with global regulatory standards, some of the key prudential requirements imposed by MAS include requiring banks to have a stable and sustainable funding structure for their activities, and to address risks arising from related party transactions. These requirements are currently issued under a general provision in the Banking Act, unlike other important requirements such as minimum capital requirements which are issued under specific Banking Act provisions. The Bill will formalise MAS’ current powers and raise the signature of these two requirements.


34     Second, banks in Singapore are permitted to disclose customer information only in certain specified circumstances such as when the customer has provided written consent, pursuant to court orders, or to the bank’s external auditor.


35     Banks are audited by external auditors. External auditors are in turn assessed by ACRA, which evaluates the quality of the audits performed by the auditors. Amending the Third Schedule of the Banking Act to allow ACRA access to complete bank audit working papers, which includes customer information, would enable ACRA to review the auditors more effectively. For example, ACRA can evaluate if the external auditor has assessed the credit quality of customers and the adequacy of provisions appropriately, against market information. This amendment will help raise the quality of bank audits, and support MAS' supervision of banks. ACRA officers with access to the information will be subject to confidentiality requirements.




36     Sir, this Bill will rationalise and streamline the regulatory frameworks for banks and merchant banks, and strengthen MAS’ regulation and supervisory oversight of both classes of financial institutions.


37     Mr Deputy Speaker Sir, I beg to move.