## _cr13325 — EXECUTIVE SUMMARY

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### Executive Summary — Key Findings
- The Singapore financial system is highly developed, and well regulated and supervised.
- Singapore is one of the world’s largest financial centers, built around a core of domestic and international banks, and also offers a wide range of non-bank services.
- Authorities have emphasized integrity and stability in finance and compliance with international standards; most recommendations from the 2004 FSAP have been addressed.
- MAS oversees the entire financial system and has analytical and operational capabilities to do so effectively.
- Key vulnerabilities:
  - Rapid growth of credit and real estate prices in recent years.
  - Possible spillovers from a future tightening of U.S. monetary policy, an economic slowdown in China, or deterioration in Europe.
- Stress tests suggest risks are manageable because of:
  - Banks’ large capital and other cushions.
  - Decisive macroprudential actions by MAS to address housing sector bubble risks.
  - MAS’s conversion of large retail branches into domestically incorporated subsidiaries and efforts to improve supervisory information sharing on G-SIFIs.
- Policy priorities:
  - Continue close monitoring of cross-border interbank liabilities.
  - Continue to adjust macroprudential measures in response to domestic housing market conditions.
- Areas for further strengthening:
  - Monitor LCR ratios on an individual foreign currency basis.
  - Implement the countercyclical capital buffer in line with Basel III timelines, using triggers suitable to Singapore.
  - Step up onsite inspections of banks’ credit risk given rising household and corporate leverage.
  - Consider addressing potential inconsistency with full supervisory independence in MAS Board structure.

### Key Recommendations — Short-Term (within 12 months)
- Increased attention to onsite inspections of banks’ credit risk (paragraph 12).
- Monitor LCR ratios for significant foreign currencies (paragraph 13).
- Mitigate legal risks to CCPs from conflicts of law across jurisdictions (paragraph 30).
- CCPs to explore widening their collateral pool and examine feasibility of receiving Singapore government securities as collateral to improve access to central bank liquidity in times of stress (paragraph 33).
- Consider subjecting loans for owner-occupied housing to a limit to be set by MAS (paragraph 43).
- Encourage over-extended households to reduce their leverage (paragraphs 44 and 45).
- Stand ready to adjust macroprudential measures in the housing market in line with changes in market conditions (paragraph 46).

### Key Recommendations — Medium-Term (1–3 years)
- Further strengthen banks’ capital framework; implement the countercyclical capital buffer in line with Basel III timelines (paragraph 10).
- Further develop SGX recovery plans, identify additional scenarios (paragraph 29).
- Upgrade collateral covering credit exposures related to the link with the Chicago Mercantile Exchange (CME) (paragraph 34).
- Formalize bilateral cooperative crisis management agreements for FMIs (paragraph 56).
- Collect more granular data on household balance sheets, drawing on surveys and strengthened credit bureau practices (paragraph 45).
- Authorize SDIC to provide support, on a least-cost basis, for transfer of deposit liabilities to a bridge bank or healthy institution (paragraph 62).
- Ensure banking industry adequately contributes to costs of bank failures (paragraph 62).
- Further facilitate cross-border cooperation in bank resolution (paragraph 64).
- Consider changes to MAS Board structure to strengthen operational independence (paragraph 49).
- Ensure MAS’ prudential mandate is not compromised by its developmental mandate (paragraph 49).
- Review and strengthen the resolution framework to enhance MAS' operational independence in bank resolution (paragraph 59).

---

### Financial System Structure and Risks

### System structure — banks and non-banks
- Banks predominate: as of June 2013 there were 122 commercial banks operating in Singapore; five local banks, one foreign subsidiary, remainder foreign branches.
- Three largest local banks account for about 30 percent of banking system assets (equivalent to about 180 percent of GDP).
- Foreign banks represent about 65 percent of total banking assets; U.K. and the U.S. together represented about 21 percent of total assets; Japanese banks 7 percent.
- Insurance sector: second largest component but about 6 percent of total financial system assets (about 48 percent of GDP).
- Asset management: over 600 fund management firms with S$880 billion AUM; about 250 hedge fund managers with AUM of S$60 billion (about 250 percent and 17 percent of GDP, respectively). More than 80 percent of these assets come from outside Singapore.

### Macroeconomic performance and exposures
- Real GDP growth and inflation averaged around 6 percent and 2½ percent respectively during 2004–11.
- Financial system contribution to GDP rose to around 12¼ percent (up from about 10 percent in 2004).
- 2012 real growth around 1¼ percent; resident unemployment rate near historic low of 3 percent.

### Credit, real estate, and funding vulnerabilities
- Credit growth averaged about 12 percent for the past five years.
- Credit growth in the three largest banks was 14¾ percent year on year in June 2013.
- Banks’ NPLs just over 1 percent.
- About 40 percent of the three largest banks’ loans related to real estate:
  - 25 percent mortgage loans (predominantly floating rates).
  - 15 percent construction loans.
- Expansion regionally: loans to Greater China increased by 13½ percent year-on-year (June 2013); credit in U.S. dollars increased by 20½ percent.
- On a consolidated basis, LTDs below 90 percent, although LTDs in some currencies are above 100 percent and growing; U.S. dollar deposits have not kept pace with U.S. dollar loans.
- Banks have issued commercial paper and medium-term notes in U.S. dollars and diversified funding sources.

---

### Banks — Resilience, Stress Tests, Liquidity and Spillovers

### Solvency and stress-testing outcomes
- Banks have higher capital ratios and lower leverage than peers; asset quality good and well provisioned.
- Bottom-up (BU) and top-down (TD) stress tests by MAS indicate capitalization ratios would remain above the domestic minimum regulatory capital ratio of 10 percent.
- IMF TD solvency stress tests broadly confirm MAS results; resilience holds even if residential loan defaults reached U.S. 2007-09 subprime crisis levels.
- Stress-test scenarios include large declines in domestic and regional activity, falling asset prices, rising interest rates, and rapidly rising unemployment.
- MAS and FSAP scenarios and methodologies applied (see Box 1 for scenario descriptions).

### Liquidity and foreign currency risk
- Aggregated LCR: Singapore banks predominantly meet Basel III LCR when currencies aggregated, but U.S. dollar coverage is lower.
- Stress tests suggest banks could require as much as U.S. $50 billion over a one-year horizon under severe foreign currency liquidity stress (about one fifth of foreign reserves).
- LCRs in U.S. dollars and other foreign currencies (e.g., Malaysian ringgit, Hong Kong dollar) for some banks are below 100 percent, suggesting branches may be funding domestic assets from foreign sources.
- Recommendation: MAS to closely monitor LCR ratios on an individual foreign currency basis.

### Interconnectedness, branch model, and spillovers
- Predominance of foreign branches creates exposure to parent banks; no clear separation between offshore and domestic transactions.
- BIS locational data show growing negative net funding position with short-term liabilities.
- Cross-border network modeling findings:
  - Singapore more vulnerable to cross-border interbank exposures than to domestic interbank exposures.
  - Credit shocks originating in the U.K. are particularly significant; Japan, South Korea, and the U.S. also important.
  - Adding funding shocks highlights large effects from Germany and the U.S.
  - Domino effects could progress quickly due to prevalence of short-term liabilities.
  - Domestic contagion: limited network effects from foreign to local banks; contagion risks within the three local banks are very low.
  - Market-based analysis: on average, each Singapore bank receives spillovers from seven other banks globally; local banks most vulnerable to spillovers from Swiss, U.K., and U.S. banks.

### Supervisory recommendations for banks
- Step up onsite inspections of banks’ credit risk.
- Strengthen capitalization framework including countercyclical capital buffer implementation.
- Monitor foreign currency liquidity and individual-currency LCRs.

---

### Housing Market and Macroprudential Policy

### Housing market developments and measures
- Real estate prices are already above their 2008 peak.
- Low interest rates contributed to the property boom; authorities took several rounds of measures since 2009 to contain demand and boost supply.
- Public housing accounts for about 76 percent of total housing stock; homeownership about 90 percent.
- Macroprudential instruments used: LTV limits, loan tenure rules, stamp duties, property taxes, debt-service-to-income (TDSR) limits, minimum cash down payments, supply measures.
  - TDSR introduced June 2013: limits total debt service to income to no more than 60 percent.
  - Measures lowered LTVs on first mortgages to 80 percent and imposed tenure limits.

### Effectiveness and remaining vulnerabilities
- Evidence of effectiveness: declining LTVs on new loans; increased share of borrowers with single mortgages; housing price inflation moderated recently.
- Remaining concerns:
  - Loan growth to housing sector remains elevated.
  - Household debt increased by about 7 percentage points of GDP over three years to reach 76 percent at end 2012.
  - Total housing loans growing at average 11 percent in recent years; loans from financial institutions growing about 18 percent.
  - Ratio of household liabilities to assets increased to about 16 percent but within historical range.
- Household buffers and interest-rate sensitivity:
  - Significant liquid assets, CPF access, substantial home equity; 90 percent of loans have LTVs below 80 percent.
  - Nearly 70 percent of housing loans are at variable rates (most reset every six months).
  - MAS survey: if interest rates rose to 3.5 percent (about 200 basis points above current levels), debt servicing costs of some 5–10 percent of households would rise above 60 percent of income.
- Policy recommendation: stand ready to recalibrate macroprudential tools in line with market conditions; continue targeted measures and extend macroprudential policy beyond housing (e.g., car loans, credit cards).

---

### Financial Market Infrastructures (FMIs), CCPs and SGX

### FMIs and CCP soundness
- Systemically important FMIs: MEPS+, CDP (Central Depository (Pte) Limited), SGX-DC (Singapore Exchange Derivatives Clearing Limited).
- CDP’s value of transactions processed equivalent to 94 percent of GDP in 2012.
- SGX-DC is the eighth largest clearer in exchange traded equity index futures worldwide.
- OTC derivatives notional outstanding just under S$9 trillion; Singapore is one of Asia’s largest OTC derivatives trading centers.

### Assessment and operational issues
- CDP and SGX-DC assessed as sound CCPs with effective risk management and sufficient financial resources to cover defaults of large members.
- Recovery and legal risks:
  - SGX recovery plans should be enhanced to ensure continuation of critical operations in extreme circumstances.
  - Global OTC derivatives reforms expose SGX-DC to legal risk from conflicts between domestic and foreign laws (notably U.S. Title VII and EMIR). MAS encouraged to mitigate these risks with foreign authorities.
- Recommendations:
  - Explore widening collateral pools and feasibility of accepting Singapore government securities to improve access to central bank liquidity.
  - CCPs should consider receiving part of collateral as Singapore government securities to enable immediate use of MAS standing facilities.
  - For CDP, consider separating CCP and CSD functions into distinct legal entities and clarify resource earmarking to facilitate recovery and resolution.

---

### Insurance Sector — Resilience and Vulnerabilities

### Overall resilience
- Insurance companies hold regulatory capital buffers sufficient to absorb losses from global financial crisis and natural disasters.
- Net premiums and net investment income show generally stable life-insurance profits; non-life profitability more volatile (notably 2011).

### Specific vulnerabilities and MAS responses
- Participating life policies with guarantees:
  - Guaranteed rate remains low at 2 percent.
  - Insurers can reduce dividends or bonuses to absorb losses.
  - MAS stress tests with prolonged low interest rates showed no significant adverse impact on Singapore-based life insurers.
- Equity exposure:
  - Industry’s non-linked assets include about 20 percent in equities.
  - End-2012 stress tests: sharp reduction in equity prices lasting three years would force several companies to reduce bonuses or raise capital to meet solvency.
  - MAS implemented ERM and Board-approved investment policies; reviewing risk-based capital to better capture equity volatility risk.
- Offshore non-life catastrophe risk:
  - Rapid growth in offshore non-life business increases catastrophe exposure (example: Thailand flooding).
  - Companies tightened reinsurance and policy terms; MAS considering adding catastrophe risk charges to solvency tests via standardized scenario.

### Stress testing
- MAS requires all licensed direct insurers to stress test annually; FSAP applied MAS-prescribed scenarios to four largest life insurers (80 percent of insurance fund assets).
- FSAP finding: over a one-year horizon no company fell below 100 percent of statutory minimum capital; over a three-year horizon two of four companies would fall below the minimum without remedial action.

---

### Capital Markets, Asset Management and Nonbank Interconnections

### Asset management industry and systemic links
- Funds managed in Singapore have limited linkages with domestic banks; failure of a large asset manager unlikely to be systemic but could pose reputational risk.
- Nonbank deposits are relatively small (1½ percent of local banks’ liabilities); nonbank loans 0.6 percent of banks’ assets; derivatives exposure with banks (notional) 0.3 percent of banks’ derivative transactions.
- Singapore asset management industry primarily acts as conduit: more than 80 percent of assets originate outside Singapore; nearly 86 percent of those assets are invested elsewhere.

### Hedge funds and securities lending
- About 250 hedge fund managers with S$60 billion AUM.
- Nearly 80 percent of strategies equity long-short; leverage for equity long-short typically below two times NAV.
- Overall hedge fund leverage below three times NAV except one fund levered nearly 17 times NAV.
- Securities lending market is limited and dominated by hedge funds and some local banks; rehypothecation uncommon and legal rules for segregation exist.

### Retail speculative products and safeguards
- REITs market capitalization approx S$51 billion ($40 billion).
- ETFs, structured finance vehicles, and money market funds combined AUM just over ¼ percent of financial system — too small to pose systemic risks.
- MAS proposed regulation for contracts-for-differences (CFDs) and levered FX: limit leverage, protect investor funds, enhance disclosure.

---

### Crisis Management and Resolution

### Institutional arrangements and toolkit
- MAS: prudential supervisor, resolution authority, and lender of last resort; broad information-sharing powers subject to confidentiality.
- SDIC: administers deposit insurance scheme; paybox mandate; memorandum of understanding with MAS.
- MoF: last resort involvement in bank resolution when private solutions not viable or public resources at risk.
- MAS has statutory powers to assume control of distressed banks, transfer assets/liabilities to a healthy bank or bridge bank, transfer shares, and restructure share capital.
- Recovery and resolution planning: MAS required systemically important banks, including foreign branches, to prepare recovery plans and provide resolution-relevant information.

### Operational independence and cross-border cooperation
- Concern that allocation of certain resolution tools to the Minister-in-charge may compromise MAS operational independence; under current government several relevant positions are held by the same person.
- Singapore resolution regime does not accord preference to deposit liabilities held at foreign branches of local banks, which could encourage ring-fencing in host jurisdictions.
- Recommendation: review and strengthen the resolution framework to enhance MAS’ operational independence; further facilitate cross-border cooperation in bank resolution.

### Resolution funding and deposit insurance
- Recommended enhancements:
  - Consider authorizing SDIC to provide support on a least-cost basis for transfer of insured deposits to a healthy institution.
  - Establish resolution funding arrangements that place adequate burden on industry rather than taxpayers; ensure banking industry contributions to costs of failures.

---

### Stress-Test Scenarios and Macro Assumptions

### Macro scenario table (changes in percent, unless indicated otherwise)
- GDP growth
  - Baseline: 2.9 3.9 3.9 3.8 3.7
  - Severe 1: -4.4 4.9 4.7 3.9 3.7
  - Severe 2: -2.5 -1.8 -1.7 6.1 6
- Unemployment Rate
  - Baseline: 3 3.1 3.4 3.7 3.9
  - Severe 1: 4 4.2 5.8 6.2 6.2
  - Severe 2: 2 4 6.3 9.3 10.5 9.8
- Property Prices
  - Baseline: 5 5 0 0 5
  - Severe 1: -30 -10 5 5 5
  - Severe 2: -20 -10 -5 -25 05
- Exchange Rates (SGD/USD)
  - Baseline: 2 2 2 2 2
  - Severe 1: -20 -10 10 52
  - Severe 2: -15 -5 -10 52
- Commodity Prices (Energy and Petrochemicals)
  - Baseline: 2 2 2 2 2
  - Severe 1: -70 35 35 105
  - Severe 2: -40 -5 -55 10
- Domestic Interest Rates (bps change)
  - Baseline: 55 10 10 10 10
  - Severe 1: 150 -75 -75 10 10
  - Severe 2: 100 50 50 10 10
- Equity Prices
  - Baseline: 5 5 5 5 5
  - Severe 1: -40 -15 -10 10 15
  - Severe 2: -20 -20 -15 0 10

### Box 1 — Stress scenarios (summary)
- Severe 1: short-lived V-shaped recession with GDP growth -4.4 percent in 2013 then rapid recovery.
- Severe 2: protracted three-year downturn with GDP growth -2.5 percent in 2013, -1.8 percent in 2014, -1.7 percent in 2015; domestic interest rates increase by 200 bps in 2013–15 under this scenario.

---

### AML/CFT, DNFBPs, and Transparency of Legal Persons

### AML/CFT follow-up and FATF interactions
- February 2011: FATF moved Singapore from annual to biennial reporting due to progress.
- Remaining deficiencies include identification of beneficial owners of companies created in Singapore.

### Criminalization of ML and implementation metrics
- CDSA amendments: sections 46 and 47 amended to remove additional purpose elements, broaden coverage for acquisition at fair value when knowing/ having reasonable grounds to believe property represents another’s proceeds of crime.
- Number of ML convictions/prosecutions (selected entries):
  - 2007: convictions 12; prosecutions 17.
  - 2008: convictions 24; prosecutions 23.
  - 2009: convictions 26; prosecutions 26.
  - 2011: convictions 33; prosecutions 44.
  - Jan–Sept 2012: convictions 49; prosecutions 47.
- International cooperation: Singapore received 46 MLA requests from 2007 to Sep 2010; only three rejected.

### DNFBPs and sectoral measures
- Real estate: Council for Estate Agencies established Oct 2010; code amendments for record-keeping and STR obligations; guidance and outreach in 2H 2013.
- Company Service Providers (CSPs): ACRA and Attorney-General’s Chambers drafting regulations to require CSPs to identify beneficial owners and improve record keeping; expected in force by 2014.
- Lawyers: revised Practice Direction issued; inspections in 2012 found generally satisfactory KYC but areas for improvement; continued outreach and training mandated.
- Casinos: Casino Control Regulations enacted Oct 2009 with AML/CFT measures; mandatory reporting for cash transactions S$10,000 or more; record-keeping for transactions S$5,000 and above; CRA inspections Jan–Sept 2012 found operators implemented required controls.

### Transparency of legal persons and trusts
- CSP regulation expected to require look-through to beneficial owners.
- Trust Companies Act licensing and MAS AML/CFT Notices require identification/verification of trust parties; compliance supported by supervision.
- FATF noted remaining deficiencies on R33 and R34 as of February 2011; subsequent action not yet assessed by FATF in the material provided.

---

*Source: EXECUTIVE SUMMARY and selected chapters/excerpts, IMF Financial Sector Assessment of Singapore (content unit: _cr13325 — EXECUTIVE SUMMARY and associated FSAP chapter excerpts).*

### EXECUTIVE SUMMARY ___________________________________________________________________________  6

### _cr13325 - EXECUTIVE SUMMARY ___________________________________________________________________________  6

### Executive Summary — Key Findings
- The Singapore financial system is highly developed, and well regulated and supervised.
- Singapore is one of the world’s largest financial centers, built around a core of domestic and international banks, and also offers a wide range of non-bank services.
- The authorities have given strong emphasis to integrity and stability in finance and to compliance with international standards, and have addressed most recommendations made by the 2004 FSAP.
- Singapore’s current regulation and supervision are among the best globally. The Monetary Authority of Singapore (MAS) oversees the entire financial system, and has the analytical and operational capabilities to do so effectively.
- Singapore is exposed to a broad array of domestic and global risks, especially in light of its interconnectedness with other financial centers.
  - The most pressing vulnerability appears to stem from the rapid growth of credit and real estate prices in recent years.
  - Other exposures include possible spillovers from a future tightening of U.S. monetary policy, an economic slowdown in China, or a deterioration of economic conditions in Europe.
- The team’s stress tests suggest that these risks are manageable due to:
  - Banks’ large capital and other cushions.
  - Decisive macroprudential actions taken by MAS to address the threat of a bubble in the housing sector.
  - MAS’s conversion of large retail branches operating in the domestic market into domestically incorporated subsidiaries and efforts in international fora to improve supervisory information sharing on G-SIFIs.
- Policy priorities going forward include:
  - Continuing to monitor closely cross-border interbank liabilities.
  - Continuing to adjust macroprudential measures in response to domestic housing market conditions.
- Areas for further strengthening in bank regulation and supervision:
  - Although stress tests confirm that banks’ funding gaps appear manageable, liquidity shortages in foreign currency could affect some banks under very adverse conditions. MAS is encouraged to closely monitor LCR ratios on an individual foreign currency basis.
  - Steps could be taken to strengthen banks’ capitalization framework, with the implementation of the countercyclical capital buffer in line with the Basel III timelines, using triggers suitable to Singapore’s specific circumstances.
  - It would be appropriate to step up onsite inspections of banks’ credit risk, notably in view of rising household and corporate leverage.
  - The structure of the MAS board, which includes several government ministers, was considered by assessors to be potentially inconsistent with full supervisory independence; consideration should be given to addressing this situation.
- Insurance sector observations:
  - The insurance sector has been stable, although potential vulnerabilities remain from guaranteed returns under some policies; relatively high exposure to equities; and exposure to catastrophe risks from the rapid growth in the offshore sector.
  - MAS is addressing these risks through strengthened risk management requirements and a review of valuation and capital adequacy rules.
- Capital markets and FMIs:
  - Capital markets do not appear to pose material threats to financial stability.
  - MAS should continue intensive monitoring of the asset management industry, particularly hedge funds and prime brokers, to minimize reputational risks, with greater emphasis on detailed onsite inspections for higher risk entities.
  - OTC derivatives clearing arrangements appear sound. SGX-DC is an efficient CCP with effective risk management frameworks, and sufficient financial resources to cover even significant defaults.
  - Global regulatory reforms of OTC derivatives clearing and reporting expose SGX-DC to legal risks owing to conflicts between domestic and foreign laws. MAS is encouraged to continue efforts to mitigate those risks in cooperation with foreign authorities.
  - Care is needed to ensure that increased competition does not weaken industry risk management.
- Crisis management and resolution:
  - Arrangements are generally strong, with the necessary legal framework, clear allocation of tools and responsibilities, and robust information sharing and coordination.
  - The resolution framework needs review and strengthening to enhance MAS’ operational independence to efficiently implement bank resolution.
  - Arrangements for cross-border cooperation in resolution are broadly in line with international best practice, though some enhancements are possible.

### Financial System Structure and Risks — Overview
- Singapore is one of the largest financial centers in the world.
  - It hosts large and diversified domestic banks and major international banks attracted by efficient market infrastructure, rule of law, and effective supervision.
  - As of 2012, Singapore was the third largest foreign exchange (FX) market in the world and one of the largest trading centers for OTC derivatives in Asia, with interest and FX derivatives dominating activity.
  - Equity and fixed income markets are at an earlier stage of development.
  - Singapore has a well-developed payment, clearing, and settlement infrastructure, with several systemically important FMIs.
- Distinctive features of Singapore’s financial center:
  - Predominance of banks over other types of financial institutions. As of June 2013, there were 122 commercial banks operating in Singapore, of which five were local banks, one was a foreign subsidiary, while the rest were foreign branches.
  - A small number of systemically important domestic banks. The three largest local banks have grown to about 30 percent of banking system assets (equivalent to about 180 percent of GDP). They are strong in traditional lending intermediation in Singapore and in the region (through subsidiaries). About 35 percent of banks’ exposures and income originate in the region, outside Singapore.
  - Foreign bank branches rather than subsidiaries. Foreign banks represent about 65 percent of total banking assets. U.K. and the U.S. together represented about 21 percent of total assets, followed by Japanese banks (7 percent).
  - Universal banking licenses. Local banks and branches are allowed to undertake universal banking, offering a wide range of financial services regulated by MAS.
- Other financial institutions:
  - Insurance companies, merchant banks, fund managers, market intermediaries, and financial advisors.
  - The insurance sector is the second largest component of Singapore’s financial system but accounts for only about 6 percent of the total assets of the system (about 48 percent of GDP).
  - Over 600 fund management firms with S$880 billion in assets under management (AUM), of which about 250 hedge fund managers with AUM of S$60 billion (about 250 percent and 17 percent of GDP, respectively). More than 80 percent of these assets come from sources outside Singapore, particularly the region.
- Macroeconomic and financial performance since the last FSAP:
  - Real GDP growth and inflation averaged around 6 percent and 2½ percent respectively during 2004–11.
  - The services sector accounts for about 60 percent of GDP and about 70 percent of growth.
  - The financial system more than doubled in absolute terms and now contributes around 12¼ percent to annual GDP (up from about 10 percent in 2004).
  - After a 9 percent decline in 2008 and early 2009, output recovered strongly; GDP is now significantly above the pre-crisis level.
  - 2012 saw weaker performance due to weak global demand and a tighter foreign worker policy, resulting in real growth of around 1¼ percent, with weak activity continuing into early 2013.
  - The resident unemployment rate remains at a near historic low of 3 percent.

### Key Recommendations (Table 1) — Short-Term Implementation (within 12 months)
- Increased attention to onsite inspections of banks’ credit risk (paragraph 12).
- Monitor LCR ratios for significant foreign currencies (paragraph 13).
- Mitigate legal risks to CCPs from conflicts of law across jurisdictions (paragraph 30).
- The CCPs to explore with members the possibility of widening their collateral pool and examine the feasibility of receiving Singapore government securities as collateral to improve access to central bank liquidity in times of stress (paragraph 33).
- Consider subjecting loans for owner-occupied housing to a limit to be set by MAS (paragraph 43).
- Encourage over-extended households to reduce their leverage (paragraphs 44 and 45).
- Stand ready to adjust macroprudential measures in the housing market in line with changes in market conditions (paragraph 46).

### Key Recommendations (Table 1) — Medium-Term Implementation (1–3 years)
- Further strengthen banks’ capital framework, with implementation of the countercyclical capital buffer in line with the Basel III timelines (paragraph 10).
- Further develop SGX recovery plans, identifying additional scenarios (paragraph 29).
- Upgrade the collateral that covers credit exposures related to the link with the Chicago Mercantile Exchange (CME) (paragraph 34).
- Formalize bilateral cooperative crisis management agreements for FMIs (paragraph 56).
- Collect more granular data on household balance sheets, drawing on surveys and strengthened credit bureau practices (paragraph 45).
- Authorize the Singapore Deposit Insurance Corporation (SDIC) to provide support, on a least-cost basis, for the transfer of deposit liabilities to a bridge bank or healthy institution (paragraph 62).
- Ensure that the banking industry adequately contributes to the costs of bank failures (paragraph 62).
- Further facilitate cross-border cooperation in bank resolution (paragraph 64).
- Consider changes to the structure of the MAS Board to strengthen operational independence in financial supervision (paragraph 49).
- Ensure that MAS’ mandate for prudential supervision is not compromised by its developmental mandate (paragraph 49).
- Review and strengthen the resolution framework to enhance MAS' operational independence in bank resolution (paragraph 59).

*Source: EXECUTIVE SUMMARY, IMF Financial Sector Assessment of Singapore (content unit: _cr13325 - EXECUTIVE SUMMARY).*

### 5.      Despite the strength of the economy in recent years, some risks to financial stability

### 5.      Despite the strength of the economy in recent years, some risks to financial stability

### Emerging imbalances and recent developments
- Real estate prices are already above their 2008 peak, before the last market correction.
- Low interest rates have been a key factor in the current property boom.
- Since 2009, the authorities have taken several rounds of measures aimed at containing housing demand and boosting supply.

### Credit growth, bank exposures, and funding
- Credit growth has averaged about 12 percent for the past five years.
- Credit growth in the three largest banks was 14¾ percent year on year in June 2013.
- Banks have very low nonperforming loans (NPLs) (just over 1 percent).
- About 40 percent of the three largest banks’ loans are related to real estate:
  - 25 percent in mortgage loans (predominantly based on floating rates)
  - 15 percent in construction loans
- Expansion in the region:
  - As of June 2013, the three largest banks’ loans to Greater China increased by 13½ percent year-on-year.
  - Credit in U.S. dollars has increased by 20½ percent.
- Deposit funding and liquidity:
  - On a consolidated basis, LTDs are below 90 percent, although LTDs in some currencies are above 100 percent and growing.
  - U.S. dollar deposits have not kept pace with the growth in U.S. dollar loans.
  - Banks have issued commercial paper and medium-term notes in U.S. dollars and diversified funding sources.

### Macro-financial stability risks looking ahead
- Growth outlook:
  - Economic growth in Singapore is forecast at 3½ percent in 2013 and 2014.
- External shock risks:
  - A disorderly exit from Unconventional Monetary Policies (UMPs) in advanced economies and Emerging Market (EM) capital flow reversals may expose Singapore to asset repricing and liquidity pressures.
  - Domestic interest rates are also likely to increase and affect mortgage borrowers’ ability to service debt.
- Regional downside risks would adversely affect the banking sector, including through subsidiaries abroad.

### System interconnectedness and funding vulnerabilities
- Key characteristics increasing exposure:
  - Predominance of foreign branches creates exposure to their parent banks.
  - No clear separation between offshore and domestic financial transactions.
  - Cross-border interbank flows are large; there is a growing negative net funding position of Singapore banks with respect to all major regions.
- BIS locational data indicate the negative net funding gap has increased significantly since the global financial crisis, with liabilities that are largely short-term.
- Intensive activity partly reflects foreign banks’ use of Singapore as a center for liquidity management and distribution; claims could also point to availability of cheap U.S. dollar funding.

### Regulatory follow-up from 2004 FSAP
- Singapore has addressed most recommendations made by the 2004 FSAP, including:
  - Strengthening the macroprudential framework.
  - Completing the review of the regulatory minimum capital requirements for local banks.
  - Enhancing the risk-based capital framework for insurers.
- There is still scope for greater independence of MAS.

### Banks — general resilience and stress testing
- Financial soundness indicators for the big three domestic banks remained strong through global and European crises.
  - Singapore banks have higher capital ratios and lower leverage than peer banks.
  - Asset quality is good; NPLs are low and well provisioned.
- Stress test outcomes:
  - Scenarios include large declines in domestic and regional activity, falling asset prices, rising interest rates, and rapidly rising unemployment.
  - Bottom up (BU) and top down (TD) stress tests by MAS indicate capitalization ratios would remain above the domestic minimum regulatory capital ratio of 10 percent.
  - Trading losses are limited; trading books mostly comprise domestic sovereign bonds.
  - Credit losses (corporate loans and residential mortgages) would erode capital; increases in PDs would raise risk-weighted assets, magnifying capital declines by almost one third.
  - IMF TD solvency stress tests broadly confirm MAS results; resilience holds even if residential loan defaults reached U.S. 2007-09 subprime crisis levels.
- Country and regional concentration:
  - Exposures outside Singapore are heavily concentrated in the region; needs close monitoring given potential regional slowdowns.
  - Low level of NPLs means small increases could quickly erode provision coverage.
- Supervisory recommendation:
  - MAS should place more attention on onsite inspections of banks’ credit risks to complement bank management and internal risk cultures.

### Banks — liquidity and foreign currency risk
- Liquidity coverage:
  - Singapore banks predominantly meet Basel III LCR when all currencies are aggregated, but coverage for U.S. dollar exposures is lower.
- Foreign currency liquidity stress:
  - Stress tests suggest that if banks’ ratings were downgraded by several notches, some banks would find it difficult to continue to close their U.S. dollar funding gaps using the FX swap market.
  - Over a one-year horizon, banks could require as much as U.S. $50 billion (about one fifth of foreign reserves).
- Currency mismatches and LCRs:
  - LCRs in U.S. dollars and other foreign currencies (such as the Malaysian ringgit and the Hong Kong dollar) for some banks are below 100 percent, suggesting branches may be funding domestic assets from foreign sources.

### Banks — interconnectedness and branch vulnerabilities
- Branch model issues:
  - Branches are closely interconnected with parent institutions; instability in parents may transmit risks to Singapore.
  - Branches pose challenges for supervision and resolution; MAS has taken mitigation measures and advocated greater supervisory information sharing internationally.
- Asset Maintenance Ratios (AMRs):
  - Stress tests indicate AMRs would remain above the regulatory minimum under adverse scenarios, reflecting high quality of eligible assets.
  - AMRs do not cover all liabilities, notably interbank claims; MAS prioritizes protecting non-bank depositors.
  - AMRs should be complemented by strict licensing, parent risk monitoring, and international supervisory cooperation.
- Spillover analysis approaches:
  - Cross-border network modeling using BIS Locational Banking Statistics (2012Q3) considering: (i) credit shock; and (ii) combined credit and funding shock.
  - Domestic network analysis of interbank borrowing/lending and derivatives based on actual bilateral claims covering top three domestic banks and seven foreign banks (about 75 percent of domestic interbank exposures).
  - Market-price based spillover analysis using equity returns of top three domestic banks and 36 foreign banks.
- Key spillover findings:
  - Singapore is more vulnerable to cross-border interbank exposures than to domestic interbank exposures.
  - Credit shocks originating in the U.K. are particularly significant triggers; Japan, South Korea, and the U.S. are also important.
  - Adding a funding shock highlights large effects from Germany and the U.S., possibly reflecting strong funding linkages.
  - Domino effects could progress very quickly due to prevalence of short-term liabilities.
  - Domestic contagion analysis shows limited network effects from foreign to local banks; risks of contagion within the three local banks are very low.
  - Market-based analysis: on average, each Singapore bank receives spillovers from seven other banks globally; local banks most vulnerable to spillovers from Swiss, U.K., and U.S. banks; Malayan and Thai banks dominate among regional inward spillovers.

### Insurance sector resilience and vulnerabilities
- Overall resilience:
  - Insurance companies have regulatory capital buffers sufficient to absorb losses from the global financial crisis and natural disasters.
  - Net premiums and net investment income indicate generally stable and robust profits in life insurance; non-life profitability more volatile due to natural disasters (notably in 2011).
- Specific vulnerabilities and MAS responses:
  - Guaranteed returns in participating life policies:
    - Participating policies with a guarantee represent the dominant life product; the guaranteed rate remains low (2 percent).
    - Insurers can absorb losses by reducing dividends or bonuses.
    - MAS stress tests including prolonged low interest rates showed no significant adverse impact on life insurers based in Singapore.
  - Equity exposure:
    - Current asset allocation for some life insurers involves relatively high equity exposure (about 20 percent of total non-linked assets for the industry as a whole).
    - End-2012 stress tests indicated a sharp reduction in equity prices lasting three years would require several companies to adopt remedial measures (reducing bonuses, raising capital) to meet solvency requirements.
    - MAS has implemented enterprise risk management (ERM) and requires Board-approved investment policies; MAS is reviewing risk-based capital requirements to better capture equity volatility risk.
  - Offshore non-life catastrophe risk:
    - Rapid growth in offshore non-life business poses catastrophe risk exposure (e.g., flooding in Thailand caused significant insured losses).
    - Companies have reviewed reinsurance arrangements and tightened policy terms; MAS is considering adding catastrophe risk charges to solvency tests via a standardized catastrophe scenario.

### Capital market intermediaries and asset management
- Asset manager linkages and systemic risk:
  - Funds managed by asset managers, including hedge funds, have limited linkages with banks in Singapore and are unlikely to pose a systemic risk.
  - Excluding insurance companies:
    - Nonbank deposits are relatively small at 1½ percent of local banks’ liabilities.
    - Nonbank loans are 0.6 percent of banks’ assets.
    - Derivatives exposure with banks in notional terms is 0.3 percent of banks’ derivative transactions.
  - Guarantees provided by banks and banks’ investments in the nonbank financial sector are insignificant.
  - Linkages are small partly because assets are mainly held in custody accounts with foreign banks outside Singapore.
  - The Singapore asset management industry mainly serves as a conduit:
    - More than 80 percent of assets originate outside Singapore.
    - Nearly 86 percent of those assets are invested elsewhere.
  - Failure of a large asset manager is unlikely to be systemic but could pose reputational risk.
- Regulatory changes for asset managers:
  - MAS has extended licensing or registration requirements to all locally-domiciled asset managers, including hedge funds.
  - As of Q3 2012, all locally-domiciled asset managers must either hold a capital markets license or be registered.
  - Asset managers operating under the repealed exempt fund management regime (517 at end-2012) had to apply for registration or a license.
  - While some hedge funds expressed concerns about more intrusive regulation, relocation is considered unlikely given global tightening of requirements.

*Source: _cr13325 - 5.      Despite the strength of the economy in recent years, some risks to financial stability*

### 25.      Most Singapore managed `hedge funds appear focused on relatively simple equity

### _cr13325 - 25.      Most Singapore managed `hedge funds appear focused on relatively simple equity

### Hedge funds: structure, strategies, and risks
- About 250 hedge fund managers with more than S$60 billion in assets.
- Nearly 80 percent of strategies pursued by managers belong to the equity long-short approach.
  - Leverage for equity long-short is typically below two times NAV.
  - Exposures tend to be similar to long-only equity strategies.
- The remaining 20 percent of strategies is split equally between:
  - Strategies that seek to exploit arbitrage opportunities, predominantly in the fixed income market.
  - Directional (tactical or macro) strategies that:
    - Often employ significant leverage to boost returns.
    - Often take concentrated bets in equity, fixed income, commodity, and currency markets.
- Volatility and leverage statistics:
  - The volatility of historical returns of Singapore-managed macro hedge funds is similar to that of the S&P 500.
  - Leverage of all hedge funds managed in Singapore, including off-balance sheet exposure, is below three times net asset value (NAV), with the exception of one fund that is levered nearly 17 times NAV.
- Oversight:
  - MAS is monitoring the hedge fund sector closely.

### Securities lending and collateral rehypothecation
- Market activity and participants:
  - Limited activity in the market for securities lending in Singapore.
  - Market appears dominated by hedge funds and some local banks; broker-dealers and traditional asset managers are largely absent.
- Collateral practices:
  - Market participants provide funding in exchange for a broad range of collateral, including cash, high-quality government securities and equities.
  - Hedge funds report using cash collateral because of significant haircuts on non-cash securities.
- Rehypothecation and legal framework:
  - Rehypothecation of collateral, though possible, is uncommon.
  - There are clear rules for segregation of customer assets.
  - There is a requirement to limit rehypothecation to the size of customer assets, but there appears to be no legal limit on the number of times collateral may be rehypothecated.
- Systemic risk assessment:
  - There appear to be no systemic risks from these activities at present.

### REITs, ETFs, structured finance vehicles, and retail speculative products
- REITs:
  - REITs have a market capitalization of approximately S$51 billion ($40 billion).
  - REITs are now subject to a number of safeguards following a funding crisis triggered by the collapse of Lehman.
  - Post-Lehman actions: better management of loan maturity and leverage levels; diversification of funding sources.
- ETFs, structured finance vehicles, and money market funds:
  - Combined assets under management are just over ¼ percent of the financial system.
  - Presently too small to pose systemic risks.
- Speculative products available to retail investors:
  - Examples: contracts-for-differences (CFDs) and levered FX (LFX).
  - MAS has proposed new regulation to:
    - Limit leverage.
    - Protect and recover investor funds in case of dealer insolvency.
    - Enhance risk disclosure.
  - Trading volumes for these products are low (below 5 percent of stocks), suggesting no systemic risk.

### Financial Market Infrastructures (FMIs) — payments, clearing, settlement
- Systemically important systems:
  - Large value payment system MEPS+.
  - Securities and derivatives clearing and settlement systems operated by the Singapore Exchange (SGX).
- Central counterparties (CCPs):
  - Two financial CCPs:
    - Central Depository (Pte) Limited (CDP) — clears equities and corporate debt securities.
    - Singapore Exchange Derivatives Clearing Limited (SGX-DC) — clears exchange traded and OTC derivatives.
  - CDP’s value of transactions processed was equivalent to 94 percent of GDP in 2012.
  - SGX-DC is the eighth largest clearer in exchange traded equity index futures worldwide.
- OTC derivatives market:
  - Singapore is one of the largest trading centers for OTC derivatives in Asia (just under S$9 trillion in the notional value of outstanding contracts).
  - Systemic importance is expected to increase with G20 reforms, notably mandatory clearing of standardized OTC derivatives.

### Assessment, recommendations, and operational issues for CCPs and SGX
- Soundness and risk management:
  - CDP and SGX-DC are assessed as sound and efficient CCPs with effective risk management frameworks.
  - Both CCPs comply with relevant international standards and are subject to SGX’s comprehensive risk management framework.
  - CCPs maintain sufficient financial resources to cover:
    - The default of the clearing member and its affiliates with the largest exposure.
    - The default of the two financially weakest clearing members.
- Recovery and legal risk:
  - SGX’s recovery plans should be enhanced in line with ongoing international policy developments to ensure continuation of critical operations in extreme circumstances.
  - Global OTC derivatives reforms expose SGX-DC to legal risk owing to conflicts between domestic and foreign laws (notably U.S. Title VII of the Dodd-Frank Act and the European Market Infrastructure Regulation (EMIR)).
  - MAS is encouraged to continue efforts to mitigate these legal risks in close cooperation with foreign authorities.
- Competition and collateral pressures:
  - Competition with foreign CCPs may rise, especially for clearing OTC derivatives, as mandatory clearing shifts bilateral clearing to CCPs.
  - Competition may reduce clearing-related fees and improve services, but CCPs may face market pressures to reduce collateral requirements.
  - SGX and MAS are encouraged to continue compliance with international standards and not compromise on CCP risk management, while searching for efficiencies.
- Structural separation and recovery framework:
  - For CDP, exploring separation of CCP and central security depository (CSD) functions into two distinct legal entities could be considered.
    - Rationale: as a CSD, CDP bears no risk (no overdraft or debit balances); as a CCP, it concentrates risk by becoming the counterparty to every novated trade.
    - CDP’s resources and capital are not clearly separated and earmarked between CSD and CCP functionalities; in crisis this could adversely impact both roles.
    - Recommendation: CDP review its legal structure to facilitate potential application of its recovery and resolution framework.
- Collateral pool and access to central bank liquidity:
  - CCPs are encouraged to explore widening their collateral pool, including examining feasibility of taking Singapore government securities as collateral to improve access to central bank liquidity in times of stress.
  - MAS provides a standing facility allowing CCPs to repo Singapore government securities and collateral for overnight SGD funding.
  - To enable immediate use of MAS’ standing facilities (rather than converting deposits into securities), CCPs should make efforts to receive part of collateral in the form of Singapore government securities instead of cash.
- Link with CME and PFMI compliance:
  - Risks related to the link with the Chicago Mercantile Exchange (CME) are assessed to be low, but risk management procedures should be upgraded to be fully compliant with the Principles for Financial Markets Infrastructures (PFMI).
  - The letter of credit used for daily credit exposures of SGX-DC to CME should be covered by collateral or replaced in full by highly liquid assets with low credit risk.
  - The SGX-DC clearing fund cannot be used to cover potential losses related to this link, as this would reduce resources to address risks from potential default of clearing members.

### Financial oversight, MAS mandates, and liquidity management
- MAS roles and objectives by law:
  - Maintaining price stability conducive to sustainable economic growth.
  - Fostering a sound and reputable financial center and promoting financial stability.
  - Ensuring the prudent and efficient management of Singapore's official foreign reserves.
  - Growing Singapore as an internationally competitive financial center.
- MAS functions:
  - Conducts monetary and exchange rate policy.
  - Acts as the integrated supervisor of the financial sector (including systemically important FMIs and macroprudential policies).
  - Is the resolution authority for financial institutions.
- Monetary policy and liquidity tools:
  - Monetary policy aims to achieve “price stability conducive to obtaining sustainable growth of the economy.”
  - Objective achieved by managing the exchange rate using a basket-band crawl (BBC) approach.
  - Banks are required to maintain minimum cash balances and minimum liquid assets (the latter will be replaced by the Basel III LCR requirement in January 2015).
  - MAS uses four instruments to inject and withdraw liquidity: FX swaps or reverse swaps; SGS repos or reverse repos; clean lending or borrowing; and, since April 2011, MAS bills.
  - Liquidity management system complemented by an intra-day liquidity facility and standing credit and deposit facilities.
- Post-crisis liquidity enhancements:
  - MAS entered into a precautionary US$30 billion currency swap agreement with the U.S. Fed in 2008 (swap line expired in February 2010).
  - Currently, MAS has a S$60billion/CNY300billion swap line with PBC.
  - MAS signed the Chiang Mai Initiative Multilateralization Agreement.
  - MAS kept a higher level of Singapore dollar liquidity in the banking system.
  - Expanded the standing facility (SF) to include all MEPS+ participants.
  - Accepted AAA-rated S$ debt securities issued by supranationals, sovereigns, and sovereign guaranteed companies as collateral in the SF.
  - Entered into cross-border collateral arrangements (CBCA) with other central banks to accept well rated foreign currencies and government debt securities as collateral in the SF.
    - As of August 2013, CBCAs with Bank Negara Malaysia, Bank of Thailand, Bank of England, Banque de France, Bundesbank, De Nederlandsche Bank, the Federal Reserve, and Bank of Japan.
  - Note: foreign currency liquidity, in particular U.S. dollars, is a potential vulnerability during periods of stress; MAS will want to continue to work with banks to address this issue.
- Emergency liquidity assistance (ELA):
  - MAS is empowered to provide ELA to solvent financial institutions.
  - ELA would involve an expanded pool of collateral with appropriate haircuts and be provided on a case-by-case basis.
  - Criteria and conditions for ELA are not published due to moral hazard concerns.

### Macroprudential oversight and housing market measures
- Institutional setup:
  - MAS is the macroprudential authority in Singapore.
  - Current Chairman of MAS is also the Deputy Prime Minister and Minister of Finance.
  - Chairman presides over the Board-level Chairman’s Meeting (CM) responsible for microprudential and macroprudential policies.
  - MAS Management Financial Stability Committee (MFSC), chaired by the Managing Director of MAS, supports CM and coordinates policies for financial sector stability, asset prices, and consumer prices.
  - Macroprudential supervision of the housing market is conducted through an inter-agency task force including MAS, MOF, Ministry of National Development, HDB and URA.
- Macroprudential framework and approach:
  - Focuses on the financial system as a whole and on links with the real economy.
  - Two key elements: surveillance of systemic financial risk; and design and calibration of policy instruments targeted at specific risk factors or transmission channels.
  - Calibration based on simulations, cross-country and past experience.
  - Recent measures have focused on the housing market.
- Housing market structure and public housing:
  - Public housing accounts for about 76 percent of the total housing stock.
  - Government allocates land and provides loans to HDB to build apartments sold to qualified Singapore citizens at subsidized prices.
  - Homeownership proportion about 90 percent.
  - Authorities reduced debt service to income limits and restricted use of Central Provident Fund (CPF) resources to foster stability in public housing.
- Macroprudential instruments used for housing:
  - Loan-to-value limits, loan tenure rules, stamp duties, property taxes, debt-service-to-income limits, minimum cash down payments, and supply measures.
  - Measures targeted more speculative segments; some measures target foreigners and permanent residents who own a significant share of private housing.
  - Measures to protect housing loan quality include lowering LTVs on first mortgages to 80 percent, limits on loan tenures, and a limit on households’ TDSR.
    - TDSR, introduced in June 2013, limits total debt service to income (including all other debt obligations) to no more than 60 percent.
  - Work underway to ensure credit bureau has a more complete picture of each borrower’s debt (credit bureau currently has information on whether a borrower has other outstanding debt but not on actual outstanding amounts).
- Concentration risk and lending limits:
  - Macroprudential limit on banks’ real estate exposure is set at 35 percent of total non-bank assets, but in practice has not been a binding constraint (average current ratio is only 16 percent).
  - Owner-occupied properties are not included; including them would increase average real estate exposures to 26 percent of total nonbank assets.
  - Recommendation: revise concentration approach to include owner-occupied properties, with greater discretion for MAS in calibration, to limit concentration risk from real estate.
- Effectiveness and outstanding vulnerabilities:
  - Evidence of effectiveness:
    - Data on new loans show declining loan-to-value ratios, and an increase in the share of borrowers with single mortgages.
    - Housing price inflation has moderated recently; housing affordability metrics remain contained.
  - Remaining concerns:
    - Loan growth to the housing sector remains elevated.
    - Household debt has increased over the last three years by about 7 percentage points of GDP, and reached 76 percent at end 2012.
    - Total housing loans have been growing at an average rate of 11 percent in recent years, with loans from financial institutions growing by about 18 percent.
    - Ratio of household liabilities to assets has increased to about 16 percent but remains within the historical range.
  - These outcomes support a cautious macroprudential approach by authorities.
- Household resilience and interest rate sensitivity:
  - Households appear to have strong buffers: significant liquid assets, access to CPF savings, and substantial home equity.
  - LTV ratios are below 80 percent for 90 percent of loans.
  - Nearly 70 percent of housing loans are at variable rates, most of which reset every six months — transmission from higher interest rates to debt servicing costs would likely be swift.
  - According to a MAS survey, if interest rates rose to 3.5 percent (about 200 basis points above current levels), the debt servicing costs of some 5–10 percent of households would rise above 60 percent of income.
  - A July 2013 MAS press release warned of risks from over-levered households; further outreach and education would be helpful.

*Source: IMF staff report excerpt (content provided in the input).*

### 46.      Looking ahead, the authorities should stand ready to recalibrate macroprudential tools

### _cr13325 - 46.      Looking ahead, the authorities should stand ready to recalibrate macroprudential tools

### Macroprudential policy and housing market
- Authorities should stand ready to recalibrate macroprudential tools in line with changes in market conditions.
- To address further pressures in the housing market, authorities should continue to adjust macroprudential policies using a targeted approach.
- Recent focus has been on curbing excessive house price appreciation.
- Authorities should remain vigilant against risks arising from exit from UMPs in the U.S. or other advanced economies and stand ready to adjust macroprudential policies in light of changes in the macroeconomic environment and housing market developments.

### Macroprudential measures beyond housing
- Measures have been taken for car loans, credit cards, and other unsecured consumer credit facilities.
- MAS introduced:
  - a tenure limit (five years) on car loans; and
  - an LTV requirement on car loans.
- These measures were effective in reducing prices.
- In 2012, MAS issued a consultation paper on responsible use of credit cards and other unsecured credit facilities.
- Proposed revisions to rules on unsecured credit complement the total debt servicing ratio (TDSR) measure:
  - Recommend that banks consider other liabilities of the borrower.
  - Recommend restricting the extension of new credit to overextended borrowers.
- Enhancements to consumer data by the credit bureau would improve the effectiveness of such measures.

### Microprudential oversight: MAS governance and supervision
- MAS is the single supervisor for all financial intermediaries and financial markets infrastructures, using a risk-based supervisory approach and supervisory intensity linked to systemic importance.
- Overall compliance with supervisory standards assessed by the FSAP mission was very high compared with other major financial centers.
- Governance considerations:
  - Of nine Board members, six are cabinet members (including the MAS Chairman who also serves as Minister of Finance and Deputy Prime Minister) or hold high government-related positions.
  - MAS has a dual mandate for prudential supervision and financial sector development, which may raise potential for conflicts.
  - No signs found that independence or prudential supervision had been compromised, but revisiting arrangements is recommended to avoid future conflicts.
- MAS has developed the Common Risk Assessment Framework and Techniques (CRAFT) to influence frequency of inspections and filing requirements.

### Banks: capital, liquidity, and supervisory standards
- MAS capital requirements for banks are higher than Basel III and were frontloaded; new requirements effective since January 2013.
- Except for the capital conservation buffer (which follows Basel III phase-in), the minimum common equity capital ratio and the minimum Tier 1 capital requirements for 2013 in Singapore meet Basel requirements for January 2015.
- Liquidity Coverage Ratio (LCR) introduction:
  - LCR will be introduced in January 2015.
  - Minimum requirement will start at 60 percent, rising in equal annual steps to reach 100 percent in January 2019.
  - Singapore banks appear well positioned to meet these requirements.
- Current MAS requirement: banks to hold liquid assets equivalent to 16 percent of qualifying liabilities; supervisors can impose higher or lower requirements based on risk profile and reliability of liquidity management.
- Singapore shows a very high level of compliance with the Basel Core Principles (BCPs).

### Insurance supervision
- Insurance supervision significantly strengthened since the 2004 FSAP.
- Observance of Insurance Core Principles (ICPs) is high.
- Key developments:
  - Risk-based capital (RBC) adopted as solvency standard for life and general insurance companies.
  - Work begun on RBC II.
  - MAS imposed additional capital requirements for higher risk-profile companies.
  - Stress testing is routine.
  - New enterprise risk management requirements to be implemented from January 1, 2014.

### Capital markets
- Clear legal framework for capital market activities; regulated activities include asset/portfolio management, investment advisory, property fund management, securities dealing, futures trading, leveraged foreign exchange trading, and advising on corporate finance.
- Major regulatory reforms in process:
  - Extend securities regulation to cover OTC derivatives.
  - Revise regulatory capital framework to enhance risk sensitivity for securities market participants, in tandem with Basel III developments.
- Compliance with IOSCO principles is generally high; enforcement effective; sufficient information sharing and cooperation with foreign agencies.
- Areas for improvement:
  - Shareholder protection in corporate decision making could be strengthened for unlisted public companies and overseas shareholders in listed companies.

### Financial market infrastructures (FMIs)
- FMIs subject to effective regulation, supervision and oversight; legal framework gives MAS powers to obtain timely information.
- MAS supervision of CCPs and securities settlement systems guided by the Securities and Futures Act and accompanying regulations.
- MAS and the Commodity Futures Trading Commission have a memorandum of understanding on information sharing for the link between SGX-DC and the CME, but it does not cover cooperation in crisis scenarios.

### AML/CFT
- Authorities committed to an assessment of compliance with international standards for Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) in the first half of 2015.
- This assessment falls outside the timeframe required by IMF Board decisions; delay explained by FATF timing and capacity constraints.
- Appendix (in source) describes key findings of Singapore’s last assessment and progress since 2007.

### Crisis management and resolution — Institutional arrangements
- Responsibilities allocated among several public bodies with robust information sharing and coordination:
  - MAS: prudential supervisor, resolution authority, and lender of last resort; broad powers to share information with other authorities, subject to confidentiality safeguards.
  - Singapore Deposit Insurance Corporation (SDIC): administers deposit insurance scheme; paybox mandate with no supervisory or resolution functions; memorandum of understanding with MAS.
  - Ministry of Finance (MoF): last resort involvement in bank resolution and crisis management when no viable private solutions or public resources are at risk.
- Concern: allocation of certain resolution tools to the Minister-in-charge may compromise MAS operational independence in resolution matters.
  - Some resolution tools (transfer of business, transfer of shares, restructuring of capital) are entrusted to the Minister-in-Charge.
  - Under the current government, positions of minister-in-charge of MAS, chairman of MAS, minister of finance, and deputy prime minister are all held by the same person.

### Crisis management and resolution — Toolkit
- Legal and policy framework for distressed banks is well-constructed; MAS supervisory approach is intrusive and emphasizes prompt intervention.
- Powers include:
  - Assume control of a distressed bank (or branch of a foreign bank);
  - Transfer assets and liabilities to a healthy bank, a bridge bank, or an asset management company;
  - Transfer shares of a bank to another financial institution; or
  - Restructure a bank’s share capital.
- Recovery and resolution planning:
  - MAS required all systemically important banks, including foreign branches, to prepare and submit recovery plans and provide information relevant to resolution plans.
- Enhancements recommended:
  - Consider widening use of deposit insurance funds to allow funding in connection with transfer of insured deposits to a healthy institution to prevent disruptions and conserve SDIC resources.
  - Establish resolution funding arrangements that reinforce industry role, rather than government/taxpayers, in bearing costs of bank failures.

### Crisis management and resolution — Cross-border cooperation
- MAS coordinates closely with other jurisdictions on crisis management and resolution; no legal impediments to share information, subject to confidentiality safeguards.
- MAS engages with foreign supervisors continuously, including in preparation of resolution plans for global systemically important banks active in Singapore.
- Caveat: Singapore’s preference accorded to domestic depositors may undermine scope for coordinated responses:
  - Singapore resolution regime does not accord preference to deposit liabilities held at foreign branches of local banks, which could encourage ring-fencing in host jurisdictions and discourage cooperation.
  - MAS has publicly committed to consider impact of its resolution actions on financial stability in other jurisdictions and to work with foreign resolution authorities where possible.

### Macroeconomic scenario assumptions (changes in percent, unless indicated otherwise)
- Table: 2013 2014 2015 2016 2017
  - GDP growth
    - Baseline: 2.9 3.9 3.9 3.8 3.7
    - Severe 1: -4.4 4.9 4.7 3.9 3.7
    - Severe 2: -2.5 -1.8 -1.7 6.1 6
  - Unemployment Rate
    - Baseline: 3 3.1 3.4 3.7 3.9
    - Severe 1: 4 4.2 5.8 6.2 6.2
    - Severe 2: 2 4 6.3 9.3 10.5 9.8
  - Property Prices
    - Baseline: 5 5 0 0 5
    - Severe 1: -30 -10 5 5 5
    - Severe 2: -20 -10 -5 -25 05
  - Exchange Rates (SGD/USD)
    - Baseline: 2 2 2 2 2
    - Severe 1: -20 -10 10 52
    - Severe 2: -15 -5 -10 52
  - Commodity Prices (Energy and Petrochemicals)
    - Baseline: 2 2 2 2 2
    - Severe 1: -70 35 35 105
    - Severe 2: -40 -5 -55 10
  - Domestic Interest Rates (bps change)
    - Baseline: 55 10 10 10 10
    - Severe 1: 150 -75 -75 10 10
    - Severe 2: 100 50 50 10 10
  - Equity Prices
    - Baseline: 5 5 5 5 5
    - Severe 1: -40 -15 -10 10 15
    - Severe 2: -20 -20 -15 0 10
- Sources: Authorities and IMF staff estimates

### Box 1 — Stress test scenarios for banks
- Stress tests assessed banks under a baseline and two adverse five-year macroeconomic scenarios.
- Baseline aligned with October 2012 World Economic Outlook.
- Adverse scenarios generated using MAS’ macroeconomic model for Singapore, its main trading partners, and countries to which Singapore banks and fully operational branches have exposures, supplemented by asset market forecasts.
- Severe 1 (short-lived V-shaped recession):
  - GDP growth in Singapore declines to -4.4 percent in 2013 but recovers rapidly toward potential.
  - Equivalent to a deviation from the baseline of about two standard deviations.
- Severe 2 (protracted, three-year):
  - GDP growth in Singapore declines to -2.5 percent in 2013, -1.8 percent in 2014, and -1.7 percent in 2015.
  - Implies a cumulative deviation from the baseline of about four standard deviations for 2013–15.
  - Under this scenario, domestic interest rates increase by 200 bps in the 2013–15 period.
- MAS simulated paths for other variables including growth in five key sectors in Singapore, unemployment in Singapore and four other countries, property prices in Singapore and five other countries, 14 bilateral exchange rates, commodity prices, key interest rates, and sovereign yields and swap rate curves (11 maturities) in SGD, USD, and EUR.
- The scenarios combine several shocks (e.g., intensification of the euro area crisis and marked slowdown in China and other EMs); a single shock in the G-RAM cannot produce such adverse scenarios.

### Box 2 — Supervision and resolution of foreign branches
- MAS manages risks from 116 foreign branches through:
  - High standards for approving foreign entrants with same prudential qualifications as locally incorporated banks.
  - Limiting number of foreign branches permitted to accept retail deposits.
  - Program requiring QFBs with large retail presence to locally incorporate retail operations.
- Prudential requirements on branches:
  - Minimum asset maintenance ratio (AMR):
    - Full branches: minimum 35 percent of nonbank deposits (with AMR floor of S$5 million).
    - Wholesale branches: minimum 15 percent (with AMR floor of S$5 million).
    - Offshore branches: AMR floor of S$5 million.
  - Eligible assets include cash, deposits with MAS, Singapore government securities, sukuk bonds denominated in Singapore dollars, debt securities denominated in SG Dollars issued by a statutory board in Singapore other than MAS, listed securities and immovable property located in Singapore—all subject to appropriate haircuts.
  - Deposit Insurance AMR (DI AMR): DI AMR equivalent to 1 (minimum amount of eligible assets net of haircuts equal to insured deposit base).
  - Foreign banks’ actual DI AMRs determine deposit insurance fees: range of 0.02–0.07 percent of insured deposit base.
  - MAS authorized to increase AMR and DI AMR on a case-by-case basis.
- Liquidity requirements for foreign branches identical to domestic banks:
  - Minimum liquidity assets (MLA): 16 percent of qualifying liabilities.
  - Bank-specific framework can establish MLA cap of 10 to 15 percent subject to bank’s net weekly cumulative cash-flow volatility over past 125 business days and MAS review.
  - Minimum cash balance (MCB): average minimum cash balance of at least 3 percent of average qualifying liabilities during a maintenance period of two weeks; day-to-day cash balance ratio allowed to fluctuate between 2 and 4 percent; banks may utilize full amount intraday to settle payments.
- MAS powers for distressed foreign branches:
  - Impose corrective and remedial actions, including statutory manager.
  - Apply resolution powers including transfer all or part of a distressed branch’s assets and liabilities to a third party institution or government-sponsored bridge bank.
  - Identification of resolution strategies for systemically important branches being reconciled with group-wide resolution plans via foreign banks’ Crisis Management Groups.

*Source: IMF staff, Singapore FSAP chapter content as provided in the supplied document excerpt.*

### Box 3. Stress Tests of the Insurance Sector

### Box 3. Stress Tests of the Insurance Sector

### MAS regulatory requirements and stress-testing scope
- MAS requires all licensed direct insurance companies to perform stress tests as part of annual regulatory filings.
- Scenarios are prescribed by MAS, but companies must also construct a stress-to-failure scenario.
- MAS assesses capacity to withstand “insurance-related” shocks, including:
  - A flu epidemic, which would cause a few life insurers to fall below the statutory minimum capital requirement.
  - The default of a reinsurance company, which would have a severe impact on some insurers.

### FSAP application: sample, horizon, and hurdle
- MAS prescribed scenarios for the FSAP that were applied to the four largest life insurance companies.
- These four companies account for 80 percent of the total insurance fund assets in Singapore.
- The financial situation of each company under the various scenarios was compared with a hurdle rate of 100 percent of the statutory minimum capital requirements.
- Outcome by risk horizon:
  - Over a one-year risk horizon, no company fell below the 100 percent hurdle rate, although two companies would be heavily impacted by the scenarios.
  - Over a three-year risk horizon, two of the four companies found that their available capital would fall below the minimum specified by the formula if no remedial action were taken in the interval.

### Stress test scenarios (as prescribed by MAS for FSAP)
- Scenario parameters by year:

  - 2013
    - Equity (percent change of index): -20 to -30
    - Property prices (percent change of index): + 5 to -20
    - Foreign exchange rate: +5 to -35
    - Yield curve (bps): +100 to +150
    - Credit spread (bps):
      - Singapore 200
      - Investment grade 200
      - Non-investment grade 300

  - 2014
    - Equity (percent change of index): -15 to -20
    - Property prices (percent change of index): -10 to -20
    - Foreign exchange rate: +15 to-15
    - Yield curve (bps): +40 to 0
    - Credit spread (bps):
      - Singapore 30
      - Investment grade 25
      - Non-investment grade 75

  - 2015
    - Equity (percent change of index): -15 to -20
    - Property prices (percent change of index): -10 to -25
    - Foreign exchange rate: +15 to -10
    - Yield curve (bps): +40 to 0
    - Credit spread (bps):
      - Singapore 25
      - Investment grade 25
      - Non-investment grade 75

- Source of scenario parameters: MAS.

### Methodological note on implementation
- The stress tests involve setting a series of parameters to shock different aspects of the portfolio. There are detailed parameters for each shock.
- Example: a stress in 2013 equity prices is computed based on the profile of the portfolio—Singapore exposures (-20 percent), Other Developed Markets exposures (-20 percent) and Emerging Markets exposures (-30 percent).

*Source: IMF staff summary of MAS stress tests as presented in Box 3 of the FSAP document.*

### Executive Summary of the report as an IMF/World Bank ROSC

### _cr13325 - Executive Summary of the report as an IMF/World Bank ROSC

### AML/CFT regime and FATF follow-up
- In February 2011, the FATF moved Singapore from annual regular follow up reporting to biennial reporting in view of progress made to strengthen its AML/CFT regime.
- The latest follow-up report noted further progress but also identified deficiencies remaining relating to identifying beneficial owners of companies created in Singapore.

### Financial sector structure (selected highlights)
- Total financial institutions and assets (in billions of Singapore dollars):
  - 2005: Number 598; Total Assets 1,623.4; Share 100.0
  - 2006: Number 638; Total Assets 1,720.0; Share 100.0
  - 2007: Number 684; Total Assets 2,050.2; Share 100.0
  - 2008: Number 720; Total Assets 2,139.6; Share 100.0
  - 2009: Number 720; Total Assets 2,092.0; Share 100.0
  - 2010: Number 750; Total Assets 2,246.3; Share 100.0
  - 2011: Number 759; Total Assets 2,394.6; Share 100.0
  - 2012: Number 783; Total Assets 2,513.8; Share 100.0
- Commercial banks (2005–2012) — illustrative entries:
  - 2005: Number 110; Total Assets 1,262.4; Share 77.8
  - 2012: Number 123; Total Assets 1,956.3; Share 77.8
- Local Banks (2005–2012) — illustrative entry:
  - 2005: Number 5; Total Assets 313.6; Share 19.3
  - 2012: Number 6; Total Assets 615.5; Share 24.5
- Foreign Banks (2005–2012) — illustrative entry:
  - 2005: Number 105; Total Assets 948.8; Share 58.4
  - 2012: Number 117; Total Assets 1,340.8; Share 53.3
- Central Provident Fund (2005–2012):
  - 2005: Number 1; Total Assets 121.6; Share 7.5
  - 2012: Number 1; Total Assets 232.7; Share 9.3
- Holders of CMS license (2005–2012):
  - 2005: Number 172; Total Assets 66.9; Share 4.1
  - 2012: Number 273; Total Assets 49.3; Share 2.0
- Note: Table data are in billions of Singapore dollars. Source: MAS.

### Selected economic indicators and macro statistics
- Main exports (percent of total domestic exports): Electronic products (21 percent); chemical products (18 percent)
- Population (June 2012): 5.3 million
- Unemployment rate (2012): 2.0 percent
- Growth (percentage change) — Real GDP:
  - 2008: 1.7
  - 2009: -0.8
  - 2010: 14.8
  - 2011: 5.2
  - 2012: 1.3
  - 2013: 3.5
  - 2014: 3.5
- Saving and investment (percent of GDP):
  - Gross national saving: 44.5 (2008), 42.7 (2009), 48.2 (2010), 46.8 (2011), 45.6 (2012), 45.3 (2013), 45.0 (2014)
  - Gross domestic investment: 29.3 (2008), 25.0 (2009), 21.4 (2010), 22.2 (2011), 27.0 (2012), 27.1 (2013), 27.5 (2014)
- Inflation and unemployment (period average, percent):
  - CPI inflation: 6.6 (2008), 0.6 (2009), 2.8 (2010), 5.2 (2011), 4.6 (2012), 2.5 (2013), 3.1 (2014)
  - Core CPI inflation: 5.7 (2008), 0.0 (2009), 1.5 (2010), 2.2 (2011), 2.5 (2012), 1.9 (2013), 2.8 (2014)
  - Unemployment rate: 2.2 (2008), 3.0 (2009), 2.2 (2010), 2.0 (2011), 2.0 (2012), 2.1 (2013), 2.3 (2014)
- Central government budget (percent of GDP) 1/:
  - Revenue: 24.2 (2008), 19.3 (2009), 20.6 (2010), 23.5 (2011), 22.9 (2012), 22.3 (2013), 22.4 (2014)
  - Expenditure: 16.3 (2008), 18.0 (2009), 15.2 (2010), 14.5 (2011), 14.9 (2012), 16.1 (2013), 17.2 (2014)
  - Overall balance: 7.9 (2008), 1.3 (2009), 5.4 (2010), 9.0 (2011), 8.0 (2012), 6.3 (2013), 5.2 (2014)
- Balance of payments (US$ billions):
  - Current account balance: 28.8 (2008), 33.5 (2009), 62.0 (2010), 65.3 (2011), 51.4 (2012), 52.4 (2013), 53.9 (2014)
  - (In percent of GDP): (15.1) (2008), (17.7) (2009), (26.8) (2010), (24.6) (2011), (18.6) (2012), (18.3) (2013), (17.5) (2014)
  - Trade balance: 42.8 (2008), 49.3 (2009), 66.0 (2010), 72.7 (2011), 60.9 (2012), 63.1 (2013), 67.4 (2014)
  - Exports, f.o.b.: 354.6 (2008), 288.5 (2009), 371.0 (2010), 434.1 (2011), 435.8 (2012), 433.2 (2013), 457.1 (2014)
  - Imports, f.o.b.: -311.7 (2008), -239.2 (2009), -305.0 (2010), -361.5 (2011), -374.9 (2012), -370.1 (2013), -389.7 (2014)
- Gross official reserves (US$ billions): 174.2 (2008), 187.8 (2009), 225.8 (2010), 237.7 (2011), 259.3 (2012), 283.1 (2013), 299.4 (2014)
  - (Months of imports) 4/: (6.5) (2008), (5.6) (2009), (5.7) (2010), (5.8) (2011), (6.3) (2012), (6.6) (2013), (6.6) (2014)
- U.S. dollar exchange rate (period average): 1.41 (2008), 1.45 (2009), 1.36 (2010), 1.26 (2011), 1.25 (2012)
- GDP per capita (2012): US$52,052
- Projections column labeled "Proj." appears for 2013–2014 indicators in table.

### Financial soundness indicators (Local Banks’ Global Operations) — selected ratios
- Regulatory Capital to Risk-Weighted Assets:
  - 2009: 17.3
  - 2010: 18.6
  - 2011: 16.0
  - 2012: 18.1
  - Q1 2013: 16.9
- Regulatory Tier I Capital to Risk-Weighted Assets:
  - 2009: 14.1
  - 2010: 15.5
  - 2011: 13.5
  - 2012: 14.9
  - Q1 2013: 14.2
- Shareholders’ Funds to Total Asset:
  - 2009: 9.9
  - 2010: 9.5
  - 2011: 8.7
  - 2012: 9.2
  - Q1 2013: 8.9
- Non-Bank NPLs to Non-Bank Loans:
  - 2009: 2.4
  - 2010: 1.6
  - 2011: 1.2
  - 2012: 1.2
  - Q1 2013: 1.1
- Total Provisions to Non-Bank NPLs:
  - 2009: 90.8
  - 2010: 110.9
  - 2011: 125.5
  - 2012: 128.3
  - Q1 2013: 133.7
- ROA (Simple Average): 1.1 (2009), 1.2 (2010), 1.0 (2011), 1.1 (2012), 1.1 (Q1 2013)
- ROE (Simple Average): 10.8 (2009), 12.2 (2010), 11.1 (2011), 12.0 (2012), 11.8 (Q1 2013)
- Net Interest Margin (Simple Average): 2.2 (2009), 2.0 (2010), 1.9 (2011), 1.8 (2012), 1.7 (Q1 2013)
- Source: MAS

### Treatment of sovereign risk in stress tests (equivalent haircut for a 5-year bond and historical percentiles)
- Singapore:
  - Using 90th percentile: 0.05
  - Using 95th percentile: 0.08
  - Using 99th percentile: 0.14
  - Using largest peak-to-trough yield movements in the 2008 global financial crisis and the Eurozone debt crisis: 1.60
  - Equivalent haircut for a 5-year bond: 8.00
- Comparative examples (selected):
  - USA: 0.08; 0.10; 0.16; 2.05; 10.00
  - Eurozone AAA-rated: 0.06; 0.09; 0.15; 2.35; 12.00
  - Greece: 0.14; 0.24; 0.61; 8.37; 42.00
  - Ireland: 0.11; 0.20; 0.51; 14.59; 73.00
- Table titled "Historical percentiles of changes in yields used in other FSAPs" and labeled "Singapore FSAP".

### Risk Assessment Matrix — key risks, likelihoods, impacts, and recommended policy responses (selected)
- Distortions from unconventional monetary policy / Protracted economic and financial volatility / Financial stress in the euro area re-emerges
  - Time Horizon: Medium-term / Short-term / Short-term
  - Likelihood: Low / High / Medium
  - Expected impact: Medium to high
  - Transmission channels and expected impact details: Disruptive exit from UMPs or correction of overvalued risk assets; sharply higher interest rates; large capital flow reversals; sudden unwinding of positions; pullback of funding by European banks; banking sector size and derivatives markets amplify channels; offshore banks have significant exposure to Europe (about 21 percent of assets and 28 percent of liabilities).
  - Recommended policy response: Ensure financial institutions maintain prudent risk management practices and have adequate liquidity buffers (and capital buffers in the case of domestic banks). Maintain close links with home country supervisors. In an extreme event, use strong official reserve position and possibly swap lines. Increased attention to onsite inspections of banks’ credit risk.
- Protracted period of slower European growth / Sharp slowdown in growth in China
  - Time Horizon: Medium-term
  - Likelihood: High
  - Expected impact: Medium to high
  - Channels: Direct and intraregional trade linkages; tourism and financial channels; exports around 200 percent of GDP; trade-related sectors account for more than 50 percent of GDP; indirect exports through regional supply chains likely larger than direct export shares to EU (10 percent) and U.S. (5 percent).
  - Recommended policy response: Provide adequate social safety nets while re-orienting the economy to cater to demand from faster-growing regions, including Asia.
- Failure of a foreign parent bank
  - Time Horizon: Medium-term
  - Likelihood: Low
  - Expected impact: Low to Medium
  - Channels: Branches closely connected with domestic banking system; foreign banks represent about 50 percent of total Domestic Banking Unit (DBU) assets.
  - Recommended policy response: Further facilitate cross-border cooperation in bank resolution.
- A fall in real estate prices of about 55 percent in 3 years
  - Time Horizon: Short-Medium term
  - Likelihood: High
  - Expected impact: Medium to High
  - Channels: About 40 percent of bank loans are to the housing, building and construction sectors.
  - Recommended policy response: Consider subjecting loans for owner-occupied housing to a limit to be set by MAS. Encourage over-extended households to reduce their leverage. Stand ready to adjust macroprudential measures in the housing market in line with changes in market conditions.
- A shortage of U.S. dollar liquidity in funding markets
  - Time Horizon: Short-term
  - Likelihood: High
  - Expected impact: Medium
  - Channels: Wholesale funding represents about 16 percent of local banks’ total liabilities, of which only about half are short term; LTD ratios in U.S. dollars are still above 100 percent despite banks issuing long term debt.
  - Recommended policy response: Monitor LCR ratios for significant foreign currencies.

### Stress testing matrix for the banking sector — design and scenarios (selected)
- Institutional perimeter for stress tests:
  - Bottom-Up by Banks: Three domestic banks, one foreign subsidiary, and three foreign branches — DBS, UOB, OCBC, Citi Singapore Ltd, Citi N.A., Standard Chartered and HSBC; market share 74 percent of domestic assets.
  - Top-Down by Authorities: Same set as bottom-up; baseline date: 2012 Q4—updated using stressed market loss figures as of 2013 Q1.
  - Top-down by FSAP Team: Three domestic banks (DBS, UOB, OCBC); market share 58 percent of domestic assets; baseline date: 2012 Q4.
- Data and baseline date sources:
  - Banks’ own data; supervisory data; data from annual reports; Moody’s Analytics; and Risk Management Institute (National University of Singapore).
- Methodologies and horizons:
  - Banks’ internal models; monetary authority stress testing framework; IMF WP 11/83; balance-sheet model; satellite models for macro-financial linkages.
  - Stress test horizon: Bottom-Up and Top-Down by Authorities: 3-year; Top-down by FSAP Team: 5-year.
- Tail shocks and scenario analysis (examples used in sensitivity analysis):
  - Counterparty risk shocks: failure of largest three nonfinancial borrowers for each individual bank; failure of the largest three financial borrowers for each individual bank; failure of the three largest borrowers in the system.
  - Credit risk shocks: maximum deterioration in the quality of performing loans; increase in the loss-given-default of impaired loans.
  - Market risk shocks: 30 percent currency depreciation against the U.S. dollar, the euro, and the Swiss franc; 30 percent decline in housing prices; parallel widening of the yield curve by 300 bps; bear flattening of the yield curve (300 bps widening in the short end; 100 bps widening in the long end); stock market decline of 25 percent.
  - Macroeconomic scenarios considered by FSAP Team: Baseline IMF desk projections; V-shaped recession with GDP declining 4.4 percent in the first year and returning to potential rapidly; U-shaped recession and slow growth with GDP growth declining to 2 percent in 2013–15 and recovering slowly thereafter.
- Risks and buffers assessed:
  - Credit losses based on banks’ own satellite models and/or expert judgment; profits and trading income similarly modeled or judged; losses on sovereign bond holdings based on peak-to-trough sovereign yield movements experienced in the 2008 global financial crisis and the Eurozone debt crisis; funding costs based on asset/liability management models.
- Behavioral adjustments and constraints in modelling:
  - Balance sheet growth equal to nominal GDP growth if capital satisfies CET1, Tier 1, and total capital requirement (or minimum requirement for foreign banks) and nominal GDP growth is positive; no balance sheet growth if nominal GDP growth is negative or bank does not meet relevant hurdle rates.
  - Maximum dividend payout conditional on the bank’s capital buffer over the minimum capital ratio, consistent with Basel III recommendations; dividends paid only if bank records profits.
  - Asset disposals and acquisitions over time not considered; portfolio composition assumed unchanged, with maturing exposures replaced with similar ones.

*Source: IMF staff summary of the Executive Summary of the report as an IMF/World Bank ROSC (IMF Country report No 09/66).*

### 5. Regulatory and Market-Based Standards and Parameters

### 5. Regulatory and Market-Based Standards and Parameters

### Calibration of risk parameters
- PDs and LGDs point-in-time for both credit losses and stressed RWA calculations according to banks’ own models.
- Correlations in market risks according to banks’ own models.
- PDs and LGDs point-in-time for both credit losses and stressed RWA calculations according to central bank models.
- PDs and LGDs point-in-time for both credit losses and stressed RWA calculations; RWA adjustments based on Basel methodology.

### Regulatory/accounting and market-based standards
- Hurdle rate: Basel III schedule, local regulatory requirements and impact measure for foreign banks.
- Hurdle rate: Basel III schedule, local regulatory requirements and impact measure for foreign banks.
- Hurdle rate: Basel II, Basel III schedule, and local regulatory requirements.
- Capital metrics: Basel III, local regulatory requirements, and impact measures for foreign banks).
- CET1, T1, and total CAR.
- Capital metrics: Basel III, local regulatory requirements), and impact measure for foreign banks.
- CET1, T1, and total CAR.
- Capital metrics: Basel II, Basel III, and local regulatory requirements).
- CAR
- Changes in RWAs.
- Changes in RWAs.
- Changes in RWAs.

### Reporting Format for Results (capital)
- CAR by bank.
- CAR by bank.
- Capital shortfall, system wide, aggregated by authorities.
- CAR by bank.
- Capital shortfall, system wide.

### Banking sector: Liquidity risk — institutional perimeter and assumptions (selected)
- Institutions included: Three domestic banks, one foreign subsidiary and three foreign branches.
- Institutions included: Three domestic banks, one foreign subsidiary and three foreign branches.
- Market share: 74 percent of total sector assets.
- Market share: 74 percent of domestic assets.
- Data and baseline date: Banks’ own data.
- Data and baseline date: Consolidated banking group for domestic banks; solo basis for foreign subsidiaries and branches.
- Data and baseline date: Banks’ own data.
- Data and baseline date: Consolidated banking group for domestic banks; solo basis for foreign subsidiaries and branches.

### Banking sector: Liquidity risk — channels, risks and buffers, tail shocks, and standards
- Methodology: Cash-flow mismatch analysis.
- Methodology: Basel III framework for liquidity risk measurement.
- Risks: Funding liquidity shock.
- Risks: Market liquidity shock, affecting haircuts.
- Buffers: Counterbalancing capacity provided by liquid assets.
- Buffers: Minimum liquid assets reserves.
- Buffers: Monetary authority facilities.
- Buffers: Counterbalancing capacity provided by liquid assets.
- Buffers: MAS liquidity facilities.
- Size of the shock: Bank run and dry up of wholesale funding markets, taking into account haircuts to liquid assets.
- Size of the shock: Idiosyncratic and market-wide shock as described in the Basel LCR rules.

### Banking sector: Liquidity risk — regulatory standards (item 5 in table)
- Regulatory standards: Hurdle metrics: liquidity funding gap.
- Regulatory standards: Basel III ratios: LCR, liquidity funding gaps.
- Regulatory standards: Definition of liquidity, e.g., interpretation of Basel III, local regulatory requirements.

### Banking sector: Liquidity risk — reporting format for results
- Output presentation: Liquidity gap by bank and by currency, and consolidated across currencies.
- Output presentation: LCR based on the January 2013 finalized rules by bank and by currency and consolidated across currencies.

### Banking sector: Contagion risk — institutional perimeter and data (selected)
- Institutions included (authorities’ top-down): 10 banks (SGP banking sector (domestic, foreign subsidiaries and branches)).
- Market share: 75 percent of domestic interbank borrowing/lending and derivatives exposures.
- Market share: 100 percent.
- Data and baseline date: Supervisory data, confidential.
- Data and baseline date: Unconsolidated.
- Data and baseline date: Including derivatives valued at adverse scenario prices.
- Performed twice: as of Dec 31, 2012 and then updated as of Mar 31, 2013 (by mid-June).
- BIS locational statistics, bilateral exposures, confidential.
- Banking sector level, unconsolidated.
- 2012 Q4.

### Banking sector: Contagion risk — channels, methodology and tail shocks
- Methodology: Domestic interbank contagion simulating both pure credit and combined credit and funding shocks scenarios.
- Methodology: Cross border Network Analysis (Sole-Espinosa, 2010).
- Methodology: Cross-border banking sector-banking sector balance sheet exposures.
- Size of the shock (top-down by authorities): Pure contagion: default of institutions market closure.
- Size of the shock (top-down by authorities): First round plus subsequent round effects.
- Size of the shock (top-down by FSAP Team): Pure contagion: default of banking sector, market closure, retrenchment of cross-border claims.
- Size of the shock (top-down by FSAP Team): First round plus subsequent round effects.

*Source: Table 8. Singapore: Stress Testing Matrix for the Banking Sector (sections on Regulatory and Market-Based Standards and Parameters, and related liquidity and contagion entries).*

### 4. Reporting Format for Results

### _cr13325 - 4. Reporting Format for Results

### Solvency stress-test results (Table 9)
- Coverage and approaches:
  - Bottom-up, MAS: total capital ratio calculated for four locally incorporated banks and three foreign branches.
  - Top-down, MAS.
  - Top-down, balance-sheet, FSAP team: calculated for three domestic banks, covering about 80 percent of domestic banking assets.
  - Top-down, market-based, FSAP team.
  - Risk drivers calculated for three domestic banks, in percent of RWAs.
- Total capital ratio ranges (selected entries preserved exactly):
  - Bottom-up, MAS (Minimum / Maximum): 14.3 / 27.9 (2012 Current); 10.7 / 19.5 (2013 Minimum/Maximum for banks and branches rows shown).
  - Top-down, MASTotal capital ratio (Minimum / Maximum): 14.3 / 27.9 (2012 Current); 11.8 / 21.5 (2013 Minimum/Maximum for banks and branches rows shown).
  - Top-down balance-sheet, FSAP team Total capital ratio (Minimum / Maximum): 15.7 / 19.5 (2012 Current) through 15.8 / 21.1 (2017 Current).
  - Top-down market-based, FSAP team Total capital ratio (Minimum / Maximum): 15.7 / 19.5 (2012 Current) through 12.2 / 18.1 (2017 Current) in certain rows.
- Risk drivers (preserved exact values, by method and item):
  - Bottom-up, MAS:
    - Net profit (before losses): 1.9 (2013), 1.8 (2014), 1.9 (2015) in Current column; 1.6, 1.6, 1.5 in other columns.
    - Credit losses: -0.2 (2013), -0.2 (2014), -0.2 (2015) in Current; -0.7, -0.8, -0.4 in other columns.
    - Overall losses due to market risk: 0.0 (2013–2015) in Current; -0.5, -0.4, -0.4 in other columns.
    - of which: sovereign risk: -0.2, -0.2, -0.2 in some columns.
    - Change in RWA, yoy (in percent): 7.8 (2013), 7.5 (2014), 7.2 (2015) in Current; 25.1, 10.4, -3.6 in other columns.
  - Top-down, MAS:
    - Net profit (before losses): 2.5 (2013), 2.6 (2014), 2.7 (2015) in Current; 2.1, 1.9, 1.4 in other columns.
    - Credit losses: -1.0 (2013), -0.5 (2014), -0.4 (2015) in Current; -2.1, -1.1, 0.5 in other columns.
    - Overall losses due to market risk: 0.0 (2013–2015) in Current; -0.2, -0.1, -0.2 in other columns.
    - Change in RWA, yoy (in percent): 3.2 (2013), -0.6 (2014), 0.3 (2015) in Current; 23.1, 9.6, -15.4 in other columns.
  - Top-down, balance sheet, FSAP team:
    - Net profit (before losses): 2.0 (2013), 2.0 (2014), 1.9 (2015) in Current; values through 1.8 (2017) in Current columns and 1.3–1.9 in other columns.
    - Credit losses: -0.4 (2013), -0.4 (2014), -0.4 (2015) in Current; evolving to -0.5 and -1.1 in later years/columns.
    - Change in RWA, yoy (in percent): 10.9 (2013), 6.3 (2014), 9.2 (2015) in Current; large swings in other columns (e.g., 58.0, -30.4).
- Losses, in percent of GDP (selected values preserved exactly):
  - Bottom-up, MAS Credit losses: -0.3 (2013), -0.3 (2014), -0.2 (2015) in Current; -1.4, -1.5, -0.8 in other columns.
  - Bottom-up, MAS overall losses due to market risk: 0.0 (2013–2015) in Current; -0.9, -0.9, -0.9 in other columns.
  - Top-down, MAS Credit losses: -1.4 (2012), -0.6 (2013), -0.5 (2014) in some rows; -3.9, -2.1, 0.7 in other columns.
  - Top-down, balance sheet, FSAP team Credit losses: -0.6 (2012), -0.6 (2013), -0.6 (2014), -0.7 (2015), -0.8 (2016), -2.4 (2017) in Current; and -0.9, -0.9, -1.1, -1.1, -1.2, -1.6, -2.4, -2.3, -2.4 in other rows/columns.

### Liquidity stress tests (Table 10)
- Calculations for four banks and three foreign branches.
- A. Liquidity coverage ratio (Basel III parameters) — Consolidated: Maximum 259, Minimum 57, Median 121.
  - Singaporean dollars: Maximum 523, Minimum 90, Median 144.
  - U.S. dollars: Maximum 212, Minimum 1, Median 20.
  - Other foreign currency: Maximum 353, Minimum 0, Median 27.
- B. Stable funding ratio (Basel III parameters) — Consolidated: Maximum 132, Minimum 89, Median 101.
  - Singaporean dollars: Maximum 144, Minimum 62, Median 99.
  - U.S. dollars: Maximum 224, Minimum 53, Median 88.
  - Other foreign currency: Maximum 1999, Minimum 26, Median 94.

### Phase-in arrangements for new capital requirements (Table 11)
- Timeline and prescribed ratios (In percent of risk-weighted assets, unless otherwise indicated):
  - Minimum Common Equity Capital Ratio progression (selected entries): 4.5, 5.5, 6.5, 6.5, 6.5, 6.5, 6.5, 6.5 (2012–As of January 1, 2019 row shows 6.5).
  - Capital Conservation Buffer schedule: 0.625, 1.25, 1.875, 2.5 (phased in).
  - Minimum Common Equity plus Capital Conservation Buffer progression: 4.5, 5.5, 6.5, 7.125, 7.75, 8.375, 9.0.
  - Phase-in deductions from CET1 (in percent to total deductions): 20.0, 40.0, 60.0, 80.0, 100.0, 100.0.
  - Minimum Tier 1 Capital: 6.0, 7.0, 8.0, 8.0, 8.0, 8.0, 8.0.
  - Minimum Total Capital: 10.0 (consistent across years shown).
  - Minimum Total Capital plus conservation buffer progression (selected): 10.0, 10.0, 10.0, 10.625, 11.25, 11.875, 12.5.
- Other notes:
  - Capital instruments that no longer qualify as non Core Tier1 capital or Tier 2 capital phased out over a 10 year horizon beginning 2013.
  - Leverage ratio supervisory monitoring and migration to Pillar 1 staged; Parallel Run Jan 1, 2013–Jan 1, 2017.

### OTC derivatives composition (Table 12)
- Composition by instrument type (In percent):
  - Interest Rates: Future/Forwards 2.4, Options 2.3, Swaps 50.9, Total 55.6.
  - FX: Future/Forwards 20.2, Options 4.6, Swaps 16.4, Total 41.2.
  - Credit: Future/Forwards 0.0, Options 0.0, Swaps 2.2, Total 2.2.
  - Equity: Future/Forwards 0.0, Options 0.5, Swaps 0.1, Total 0.6.
  - Others: Future/Forwards 0.0, Options 0.2, Swaps 0.1, Total 0.4.
  - Total across instrument types: Future/Forwards 22.7, Options 7.6, Swaps 69.7, Total 100.0.
- Source: MAS (April 2012).

### Financial market infrastructures and sector structure (Figure 1–4 highlights)
- FMI roles and operations (notes preserved exactly):
  - MAS operates the New MAS Electronic Payment System (MEPS+), which is the real time gross settlement (RTGS) system for interbank large value payments and the securities settlement system (SSS) for Singapore Government Securities. In addition, MAS is the central securities depository (CSD) for Singapore Government Securities.
  - Corporate securities are settled in the Central Depository Pte Limited (CDP), which is the CSD and SSS for equities and corporate debt securities. The CDP also offers a CCP for all stocks, bonds, and other corporate securities traded on the Singapore Exchange (SGX). The CDP also operates DCSS, which is a securities settlement system for corporate bonds traded on the OTC market. The value of transactions in DCSS is low.
  - A second CCP in Singapore is offered by the Singapore Exchange Derivatives Clearing Limited, SGX-DC (AsiaClear), which clears exchange traded and OTC derivatives. Both the CDP and the SGX-DC are wholly owned subsidiaries of the SGX.
- Financial sector structure and bank presence (Figure 2 highlights):
  - The three local banks represent around twice GDP.
  - Foreign banks operate through branches which represent around 60 percent of total bank assets.
  - Qualified Full Branches have a significant domestic presence.
  - Charts and listings indicate assets in billions of Singapore dollars for various bank categories and a breakdown of banks’ income, loans, and assets relative to parents (values and names preserved in source figures).

### Interbank assets/liabilities and nonresident exposure (Figure 3)
- Interbank assets and liabilities are a large proportion of banks’ balance sheets, mainly with non-residents.
- Charts show:
  - Loans to private sector (In percent of total assets) time series 2007–2012.
  - Interbank Liabilities / Customer Deposits (In percent of total liabilities) time series 2007–2012.
  - Share of nonresident vs. resident in percent of total assets 2007–2012.
  - Nonresident interbank assets and liabilities plotted by bank type (Wholesale, Offshore, Foreign, Full Banks, Local 1/).

### Local banks: financial soundness indicators (Figure 4)
- Comparatives with peers:
  - Tier 1 Ratio (March 2013): Singapore banks vs Peer banks (bar chart).
  - Financial Leverage (March 2013): Singapore banks show lower leverage than peers.
  - Annualized Loan Growth (March 2013): Singapore banks have experienced higher loan growth than peers.
- Additional indicators:
  - Cross-border loans (Main 3 Banks, June 2013) by destination: Others, Greater China, Indonesia, Thailand, Malaysia, Hong Kong, Singapore (values in Billions of SGD shown in figures).
  - Loans by industry (Main 3 Banks, June 2013) with amounts in Billions of SGD (Individuals, General commerce, Financial institutions, Manufacturing, Housing loans, Building and Const., Transport & Comm, Primary sectors).

### Network analysis: spillovers (Figure 5)
- Effects of credit and funding shock measured as percent of pre-shock capital:
  - Inward spillovers: loss in Singapore banking system capital due to distress in other banking systems (countries listed with bars up to 100).
  - Outward spillovers: loss in other banking system capital due to distress in Singapore banking system (countries/ jurisdictions listed with bars up to 100).
- Sources: BIS Banking Statistics and IMF staff estimates.

### Insurance sector indicators (Figure 6)
- Capital ratios of insurance companies showed high resilience over the GFC.
- Most impact was absorbed by returns that fell significantly in 2008 due to a fall in asset prices but quickly recovered.
- Charts and series included:
  - Capital Adequacy Ratios (Direct Life Insurers; Direct General Insurers).
  - Return on Investment (time series 2007–2011).
  - Direct Life Insurers: New Business Premiums (S$ million, series).
  - Direct General Insurers: Gross Premiums (S$ million, series).
  - Asset share by product and asset composition (Life Non-Linked).

### Housing market structure and developments (Figure 7 series)
- Housing stock and transactions:
  - Public housing is roughly 80 percent of total housing stock.
  - Transactions are more stable in the public re-sale market.
  - Public and private property prices diverged during the GFC; real public housing prices surpassed the Asian crisis levels.
- Credit and debt indicators:
  - Credit to GDP increased significantly since 2010, driven in part by real estate related loans.
  - Household leverage is rising but remains below historical median (Household Debt/Assets series versus Historical Median).
  - Bank loans make up roughly 80 percent of all housing loans.
- Exposure and LTV:
  - More than 40 percent of total DBU non-bank loans are related to housing sector.
  - Exposure to housing sector in the top three domestic banks is significant at 36-42 percent of non-bank loans (chart for DBS/OCBC/UOB).
  - 70 percent of loans have LtV ratios of less than 70 percent (LTV distribution series).
- Market composition and trends:
  - Share of foreign purchasers declined due to the additional stamp duty.
  - The public re-sale prices remained resilient and housing affordability has declined (Price to Income, transactions, and other vulnerability indicators plotted).
- Macroprudential measures:
  - Authorities stepped up use of macroprudential measures starting in 2009 as prices began to rise.
  - Cumulative number of changes in the macroprudential framework shown by instrument (Seller's stamp duty, Buyer's stamp duty, Other taxes, Maximum tenure, Minimum cash down payment, Foreigner's Can Borrow in SGP$, LTV, Total Debt Service Ratio) with Property Price Index (right scale). Note indicates tightening (increase) or loosening (decrease) counted as changes.

*Source: Staff calculations; MAS; IMF staff estimates and figures as presented in the source document.*

### introduction of a new measure (e,g., the additional buyers’ stamp duty on non-

### _cr13325 - introduction of a new measure (e,g., the additional buyers’ stamp duty on non-

### Overview
- Excerpt focuses on Singapore's follow-up actions to FATF Recommendations and assessors’ recommended action plans, covering criminalization of money laundering, designated non-financial businesses and professions (DNFBPs), casinos, and transparency of legal persons and arrangements.
- Document structure follows FATF Recommendations, Assessors’ Recommended Action Plans, and Follow-up Actions Taken by Singapore.

### Recommendation 1 — Criminalizing of Money Laundering (PC)
- FATF Assessors’ Recommended Action Plans:
  - Demonstrate effective implementation of the ML offense; particularly in relation to third party money laundering activity, and the laundering of proceeds generated by foreign predicate offenses.
  - Ensure that sanctions are more effectively applied to both natural and legal persons convicted of money laundering.
  - Amend the third party ML offenses, sections 46(2) and 47(2) of the CDSA, to remove the additional purpose elements for the offense of concealment or disguise, and provide for the additional alternative purpose element for the offense of conversion or transfer.
- Improving Effectiveness—Enforcement:
  - Authorities report active investigation of leads to uncover ML/TF offenses and prosecution where an offense is established; number of money laundering convictions has increased over the years.
- Table 1. No. of ML prosecutions/convictions (by persons) and breakdown by self or third party laundering (reported values):
  - 2007: Total no. of ML convictions 12; Total number of ML prosecutions 17; Self laundering convictions 10; Third Party laundering convictions 2
  - 2008: Total no. of ML convictions 24; Total number of ML prosecutions 23; Self laundering convictions 5; Third Party laundering convictions 19
  - 2009: Total no. of ML convictions 26; Total number of ML prosecutions 26; Self laundering convictions 12; Third Party laundering convictions 16
  - 2010: Total no. of ML convictions 18; Total number of ML prosecutions 14; Self laundering convictions 2/ 8; Third Party laundering convictions 11 3/
  - 2011: Total no. of ML convictions 33; Total number of ML prosecutions 44; Self laundering convictions 23 21 4/ 10; Third Party laundering convictions 15 4/ 38
  - Jan–Sept 2012: Total no. of ML convictions 49; Total number of ML prosecutions 47
- Notes on table entries:
  - 1/ The figures shown from 2011 include ML prosecutions/convictions under both the CDSA and Moneylenders Act. In 2011 and in January to September 2012, the number of ML convictions (and prosecutions) under the Moneylenders Act were 7 (and 12) and 33 (and 26), respectively.
  - 2/ Two persons were charged with both self laundering and third-party laundering.
  - 3/ One person was charged with both self laundering and third-party laundering.
  - 4/ Three persons were charged with both self laundering and third-party laundering.

### International Cooperation and Technical Amendments (R1 follow-up)
- International Cooperation:
  - Singapore received 46 mutual legal assistance (MLA) requests from 2007 to Sep 2010, of which only three were rejected.
  - Increase in the number of ML convictions arising from foreign predicate offenses over the years.
  - Singapore’s Suspicious Transaction Reporting Office is a member of the Egmont Group of Financial Intelligence Units and assists counterparts globally.
- Addressing Technical Deficiencies:
  - FATF determined Singapore addressed all technical deficiencies identified in relation to R1.
  - CDSA is primary legislation criminalizing laundering of criminal benefits and providing for investigation and confiscation.
  - Sections 46 and 47 of the CDSA were amended to:
    - Remove the requirement that the act is done for the purpose of assisting the other person to avoid prosecution for a drug trafficking or serious offense, or the making or enforcement of a confiscation order. Now an offense is committed so long as a person does so knowing or having reasonable grounds to believe that the property represents another person’s proceeds of crime.
    - Remove the requirement that acquiring property representing another person’s proceeds of crime be for no or inadequate consideration; acquisition at fair value is now covered if done knowing or having reasonable grounds to believe the property represents proceeds of crime of another person.
- Other Technical Improvements:
  - Review of Legislation:
    - Eight offenses30 were added to the Second Schedule of the CDSA in February 2011, bringing the total number of such offenses to 417.
    - Serious tax crimes were designated as money laundering predicate offenses on July 1, 2013.
    - Amendment to the CDSA in March 2012 clarified that reporting of suspicious transactions under section 39 covers attempted transactions by adding section 39(1A), clarifying STR requirement applies regardless whether the transaction was completed.

### Recommendations 12, 16 and 24 — DNFBPs (NC/PC)
- FATF Assessors’ Recommended Action Plans:
  - Adopt AML/CFT measures for real estate agents, dealers in precious metals and dealers in precious stones, accountants, and trust and company service providers (other than trust companies which are regulated as FIs) and ensure these sectors are subject to effective AML/CFT oversight.
  - For lawyers: ensure basic obligations are contained in law and regulation; enhance CDD obligations relating to beneficial ownership and control, enhanced CDD and ongoing monitoring of clients who are PEPs, use of third parties/introducers, record-keeping, and strengthen monitoring of compliance.
- Follow-up Actions Taken by Singapore — Real estate:
  - Council for Estate Agencies (CEA) established in Oct 2010 under the Estate Agents Act 2010 to strengthen regulatory oversight.
  - Enhanced regulatory framework introduced by the CEA in Nov 2010 covering licensing of estate agencies, registration of salespersons, qualifications, training requirements, and enforcement framework.
  - Amendments to the Code of Practice for Estate Agents to enhance record keeping; estate agents required to retain originals or copies of documents (estate agency, sale and purchase, option to purchase and lease agreements) for at least five years. Targeted implementation in 1H 2013.
  - CEA issuing guidelines in 2H 2013 to remind estate agents and salespersons of obligations under Section 39 of the CDSA to lodge suspicious transaction reports (STR) with STRO; outreach sessions planned.
- Company Service Providers:
  - Accounting and Corporate Regulatory Authority (ACRA) working with Attorney-General’s Chambers to finalize proposed regulations for CSPs, including requirement to identify beneficial owner of legal entities and record keeping; CSPs will remain subject to STR requirements. New regulations expected to be in force by 2014.
- Lawyers:
  - Revised “Council’s Practice Direction No. 1 of 2008: Prevention of Money Laundering and the Funding of Terrorist Activities” issued to provide enhanced guidance to lawyers and law practices on ML/TF rules, duty to report suspicious transactions, detailed CDD requirements, and when/how RBA can be applied.
  - FATF noted a remaining technical deficiency that requirements to identify beneficial owners and conduct ongoing due diligence were contained in other enforceable means rather than law or regulation.
  - Inspections in 2012 found most practices with satisfactory KYC and due diligence; areas for improvement included ongoing monitoring and suspicious transaction reporting. Firms required to improve practices and attend AML training seminars.
  - Re-inspection of law practices with prior deficiencies shows practices addressing deficiencies per authorities.
  - Council actions: articles in Singapore Law Gazette, AML/CFT seminars, AML/CFT compulsory component of the Legal Practice Management Course, KYC checklist incorporated into Council’s Practice Management Manual. CAD continues outreach to legal sector.
- Casinos:
  - Casino Regulatory Authority (CRA) set up under MHA to oversee casinos and ensure management/operation free from criminal influence and effective AML/CFT measures.
  - Casino Control (Prevention of Money Laundering and Terrorism Financing) Regulations (CCR) enacted under the CCA in October 2009 mandate AML/CFT measures for casinos, including:
    - Mandatory reporting for cash transactions of S$10,000 or more.
    - Mandatory reporting of suspicious transactions.
    - Implementation of Know Your Customer and Customer Due Diligence (CDD) measures.
    - Record-keeping for transactions of S$5,000 and above.
    - Maximum financial penalty for CDD breaches: a sum not exceeding 10 percent of the casino operator’s annual gross gaming revenue for serious breaches.
  - Inspections and Infringements:
    - From January to September 2012, CRA conducted full scope inspections on both casino operators across 16 areas, including AML/CFT. Inspections established both operators implemented required internal controls; noted non-compliances were addressed by operators.
    - Since operations began, enforcement agencies have not detected any major infringement of the AML/CFT provisions of the CCA by casino operators.
    - There has been one conviction of a person for money laundering in a casino under the CDSA.

### Recommendations 33 and 34 — Transparency of Legal Persons and Arrangements (PC)
- FATF Assessors’ Recommended Action Plans:
  - Broaden requirements on beneficial ownership so that information on ownership/control is readily available in a timely manner.
  - Broaden requirements on beneficial ownership so that information on ownership/control for all trusts (not just those administered by trust companies) is readily available in a timely manner.
- Follow-up Actions Taken by Singapore — Companies:
  - Proposed regulation of CSPs (see above) will require CSPs to look through to the beneficial owner, enhancing transparency of legal persons. New FATF requirements will be factored into drafting of proposed regulations.
- Trusts:
  - Section 3 of the Singapore Trust Companies Act requires licensing for persons carrying on trust business or holding themselves out as carrying on trust business in Singapore. Licensing and CDD requirements apply to any persons offering trust business in Singapore, regardless of residential status or location of assets. Licensing exemptions are available in limited circumstances, but exempt entities still required to comply with CDD requirements.
  - CDD requirements are mandated by the Monetary Authority of Singapore Anti-Money Laundering and Countering the Financing of Terrorists Notices, applying to all licensed trust companies and regulated financial institutions. These require identification and verification checks on all trust relevant parties, including settlors, trustees, beneficiaries and beneficial owners.
  - Compliance with MAS AML/CFT Notices is supported by onsite and offsite supervision.
- FATF February 2011 note:
  - FATF noted Singapore had not taken sufficient action to bring the level of compliance with R33 and R34 to a level equivalent to LC. The FATF has not assessed subsequent action taken by the authorities.

*SINGAPORE — INTERNATIONAL MONETARY FUND (excerpt).*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13325.pdf_