## INTRODUCTION — IMF assessment of Monetary Authority of Singapore (MAS) (Content unit: _cr13342) ## Source details **Canonical URL:** [INTRODUCTION — IMF assessment of Monetary Authority of Singapore (MAS) (Content unit: _cr13342)](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13342.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13342.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13342.pdf.json) --- ### Summary of assessment and main findings - Level of compliance: very high level of compliance with the Basel Core Principles for Effective Banking Supervision (BCP). - Supervisory strengths: - Strong and experienced supervisory staff; effective supervisory and regulatory framework; active engagement with management and boards. - Strong government support contributing to Singapore’s role as a leading financial center. - Systemic context and vulnerabilities: - Financial institutions’ aggregate assets represent seven times GDP; financial sector share of GDP was 12 percent in 2012. - Financial system significantly larger than the economy and predominantly composed of branches of foreign institutions operating in non‑Singapore dollars. - Local retail market concentrated in three locally‑owned banking groups (DBS Limited; UOB Limited; OCBC Limited), one foreign subsidiary with full banking privileges, and nine foreign bank branches with QFB privileges; several locally incorporated banks are systemically important. - Prudential parity and branch treatment: - Same prudential framework applied to foreign branches and locally incorporated banks; branches subject to risk‑based requirements (e.g., minimum cash balance, minimum liquid asset and asset maintenance ratios) in lieu of capital requirements. - MAS maintains good working relationships with home supervisors and engages parent bank management on branch risks. ### Background and methodology - Assessment part of the 2013 FSAP‑Update for Singapore; IMF mission visited April 3–17, 2013. - Singapore assessed under updated CPs approved September 2012 (247 essential and additional criteria). - MAS agreed to be assessed on both essential and additional criteria. - Compliance categories used: compliant; largely compliant; materially noncompliant; noncompliant; non‑applicable. - Assessment qualitative and based on laws, rules, policies, practices at time of assessment; team: Jonathan Fiechter and Antonio Pancorbo. ### Key statistics (as reported) - Banking system assets (end‑2012): - Banks and Finance Companies: Assets S$2,064.5 billion; Number 168 - Banks: Assets S$1,957.1 billion; Number 123 - Local banks (Singapore banking operations): Assets S$652.2 billion; Number 7* - Foreign branches: Assets S$1,304.9 billion; Number 116 - Merchant banks: Assets S$92.4 billion; Number 42 - Finance companies: Assets S$15.0 billion; Number 3 - *Includes three locally incorporated banking groups and one foreign subsidiary. - Household income: median monthly household income from work per household member S$2,130 in 2012. - Deposit insurance limits: - SDIC insures first S$50,000 of Singapore dollar deposits; equivalent to 196 percent of annual median income and covers 90 percent of all depositors. - Contingent liquidity facility extended by MAS up to S$20 billion. - Crisis deposit guarantee: 100 percent deposit guarantee from October 2008 until year‑end 2010; fiscal backstop limited to S$150 billion during crisis assessment. --- ### MAS roles, mandate and institutional design - MAS functions: central bank; manager of official foreign reserves; integrated supervisor for banking, insurance and securities; resolution authority; macroprudential authority; administrator of DI payouts; developer of Singapore as an international financial center. - Governance: - Chairman’s Meeting (Board‑level) vested with duties for microprudential and macroprudential policies; supported by Management Financial Stability Committee chaired by MAS Managing Director. - Current Chairman also a Deputy Prime Minister and Minister for Finance (as reported). - Strengths of integrated structure: - Seamless coordination across central banking, supervision, resolution and macroprudential functions; proactive policy making and consultative approach. - Vulnerabilities: - Concentration of functions reduces independent checks; dual mandate (prudential supervision and financial center development) could create potential conflicts—no evidence at assessment time but recommended to be monitored. ### Recommended governance actions (summary) - Reflect on insulating prudential supervision from developmental mandate (e.g., make developmental mandate subordinate). - Consider changing Board appointment composition toward more independent members. - Establish effective high‑level checks and balances to ensure prudential supervision priority. --- ### Regulatory and supervisory framework, approach and resources ### Legal and supervisory powers (selected specifics) - Banking Act (BA) statutory powers (selected sections cited): - Section 4: MAS is sole regulator of banks. - Section 7: MAS may vary or revoke license conditions. - Section 9: paid‑up capital requirements (see licensing). - Section 10 / 10(3): risk‑based capital requirements; MAS may vary CAR applicable to a bank. - Section 12: prior approval for opening places of business outside Singapore. - Section 18, 26, 36, 43, 44, 44A, 49, 54, 55: powers to obtain information, inspect books, investigate, require actions, assume control, give directions, apply resolution tools. - Section 20: revoke license in certain circumstances. - Sections 38, 39, 40: require higher minimum liquid assets, minimum cash balances and assets in Singapore respectively. - MA Act protections: - Section 22: legal protection for MAS, directors, officers and employees for actions done in good faith; legal aid provided on full indemnity basis. - Section 17(2): MAS may engage advisers and consultants. - Section 41A: MAS may compound offenses (up to half of maximum fine). - Supervisory tools: - On‑site inspections (statutory inspection powers), off‑site monitoring (MASNET, EPIC), corrective tools (warnings, fines, license restrictions, directions, statutory managers), resolution measures (transfer of business, transfer of shares, restructuring share capital, winding up). ### Staffing and specialist resources (exact figures) - As of end‑December 2012 / April 2013: - Total senior officers responsible for supervision of 123 banks: 185 (end‑December 2012). - Banking department headcount increased by 30 percent since 2008 to 199 staff (as of April 2013). - Over 90 functional specialists supporting bank supervisors (market, liquidity, credit, technology risk, business continuity, capital and prudential policy analysts, macroeconomists, in‑house counsels). - MAS Academy, training and talent management: MAS Diploma in Central Banking, PROF competency framework, scholarships up to PhD level, external secondments and study trips. ### Supervisory approach and methodologies - Risk‑based supervision anchored on CRAFT (Comprehensive Risk Assessment Framework and Techniques) and an impact‑and‑risk bucketing system (Buckets 1–4; Bucket 1 = highest supervisory intensity). - Forward‑looking assessments with a one‑year horizon; intensity of supervision determined by systemic importance and risk profile. - Use of supervisory analytics and tools: CRAY (Credit Risk Analytics), top 100 borrowers submission (semi‑annual), IWST (industry‑wide stress tests), monitoring indicators, on‑site transaction testing, independent validation, and internal challenge/review panels. --- ### Key assessments by topic (principle‑level summaries and notable numeric standards) ### Principle 1 — Responsibilities, objectives and powers - Assessment: Largely compliant. - Observations: Comprehensive statutory responsibilities; dual mandate raises potential conflict risk; recommendation to insulate prudential functions or prioritize prudential mandate. ### Principle 2 — Independence, accountability, resourcing and legal protection - Assessment: Largely compliant. - Observations: Operational autonomy, annual audited accounts presented to President/Parliament, strong resourcing and competitive remuneration; Board composition includes government ministers creating potential for political influence; suggested increase in independent Board membership. ### Principle 3 — Cooperation and collaboration - Assessment: Compliant. - Observations: Strong domestic coordination and international MoUs; hosts supervisory colleges; shares inspection reports and engages in crisis management groups. ### Principle 4 — Permissible activities and naming controls - Assessment: Compliant. - Numeric/licensing facts: - S$1,500 million minimum paid‑up capital for a bank incorporated in Singapore (section 9). - Head office capital funds for bank incorporated outside Singapore: equivalent of S$200 million. - S$100 million paid‑up capital for qualifying subsidiary (section 9A). ### Principle 5 — Licensing criteria - Assessment: Compliant. - Practices: High standards for granting banking licenses; S$1,500 million capital requirement; thorough assessment of parent/home supervisor; informal dissuasion practice noted (recommendation: occasionally publish rejections to signal standards). ### Principle 8 — Supervisory approach - Assessment: Compliant. - Features: Intrusive, intensive, forward‑looking; recovery and resolution planning strengthened for systemically important banks. ### Principle 9 — Supervisory techniques and tools - Assessment: Compliant. - Tools and processes: regular on‑site inspections, off‑site supervision, CRAFT, CRAY, BSS, MASNET, EPIC, industry stress tests. ### Principle 10 — Supervisory reporting - Assessment: Compliant. - Reporting details (exact returns): - Monthly: assets, liabilities, off‑balance sheet, P&L, capital, liquidity (MAS Notice 610; MAS Notice 613). - Quarterly: related party transactions (MAS Notice 639A). - Semi‑annual: top 100 borrowers with classification, collateral and provisions. - Annual: audited financial statements and auditors’ long form report (MAS Notice 609). ### Principle 11 — Corrective and sanctioning powers - Assessment: Largely compliant. - Enforcement powers: warnings, reprimands, fines, license variation/suspension/revocation, appointment of statutory advisers/managers (sections 49, 55). - Observations: More limited direct powers vis‑à‑vis foreign branches (no capital requirement tool for branches); MAS uses asset maintenance and liquidity requirements for branches. ### Principle 12 — Consolidated supervision - Assessment: Compliant. - Practices: Consolidated and solo supervision; section 36 powers to require aggregation of assets/liabilities; on‑site inspections overseas for significant foreign operations (at least once every three years for major offices). --- ### Problem assets, provisions, reserves, and credit risk supervision ### Problem assets and provisioning framework - Assessment (Principle 18): Compliant. - Regulatory instruments: - MAS Notice 612: credit files, grading and provisioning; five grades: Pass, Special Mention, Substandard, Doubtful, Loss. - Section 23 of BA: adequate provisions for bad and doubtful debts prior to profit declaration. - MAS Notice 609: external auditors’ long form report to MAS, including adequacy of provisions. - Collective impairment provision (CIP): minimum 1 percent of loans and receivables (net of collaterals and after deducting specific provisions). - Supervisory practice: - Inspections assess grading, provisioning, write‑offs, watchlists, transaction testing and require remedial action; supervisors may require increased provisions. ### Credit risk (Principle 17) - Assessment: Largely compliant. - Context and recommendations: - Credit risk is the most relevant risk; authorities implemented “cooling” measures since 2009 aimed at property and auto lending. - NPLs at historically low levels; vulnerabilities from expansionary credit cycle and hidden weaknesses. - Recommendations: increase attention to on‑site credit inspections; for major banks establish a multiyear on‑site supervisory cycle to cover all sectors per CRAFT; allocate resources commensurate with credit risk systemic impact. ### Concentration risk and large exposure limits (Principle 19) - Assessment: Compliant. - Numeric limits preserved verbatim: - International benchmark exposure limit: 25 percent of capital to any one counterparty. - Aggregate large exposures not to exceed 50 percent of total exposures. - Equity investments limit: 2 percent of capital to a single company or fund. - Immovable property limit: 20 percent of capital. - Property sector exposure cap: 35 percent of total eligible assets. - Observations: MAS has not observed major banks approaching these limits; recommendation to revisit policy after Basel Committee completes work on concentration risk. ### Related‑party transactions (Principle 20) - Assessment: Compliant. - Controls and reporting: - Section 27 requires quarterly statement of all credit facilities and exposures to related parties (MAS Notice 639A). - Director declarations required (section 28); limits on unsecured credit facilities to director groups (S$5,000 aggregate unsecured credit to director group rule cited). - MAS Notice 643 (effective July 1, 2014) formalizes expectations on related‑party transactions. --- ### Capital adequacy, liquidity, market, interest rate and operational risks ### Capital adequacy (Principle 16) - Assessment: Compliant. - MAS capital requirements (numbers preserved): - From January 1, 2013: required minimum CET1 CAR 4.5 percent and Tier 1 CAR 6 percent; Total CAR remained 10 percent. - From January 1, 2015: MAS will require locally‑incorporated banks to meet capital adequacy requirements higher than Basel III global capital standards. - From January 1, 2015: minimum CET1 CAR 6.5 percent, Tier 1 CAR 8 percent and Total CAR 10 percent. - Capital conservation buffer: 2.5 percent phased in annually from 2016 to 2019 (annual increment 0.625 percent); including buffer CET1 CAR required 9 percent. - Countercyclical buffer: 0 to 2.5 percent CET1 phased in 2016–2019. - MAS practices: stricter treatment (e.g., full deduction of deferred tax assets dependent on future profitability; Basel I capital floors on Tier 1 and total capital; no netting of on/off balance sheet assets/liabilities for credit risk capital). ### Liquidity risk (Principle 24) - Assessment: Compliant. - Statutory and notice standards: - MCB and MLA requirements: MCB 3 percent; MLA general 16 percent of qualifying liabilities (MAS Notice 758; MAS Notice 613). - MLA bank‑specific framework: floor 5 percent and cap between 10 percent and 15 percent for certain banks; number on bank‑specific framework: 9 banks. - Liquidity data collection and Basel III alignment: - August 2012 liquidity data exercise; LCR monitoring by significant currency; MAS supports Basel III liquidity standards and will implement according to BCBS timelines. - Observations: foreign branch funding in foreign currencies (primarily US$) increases liquidity vulnerability; branches required to reduce liquidity risk via matched funding and issuance of medium‑term notes. ### Market risk and interest rate risk in banking book - Market risk (Principle 22): Assessment Compliant. - MAS Market Risk Guidelines; dedicated market risk specialist team; banks must supplement VaR with stress tests and maintain capital for market illiquidity and concentration. - Interest rate risk in the banking book (Principle 23): Assessment Compliant. - Annex 10A standardized interest rate shocks and requirement to assess impact on economic value and capital; ICAAP review of IRRBB capital adequacy; monthly management and quarterly Board reporting required. ### Operational risk, IT, outsourcing and business continuity (Principle 25 and related) - Operational risk: Assessment Compliant. - Pillar 1 operational risk capital for locally‑incorporated banks (Standardized Approach or BIA for the foreign subsidiary). - MAS issued Operational Risk, BCM and Internet Banking/Technology Risk Management Guidelines. - Enforcement example: July 2010 additional capital multiplier of 1.2 applied to a bank for operational risk weakness (approximate translated amount reported ~S$230 million on group basis). - IT and outsourcing supervision: - Dedicated technology risk specialists; guidelines and inspections; notification and MAS Technology Questionnaire for significant outsourcing involving sensitive data (MAS Notice 634; Guidelines on Outsourcing). - Industry‑wide exercises and IWEs (e.g., Exercise Raffles III on September 15, 2011 with more than 4,000 executives from 137 firms). --- ### Crisis management, resolution and enforcement ### Resolution powers and strategies - MAS is resolution authority under BA and MAS Act; powers include winding up (section 54A), assuming control or appointing statutory managers (section 49), compulsory transfer or disposition of business (sections 55E–55G), transfer of shares (55H–55J), restructuring share capital (55K–55M), prohibitions and court orders (section 54). - Enhancements under MAS (Amendment) Bill 2013 (passed March 2013) include: - directions continuing in force notwithstanding license surrender; - power to direct non‑regulated entities within a group where significant to a bank’s business; - power to claw back remuneration in certain circumstances; - expanded information sharing with domestic/foreign resolution authorities. ### Crisis management arrangements - Internal Crisis Management Team (CMT) activation procedures; Distressed Financial Institution (DFI) handbooks; industry‑wide simulation exercises; MAS works with MOF and home supervisors. - MAS’ resolution actions must consider insured depositors, financial stability in Singapore, public interest and other relevant matters; cooperative solutions with foreign authorities envisaged. ### Enforcement practices and sanctions - MAS enforcement toolkit: administrative fines, compositions (section 41A), license conditions variation/revocation, directions, statutory manager appointment, criminal prosecution where applicable. - MAS immunity and legal protection for staff when acting in good faith (section 22). --- ### AML/CFT, disclosure, audit and external reporting ### AML/CFT regime (Principle 29) - Assessment: Compliant. - Legal and regulatory framework: - MAS Notice 626 on Prevention of Money Laundering and Countering the Financing of Terrorism; MAS Act sections 27A/27B empower AML directions; CDSA and other laws administered by MHA/CAD/STRO. - Reporting: banks report suspicious transactions to STRO and copy MAS (paragraph 11.2 of MAS Notice 626). - Penalties: fine up to $1 million and further $100,000 per day continuing after conviction for failure to comply. - Supervisory practice: inspections, off‑site reviews, self‑assessment questionnaires, thematic AML inspections, industry guidance (ABS, Private Banking Industry Group). ### Financial reporting, external audit and disclosure (Principles 27 & 28) - Assessment: Compliant. - Accounting and audit requirements: - FRSs (modeled on IFRS); section 199 and 201 of CA require proper records and true and fair accounts; Section 373 requires foreign branches to lodge audited financials with ACRA. - MAS Notice 609: auditors’ long form report and supplementary report to MAS; section 58(5) empowers MAS to require extension of audit scope; section 58(8) requires auditors to report serious breaches to MAS. - Audit rotation: SGX requires partner rotation every five years; MAS Notice 615 requires prior MAS approval for auditor appointments and historically limited audit firm tenure for local banks (subject to temporary suspension during crisis). - Public disclosures and market discipline: - Banks publish audited financial statements; MAS Notice 637 Part XI prescribes Pillar 3 disclosure requirements. - MAS publishes aggregate statistics and Financial Stability Review (FSR). --- ### Recommended actions and supervisory priorities (selected) - Principle 1: Clarify insulation of prudential supervision from developmental mandate; establish checks and balances. - Principle 2: Consider Board appointment composition adjustments to increase independence. - Principle 11: Continue close cooperation with home supervisors of major foreign branches; encourage incorporation of significant retail branch operations. - Principle 17: Increase on‑site supervisory attention to credit risk; assign resources commensurate with credit risk; implement multiyear on‑site cycles for major banks to review credit exposures and loan restructurings. --- *Italic: Source: INTRODUCTION and selected sections, _cr13342 — IMF assessment chapter (pages 6–11 and subsequent principle assessments), IMF staff report excerpt.* ### INTRODUCTION __________________________________________________________________________________ 6 ### INTRODUCTION ### Summary of assessment and main findings - The assessment of the Monetary Authority of Singapore (MAS) represents a very high level of compliance with the Basel Core Principles for Effective Banking Supervision (BCP). - MAS has a strong and experienced supervisory staff and an effective supervisory and regulatory framework, including active and constructive engagement with management and boards of supervised financial institutions. - The high degree of compliance reflects strong support from the Singaporean government and contributes to Singapore’s role as a leading financial center. - A high degree of compliance is not a guarantee against bank failures; supervision aims to minimize likelihood of failure and to deal swiftly and effectively with troubled institutions to preserve financial stability. - MAS faces risks from a financial system significantly larger than the economy of Singapore and predominantly composed of branches of foreign institutions operating in non‑Singapore dollars. - The local retail market is concentrated in essentially three locally‑owned banking groups, a foreign subsidiary with full banking privileges, and nine foreign bank branches holding Qualifying Full Bank (QFB) privileges; several locally incorporated banks are systemically important to Singapore. - MAS applies the same prudential framework to foreign branches as to locally incorporated banks, and in lieu of capital requirements for branches it imposes risk‑based requirements including minimum cash balance, minimum liquid asset and asset maintenance ratios. - MAS maintains good working relationships with home supervisors of foreign branches and proactively engages parent bank management on branch risks and shortcomings. ### Background and methodology - This BCP assessment is part of the 2013 FSAP‑Update for Singapore. - The assessment was conducted during an IMF mission that visited Singapore from April 3 to 17, 2013. - Singapore was among the first countries assessed under the updated CPs approved by the Basel Committee on Banking Supervision (BCBS) in September 2012. - The revised CPs contain 247 separate essential and additional criteria against which a supervisory agency may be assessed. - MAS agreed to be assessed and graded on both essential and additional criteria. - The assessment uses five compliance categories: compliant; largely compliant; materially noncompliant; noncompliant; and non‑applicable. - “Compliant” is given when all essential and additional criteria are met without significant deficiencies. - “Largely compliant” is given when only minor shortcomings are observed that do not raise concerns about the authority’s ability and intent to achieve full compliance within a prescribed period. - “Materially noncompliant” denotes severe shortcomings despite formal rules and evidence of ineffective supervision. - “Noncompliant” denotes the principle is not substantially implemented or supervision is manifestly ineffective. - “Non‑applicable” is reserved where criteria do not relate to the country’s circumstances. - The assessment is qualitative, emphasizing commentary over individual grades, and is based on laws, rules, policies, practices in place at the time of assessment and extensive meetings with MAS, industry, and third parties. - The assessment does not reflect planned initiatives or future regulatory amendments. - The assessment team comprised Jonathan Fiechter and Antonio Pancorbo. - The mission acknowledged very high quality of cooperation and access to requested information, including a comprehensive MAS self‑assessment. ### Institutional setting and market structure - Singapore is a major financial center whose financial institutions in the aggregate hold assets representing seven times GDP and whose share of Singapore’s GDP was 12 percent in 2012. - The financial sector is dominated by the banking industry. - As of end‑2012, the banking system composition (Table 1) was: - Banks and Finance Companies: Assets (in S$ billion) 2,064.5; Number 168 - Banks: Assets (in S$ billion) 1,957.1; Number 123 - Local banks (Singapore banking operations): Assets (in S$ billion) 652.2; Number 7* - Foreign branches: Assets (in S$ billion) 1,304.9; Number 116 - Merchant banks: Assets (in S$ billion) 92.4; Number 42 - Finance companies: Assets (in S$ billion) 15.0; Number 3 - Source: MAS. - *Includes three locally incorporated banking groups and one foreign subsidiary. - There are three domestic commercial banking groups designated as full banks: DBS Limited; United Overseas Bank (UOB) Limited; and Oversea‑Chinese Banking Corporation (OCBC) Limited. One global foreign bank operates as a subsidiary with full banking privileges. The three domestic groups have significant operations in neighboring countries. ### Actions taken by authorities to mitigate financial‑center risks - Emphasis on ensuring MAS has the capacity and resources to be a world‑class supervisor. - Setting high prudential standards: - Capital requirements that exceed minimum international standards. - High liquidity requirements. - Requirements for robust risk management and governance systems. - A system of intensive and intrusive supervision. - Aiming for a balanced mix of domestic banks (local and foreign subsidiaries) and a diversified group of foreign branches, including branches of major global banks. - Limiting granting of full banking licenses and privileges to accept retail deposits. - Treating foreign branches similarly to domestically incorporated banks for supervision and regulation. - Setting a relatively conservative deposit insurance limit of S$50,000, which is equivalent to 196 percent of annual median income and covers 90 percent of all depositors. - During the crisis, Singapore put in place 100 percent deposit guarantee from October 2008 until year‑end 2010, while limiting its fiscal backstop of the guarantee to S$150 billion based on its assessment of possible liabilities arising from failures. ### Additional statistic on household income - Among resident employed households, median monthly household income from work per household member was S$2,130 in 2012. Source: “Key Household Income Trends, 2012”, Singapore Department of Statistics. _Italic: Source: INTRODUCTION, _cr13342 — IMF assessment chapter (pages 6–11)._ ### 16. MAS plays a central role in the institutional design of the financial system in ### 16. MAS plays a central role in the institutional design of the financial system in Singapore ### MAS roles and institutional mandate - MAS acts as central bank, manages the official foreign reserves, is the integrated supervisor for the financial sector, is the resolution authority for financial institutions, is the macroprudential authority, assesses and triggers payouts from the deposit insurance system, and has a mandate to develop Singapore as an international financial center. - The MAS Chairman presides over the Board-level Chairman’s Meeting, which is vested with duties for both microprudential and macroprudential policies. The Chairman’s Meeting is supported in its macroprudential role by the MAS Management Financial Stability Committee, chaired by the Managing Director of MAS. - The current Chairman of MAS is also a Deputy Prime Minister and the Minister for Finance. ### Regulatory and supervisory framework - MAS regulates and supervises all financial intermediation, including banking, insurance and securities activities. - MAS has a tradition of adopting conservative prudential guidelines for capitalization, liquidity and operations management. - MAS has adopted a risk-based supervisory framework, with supervisory intensity depending on the systemic importance of a financial institution and its assessed riskiness. - Macroeconomic surveillance and supervisory functions in MAS are coordinated to identify and address the impact of developments in the macroeconomic environment on individual banks. - The Financial Action Task Force (FATF) rated MAS highly on most of the anti-money laundering recommendations that are relevant as banking supervisor. ### Strengths and vulnerabilities of MAS’ integrated structure - Strengths: - Seamless and timely coordination, communication, and collaboration among central bank, supervisory, resolution, macroprudential, and developmental functions. - Industry view: MAS staff are often ahead of the international community on prudential measures; MAS policy making described as highly consultative. - Vulnerabilities: - Concentration of functions reduces the “second pair of eyes” advantage and may limit checks and balances. - Dual mandate (prudential supervision and financial center development) could, under different leadership, create conflicts where developmental objectives might be prioritized over prudential measures. The assessment found no instances of prudential supervision being sacrificed for developmental needs, but this remains a future risk to be monitored. ### Features of the banking sector with supervisory implications - Prevalence of the “branch” model: most foreign banks operate as branches, and most are reported to fund themselves outside of Singapore. - Implication: limits risk to Singapore but increases supervisory burden on MAS because some regulatory tools and supervisory instruments (e.g., capital and liquidity requirements, direct supervision of head office, effective resolution tools) are less applicable or less effective for branches. - MAS response: announced requirement that foreign branches with significant retail operations in Singapore locally incorporate their retail operations (convert to subsidiaries). - Universal banking model: banks are allowed to own insurance companies and securities firms/broker dealers. - Implication: more diversified income source but higher complexity in management and supervision. ### Preconditions for effective banking supervision (factual review) - Macroeconomic environment and policy: - Over 2003–12, GDP growth averaged 6.1 percent and CPI inflation averaged 2.6 percent. - Exchange rate-centered monetary policy framework effective in price stability and anchoring inflation expectations. - Government adheres to fiscal prudence and aims to run a balanced budget over the business cycle; budget focus on structural and social goals, productivity, and inclusiveness. - Macroprudential policy: - Amid low interest rates and abundant global liquidity, macroprudential tools are deployed to address credit and inflation risks in specific asset markets. - MAS is the macroprudential authority in Singapore. - Ongoing institution-specific monitoring by MAS’ financial supervision departments complements top-down surveillance to identify risks and vulnerabilities. - MAS holds meetings with the Ministry of Finance (MOF) to discuss emerging macroeconomic and financial stability issues and collaborate on crisis management preparations. - Crisis management and resolution: - MAS is the resolution authority for financial institutions under the Banking Act; available resolution strategies include winding up, taking operational control, transfer or disposition of business, transfer of shares, restructuring of share capital, imposing of a moratorium, etc. - Operationally, MAS departments detecting a developing crisis should activate the internal Crisis Management Team (CMT) with approval from the Managing Director of MAS. - Simulation exercises are conducted at industry-wide levels. - MAS is working with supervisors in the region to reach agreement on a framework for cross border resolutions of regional banks. - Deposit insurance: - Singapore Deposit Insurance Corporation (SDIC) established in 2006 to protect small depositors. - SDIC board accountable to the Minister-in-charge of MAS. - Membership mandatory for retail deposit-taking institutions (full banks and finance companies). - SDIC insures the first S$50,000 of Singapore dollar deposits placed by non-bank depositors in standard savings, current and fixed deposits accounts. - This fully covers the deposits of close to 90 percent of retail depositors. - SDIC is pre-funded by contributions from members. - MAS has extended a contingent liquidity facility of up to S$20 billion. - Public infrastructure: - Well developed accounting, auditing and legal professions, and payment, clearing and settlement systems. - Legal system based on English common law; laws strictly enforced and punishments are often severe. - World Economic Forum Global Competitiveness Report 2011–2012 ranked Singapore highly on: efficiency of the legal framework in determining disputes (1st), property rights (3rd), and judicial independence (20th). ### Assessment summary and supervisory performance - Overall results reflect the high quality and proactive nature of MAS; industry representatives praised MAS’ expertise and professionalism. - Anecdotal examples: MAS often ahead internationally on prudential measures (capital, liquidity, governance); MAS’ approach described as strict and intrusive but consultative with clear explanations. - Table 2: Principle-by-principle summary of Basel Core Principles assessment (grades and key comments reproduced from the assessment): - Core Principle 1. Responsibilities, objectives and powers — LC - Comprehensive responsibilities; dual mandate raises potential risk of conflict with prudential objectives; no evidence of lowered standards at assessment time; area to be monitored. - Core Principle 2. Independence, accountability, resourcing and legal protection for supervisors — LC - MAS has significant authority and government backing; governance structure raises potential for political influence (Board composition includes government ministers and MOF permanent secretary); Chairman’s Meeting decision-making may pose risk under different leadership. - Core Principle 3. Cooperation and collaboration — C - Integrated supervisor advantage for coordination and information sharing; risk of reduced checks and balances. - Core Principle 4. Permissible activities — C - Any institutions offering banking services must be licensed and subject to bank supervision. - Core Principle 5. Licensing criteria — C - High standards for granting banking licenses; S$1.5 billion capital requirement for new full banks. - MAS undertakes thorough assessment of parent bank and home supervisor for foreign entry; practice of informal dissuasion of unsuitable applicants noted. - Core Principle 6. Transfer of significant ownership — C - Legal and supervisory framework appropriate; limited instances observed. - Core Principle 7. Major acquisitions — C - High prudence; acquisitions generally limited to entities engaged in banking or supervised by MAS. - Core Principle 8. Supervisory approach — C - Intrusive, intensive, risk-based supervision; effective use of moral suasion and soft powers; framework for early intervention in place. - Core Principle 9. Supervisory techniques and tools — C - Wide range of tools; base-level off-site supervision and on-site inspection for all banks; MAS uses primarily own staff and independent verification. - Core Principle 10. Supervisory reporting — C - Banks furnish required information; electronic systems “MASNET” and “EPIC” facilitate submission; internal management information commonly used. - Core Principle 11. Corrective and sanctioning powers of supervisors — LC - Full range of traditional supervisory and resolution powers for locally incorporated banks; more limited for foreign branches but policies have reduced risks from foreign branches. - MAS may revoke or suspend licenses with ex-post judicial review; MAS staff operate under an immunity clause when acting within mandate. - Core Principle 12. Consolidated supervision — C - Intensive supervision on solo and group-wide basis; risk assessments on standalone and consolidated basis. - Core Principle 13. Home-host relationships — C - Information sharing with home and host supervisors; same regulatory standards applied to local operations of foreign banks; work underway on multilateral sharing for resolution planning. - Core Principle 14. Corporate governance — C - Banks under MAS supervision have robust corporate governance policies and processes. - Core Principle 15. Risk management process — C - MAS encourages strong risk management systems; conservative approach limits risky activities; regular review of internally-generated risk management reports by management and board. - Core Principle 16. Capital adequacy — C - Capital regimes equal or exceed global minimums; compliant with Basel III following Regulatory Consistency Assessment during 2012–2013; higher capital requirements may put locally incorporated banks at apparent competitive disadvantage versus leveraged foreign competitors, but Singapore has chosen a conservative regulatory approach. - Core Principle 17. Credit risk — LC - Credit risk is the most relevant risk; MAS monitors vulnerabilities and has an intensive supervisory approach. - Since 2009, Authorities implemented a series of “cooling” measures to rein in credit expansion, slow rise in housing prices, and reduce lending risk against real estate and autos. - MAS has imposed limits on banks’ exposure to the property market. - Effectiveness of MAS actions in achieving desired outcomes is not yet clear; full assessment deferred to a future evaluation. *Source: IMF staff assessment excerpt.* ### 18. Problem assets, ### 18. Problem assets, provisions, and reserves ### Problem assets, provisions, and reserves - During inspections, supervisors assess that banks have established and adhered to adequate policies and processes for evaluating the quality of assets and the adequacy of loan loss provisions and reserves. - MAS also assesses that banks regularly review and update these policies and practices. ### Concentration risk and large exposure limits - MAS imposes relatively conservative limits on equity investments in a single company or investment fund, and on real estate holdings and property exposure. - Singapore adopts the international benchmark exposure limit of 25 percent of capital to any one counterparty and a local overall limit that large exposures in aggregate may not exceed 50 percent of total exposures. - MAS has documented that major banks and foreign branches have not made large loans that come close to these exposure limits. ### Transactions with related parties - MAS’ regulations and monitoring require banks to ensure transactions with related parties are conducted on an arm’s length basis and that terms and conditions are not more favorable than transactions with non-related parties under similar circumstances. ### Country and transfer risks - Country and transfer risk are relevant for locally incorporated banks in Singapore. - MAS’ requirements on country and transfer risk management are in place and assessed during inspections or as part of a review of the bank’s Pillar 2 Internal Capital Adequacy Assessment Process (ICAAP). - MAS has a dedicated team of credit risk specialists who support bank supervisors. ### Market risk - MAS has issued Market Risk Guidelines and market risk regulatory requirements in relation to regulatory capital. - There is a dedicated team of market risk specialists who support bank supervisors. ### Interest rate risk in the banking book - MAS monitors that banks have adequate systems commensurate with their risk profile to manage and to control or mitigate interest rate risk. - Banks routinely run robust stress tests to measure interest rate exposures; this information is provided to management monthly and to the bank’s board each quarter and is shared with MAS. ### Liquidity risk - MAS monitors liquidity risk in locally incorporated banks and foreign bank branches. - MAS requires banks and branches to measure and monitor liquidity positions in the major currencies and undertakes analyses during inspections to ensure effective processes are in place. - The nature of foreign branch operations and potential reliance on the home office for funding makes liquidity risk a vulnerability. - Foreign branches have been required to reduce liquidity risk through matched funding; for longer-dated assets, branches have issued medium-term notes. ### Operational risk - At the time of the assessment, three local banking groups and a foreign subsidiary are subject to capital requirements in Singapore. - The three local banking groups have adopted the Standardized Approach for operational risk capital requirements, and the foreign subsidiary has adopted the Basic Indicator Approach (BIA). - MAS holds banks accountable for effective operational risk frameworks and practices supported by management and routinely monitored by audit functions and management. ### Internal control and audit - MAS prioritizes ensuring banks and foreign branches have effective and timely internal control functions that are independent of management and staffed with competent individuals with access to required resources. ### Financial reporting and external audit - MAS holds management accountable for producing timely and accurate financial reports and holds external auditors fully accountable for verifying compliance with MAS requirements and Singapore Financial Reporting Standards (FRS), as modified by MAS Notice 612 for the recognition of loan loss provisioning. - MAS Notice 612 can be considered more conservative than the incurred loss measurement model under FRS 39. - MAS receives a detailed long form report from the external auditor as part of the annual audit and can revoke an audit firm partner or an entire firm’s authorization to conduct further bank audits in Singapore. ### Disclosure and transparency - Quarterly and annual disclosures by banks incorporated in Singapore and reports periodically published by MAS fully meet the criteria of disclosure and transparency. ### Abuse of financial services (AML/CFT) - MAS has established a strict regime to prevent, identify and report possible abuses of financial services such as suspicious acts of money laundering, terrorism financing and incidents of fraud. - MAS assesses banks’ compliance with these requirements through inspections and off-site reviews. - MAS will be amending its notices and guidelines in line with the latest FATF standards. - MAS was last assessed against the AML/CFT standard in 2008 by a joint team of the FATF and the Asia/Pacific Group on Money Laundering (APG). Assessors found that, overall, AML/CFT preventative measures for the financial sector, as well as the supervisory framework for banks, generally met a high level of compliance with the standard. ### Detailed principle-by-principle assessment: overview of Table 3 - The “description and findings” sections provide information on the legal and regulatory framework, and evidence of implementation and enforcement. The team largely utilized the authorities’ Description and Finding from their Self Assessment. - The “assessment” sections contain a one-line grading: “compliant,” “largely compliant,” “materially non-compliant,” “non-compliant” or “not applicable.” - The “comments” sections explain why a grading is given and reflect the assessment team’s views on strengths and areas for improvement. ### Principle 1: Responsibilities, objectives and powers — essential criteria (EC1–EC6) (summary) EC1 - MAS is a statutory board established under the Monetary Authority of Singapore Act (Chapter 186) (MAS Act); objectives, powers, duties and functions are set out under sections 4 and 23 of the MAS Act. - MAS is the sole regulator of banks in Singapore and derives supervisory powers primarily from the Banking Act (Chapter 19) (BA). - MAS has published monographs on Objectives and Principles of Financial Supervision in Singapore, MAS’ Framework for Impact and Risk Assessment of Financial Institutions and Tenets of Effective Regulation. EC2 - The focus of MAS’ regulation and supervision is on the safety and soundness of financial intermediaries in Singapore. - MAS’ principal objectives, including “to foster a sound and reputable financial centre,” are set out in section 4 of the MAS Act. - MAS operates on a single agency model (central bank, integrated financial supervisor and financial sector developer) with organizational structures that separate accountability for differing objectives. - MAS required locally-incorporated banks to meet Basel III minimum capital adequacy standards from January 1, 2013, two years ahead of BCBS’ 2015 timeline. - From January 1, 2015, MAS will require these banks to meet capital adequacy requirements that are higher than the Basel III global capital standards. EC3 - The BA stipulates prudential standards including corporate governance, licensing, minimum capital, minimum cash and liquid asset requirements, and prudential limits on lending to a single group, related parties, equity investments, property loans and investments. - Under section 55 of the BA, MAS can impose requirements on operations or activities and standards to be maintained by individual banks. - Sections cited: section 10 (risk-based capital requirements), section 29 (large exposure limits), section 31 (equity investment limits), section 32 (requirements on major-stake investments), section 33 (immovable property limits), section 35 (property sector exposure caps), section 42 (recommendations concerning credits and investments), and section 23 (adequate provision for bad and doubtful debts). - Risk-based capital requirements do not apply to branches; branches comply with asset maintenance requirements under section 40. EC4 - MAS reviews banking laws, regulations and prudential standards on an ongoing basis and updates regulatory requirements through notices and circulars covering corporate governance, AML/CFT, capital requirements, minimum liquid assets, minimum cash balance, exposures to single counterparty groups and related parties, residential property loans, unsecured credit facilities, and IT risk management. - MAS conducts public consultations on major proposed changes; consultation papers are posted on MAS’ website. EC5 - Section 43 of the BA empowers MAS to inspect the books of each bank in Singapore and of any branch, agency or office outside Singapore opened by a bank incorporated in Singapore. - Section 44 empowers MAS to investigate books of any bank if it has reason to believe the bank is operating detrimentally; section 44A requires banks under inspection or investigation to provide access to books, information and facilities, including boards, management and staff. - MAS imposes prudential standards and supervises locally-incorporated banking groups on a consolidated basis, including domestic and cross-border activities, and requires prior approval for overseas branches and certain investments; specific policy and section references include section 12, section 26, section 30, section 31, section 32, section 36 and section 43. - MAS’ supervisory approach includes regular engagement with Boards and senior management on global operations and group-level stress testing under the Comprehensive Risk Assessment Framework and Techniques (CRAFT). EC6 - The BA empowers MAS to require or take various actions if a bank is engaging in unsafe or unsound practices or non-compliant with laws or regulations (details follow in source). *Source: _cr13342 - 18. Problem assets, provisions, and reserves* ### 1. Under sections 20, 49 and 54 of the BA, if a bank conducts its business in a ### _cr13342 - 1. Under sections 20, 49 and 54 of the BA, if a bank conducts its business in a ### Statutory powers and interventions by MAS - 1. Under sections 20, 49 and 54 of the BA, if a bank conducts its business in a manner likely to be detrimental to the interests of depositors or creditors, is unable to meet its obligations or insolvent, has contravened the provisions of the BA, or if it is in the public interest to do so, MAS could: - (i) require the bank to take any action, to do or not to do any act or thing in relation to its business; - (ii) appoint a person to advise the bank on the proper management of its business; - (iii) assume or appoint someone to assume control of and manage the business of the bank; - (iv) suspend the operations of the bank; or - (v) revoke the banking license. - 2. Under section 7 of the BA, MAS may at any time, vary or revoke any existing conditions of the license of a bank or impose conditions or additional conditions. - 3. MAS can suspend or restrict the operations of a bank that fails to comply with the capital funds or capital adequacy ratio (CAR) requirement. - 4. Under section 38 of the BA, MAS may require any bank in Singapore to maintain a higher minimum amount of liquid assets, having regard to the risks arising from the activities of the bank. - 5. Under section 39 of the BA, MAS may require any bank license in Singapore to maintain a higher minimum cash balances on deposit with MAS as reserves against its deposits and other liabilities, having regard to the risks arising from the activities of the bank and the financial soundness of the bank. *Source: _cr13342 — https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13342.pdf* ### 6. Under section 40 of the BA, MAS may require any bank to maintain a higher ### _cr13342 - 6. Under section 40 of the BA, MAS may require any bank to maintain a higher ### MAS powers, resolution regime, and enforcement - Under section 40 of the Banking Act (BA), MAS may require any bank to maintain a higher amount of assets in Singapore for the purpose of meeting its liabilities, having regard to the financial soundness and risk profile of the bank. - MAS can issue directives to and obtain information from banks, inspect banks, and impose a fine on banks for non-compliance with certain provisions. - Bank directors, executive officers, trustees, auditors, employees and agents are personally liable on conviction to a fine or imprisonment for certain offenses. - MAS is the resolution authority for financial institutions in Singapore; the bank resolution regime and resolution strategies are set out in the BA and the MAS Act. - When exercising resolution powers, MAS must have regard to: - the interest of insured depositors covered under the Deposit Insurance (DI) Scheme and other non-bank depositors, - the stability of the financial system in Singapore, - public interest, - any other matter MAS considers relevant. - The resolution regime envisages cooperative solutions with foreign resolution authorities where possible, and allows MAS to take intervention actions individually or at the financial system level consistent with objectives of fostering a sound and reputable financial center. - MAS’ resolution powers can be exercised in relation to the Singapore branch of a bank incorporated elsewhere to support a resolution carried out by a foreign home authority. - MAS works closely with home and host supervisors and resolution authorities during ongoing supervision and crises to achieve common understanding and coordinated responses. ### EC7 — Power to review parent and affiliated entities (Description and findings) - Any entity wishing to become a controller of local banking groups must satisfy criteria under section 15C of the BA and obtain approval of the Minister in charge of MAS. MAS must be satisfied that: - (i) the person (defined to include a corporation) is fit and proper; and - (ii) having regard to the likely influence of the person, the business of the bank will be or will continue to be conducted prudently and the provisions of the BA will be or will continue to be complied with in relation to such business. - The Minister must also be satisfied that it is in the national interest to approve the application. - In practice, MAS determines the activities of the corporate owner and related entities and assesses the risk of financial contagion to the local banking group. - Under section 15C, MAS can vary or impose additional conditions on an existing controller and, in extreme cases, object to or make directions to an existing controller if MAS is satisfied the controller ceases to be fit and proper or the local banking group is no longer likely to conduct its business prudently or comply with the BA under the controller’s influence. - Section 18 of the BA empowers MAS to require non-MAS regulated holding companies (including non-regulated affiliates) that wish to become substantial shareholders or controllers to provide information on activities to assess contagion risk and to impose or vary conditions under section 15C. - Any bank intending to acquire major stakes in other companies (including non-regulated entities) must obtain MAS approval under section 32 of the BA; such investments are subject to section 30 which prohibits banks from engaging directly in non-financial businesses. MAS may refuse approval or impose conditions if stakes pose contagion risk. - Where a bank holding company is approved under section 28 of the Monetary Authority of Singapore Act, MAS may require prior MAS approval for acquiring stakes in other companies. Section 31 of the Financial Holding Companies Act (passed in April 2013) contains similar powers. MAS may refuse approval or impose conditions if such stakes pose contagion risk to the financial holding or banking group. ### Assessment of Principle 1 (Objectives and independence of the supervisor) - Assessment: Largely compliant. - Key observations: - MAS responsibilities and objectives related to banking supervision are comprehensive and the statutory framework supports effective supervision. - MAS has a dual mandate: to develop Singapore as a financial center and to act as prudential supervisor. This dual mandate raises potential conflict risk where safety and soundness could be compromised to make Singapore more business-friendly. - The assessment team found no evidence of intentional lowering of prudential standards to attract foreign business; current developmental work and public statements do not appear to conflict with the prudential mandate. - The inherent risk from a dual mandate remains; under different leadership, prudential standards could theoretically be weakened to attract additional foreign institutions. - Recommendation to reach a higher level of compliance: - Reflect on ways to more clearly insulate prudential supervision from the developmental mandate, either by shifting development responsibilities out of MAS or by articulating that MAS’ developmental mandate is clearly subordinate to prudential supervision. - Establish effective checks and balances to make clear that, in the event of a conflict between prudential supervision and making Singapore attractive to foreign financial firms, prudential supervision will be the priority. ### Principle 2 — Independence, accountability, resourcing and legal protection for supervisors (EC1–EC6 findings) - EC1 (Operational independence, accountability and governance) - MAS is established as a body corporate under the MAS Act. - MAS is governed by a Board of Directors responsible for policy and general administration; day-to-day administration and supervision of individual institutions is the responsibility of the Managing Director under section 9 of the MAS Act. - MAS enjoys operational autonomy; no indications of Government interference in supervision of individual financial institutions or compromise of prudential licensing and supervision. - Board committees (pursuant to section 13A) assist the Board; Audit and Risk Committees chaired by independent directors provide oversight. - MAS Board meets every quarter. Over the past year (the past four MAS Board meetings from August 2012 to May 2013), items tabled included: - Reserves management (every quarter); - Risk management (every quarter); - Finance (every quarter); - Human resources (as and when necessary); - General updates on the outlook of the global and domestic economy (semi-annually); - General updates on the regulatory framework and developments (an update on the new Basel liquidity rules in early-2013); - Issuance of currency (as and when necessary); - MAS Board governance and administrative matters (as and when necessary). - MAS must include a report on performance of MAS’ functions and duties in its Annual Report, presented to the President and Parliament within six months from close of financial year. - Practical arrangements maintain MAS operational independence: MAS prepares its own budget approved by the President; staff are prohibited from political activities; directors must not be directors or salaried officials of any financial institution licensed or approved by MAS. - Management Financial Supervision Committee (MFSC), chaired by the Deputy Managing Director (Financial Supervision), routinely makes day-to-day licensing and supervisory decisions; the MAS Board is not involved in these decisions. - Major regulatory policies are decided within MAS via the Executive Committee; matters with strategic implications may be surfaced to Chairman’s Meeting. - Annual accounts audited by the Auditor-General; accounts and Board report presented to President and Parliament. - EC2 (Appointment and removal process) - Appointment processes provided in the MAS Act: - Chairman appointed by the President on recommendation of the Cabinet (section 7). - Other Board Directors appointed by the President on recommendation of the Minister in charge of MAS; President also appoints the Deputy Chairman (section 8). - Managing Director appointed by the President on advice or recommendation of the Public Service Commission (section 9). - President may refuse to appoint or revoke appointments in specified circumstances; the President cannot initiate revocation. - Board Directors (including Chairman and Managing Director) hold office for a term not exceeding three years and are eligible for reappointment (section 9). In practice, Board Directors are appointed for a minimum term of two years. - Appointments and cessations are published in the Gazette. - Grounds for termination under section 10(2) include resignation, mental disorder, bankruptcy, conviction of an offense involving dishonesty or fraud or moral turpitude, serious misconduct, absence without leave from three consecutive board meetings, or failure to comply with MAS Act obligations. - The Deputy Managing Director (Financial Supervision) oversees regulation and supervision of banking, insurance and capital markets entities licensed in Singapore and reports to the Managing Director. - EC3 (Publication of objectives and accountability framework) - MAS powers, duties and functions set out in the MAS Act. - MAS has published a monograph on Objectives and Principles of Financial Supervision in Singapore. - MAS Board must inform the Government of MAS regulatory, supervisory and monetary policies and furnish the Minister with required information; MAS is accountable to Parliament through the Minister. - MAS is required under section 34(1) to include a report on performance in its annual report to the President and Parliament within six months of financial year-end. - MAS is subject to internal and external audits; annual financial statements are audited and published. - MAS publicly announces regulatory and supervisory policies, consults on major changes, and publishes responses to consultation feedback. - EC4 (Internal governance and crisis decision-making) - MFSC formed under section 9(6) to assist the Managing Director in supervision and regulation; MFSC is chaired by the Deputy Managing Director (Financial Supervision). - MFSC consists of Assistant Managing Directors, heads of departments in the Financial Supervision Group, and the General Counsel. Departments include Banking Departments, Insurance Department, Prudential Policy Department, Specialist Risk Department, Macroeconomic Surveillance Department, Capital Markets Intermediaries Department, Investment Intermediaries Department and Capital Markets Department. - MFSC meets weekly and is delegated power to make all supervisory decisions, including rejecting license applications and decisions on supervisory actions against financial institutions. - Crisis management framework: Crisis Management Team (CMT) oversees processes for handling threats to financial stability posed by individual institutions; Distress Financial Institution (DFI) handbooks consolidate approved policy positions, international best practices, key considerations and possible options/actions (see CP8 EC7 for details). - MAS Board governance rules to avoid conflicts: directors must not be directors or salaried officials of licensed/approved financial institutions and must be independent. - EC5 (Professionalism, integrity, conflict-of-interest rules) - MAS conducts interviews and background checks prior to recruitment. - MAS Code of Conduct requires staff to declare conflicts of interest and indebtedness, avoid political involvement and public controversy, not place themselves in pecuniary obligation to persons with official dealings, and declare gifts. - Staff must obtain department head permission before engaging in outside activities related to their work and declare financial gains; disciplinary action applied for breaches. - Staff must comply with Official Secrets Act, Statutory Bodies and Government Companies (Protection of Secrecy) Act, MAS Act, and Computer Misuse Act regarding handling classified information. Commitment to safeguard official information renewed every three years. - Senior officers required to give a minimum notification period of three months before joining external organizations MAS has dealings with; up to six months in particularly sensitive cases. - Whistleblowing encouraged; sanctions for violations include reprimands, suspension, dismissal, and legal prosecution. - EC6 (Resources and financing) - MAS is a statutory board with self-funding avenues (e.g., fees and minimum cash balances) and does not receive Government funding for operations. MAS prepares its own budget approved by the President. - MAS must present audited financial statements to Parliament annually; audited statements also published in the Gazette and transmitted to the President within six months of financial year-end. - MAS determines staff resource levels and remuneration policies under section 17(1) of the MAS Act; Board of Directors has ultimate personnel policy responsibility. - Staffing planning and budgeting: - Departments evaluate staffing needs at least annually; assessed headcount increases are submitted to the Board for approval. - Departments prepare financial budgets including salaries, training, equipment, travel for on-site work and cross-border cooperation; Heads of Department accountable for fund management and may request additional resources if needed. - Staffing and specialist resources (as of end-December 2012): - MAS has a total of 185 senior officers responsible for the supervision of the 123 banks licensed in Singapore. - These bank supervisors are supported by more than 90 functional specialists, including market, liquidity, credit, technology risk and business continuity management specialists, capital and prudential policy analysts, macroeconomic surveillance economists and in-house counsels. - Remuneration and retention: - MAS pays a competitive remuneration package vis-à-vis the financial sector and uses market surveys to assess comparability. - Budget for staff remuneration is increased annually for headcount and wage competitiveness; premiums paid for specific skill sets. - Entry-level Senior Officer hires are graduates with at least a second class honors degree from top local and foreign universities; mid-career hires bring relevant experience. - Senior bankers interviewed noted that at times MAS examiners' expertise exceeded what banks had in-house. *Source: _cr13342 - 6. Under section 40 of the BA, MAS may require any bank to maintain a higher (IMF staff report excerpt).* ### Section 17(2) of the MAS Act provides that MAS may engage the services of advisers ### Section 17(2) of the MAS Act provides that MAS may engage the services of advisers ### Engagement of external advisers and consultants - Section 17(2) of the MAS Act provides that MAS may engage the services of advisers and set the terms and conditions of such engagements as it thinks fit. - MAS engages senior regulators and bankers with expertise in areas such as capital markets, information technology and risk modeling to bolster internal expertise. - MAS has engaged respected ex-regulators from other supervisory agencies as consultants to strengthen and refine its supervisory approach. - External consultants have been engaged to study specific areas. ### MAS Academy, staff development, and talent management - MAS has set up the MAS Academy to centralize in-house professional and leadership training programs for all departments. - The Academy aims to inculcate MAS’ values and ethics and to engage in capacity-building for MAS. - The Academy organizes the MAS Diploma in Central Banking for entry-level officers to acquire broad-based financial sector knowledge and understanding of MAS’ key functions and core values. - Training development is based on MAS’ functional competency framework—the Professional Requisites and Outcomes Framework (PROF). - Training delivery methods: - Use of in-house trainers and external professional trainers to keep officers abreast of developments and best market practices in risk management and internal controls. - External training through secondments and study trips to foreign regulatory bodies, accounting firms, standard setting bodies and major financial institutions. - Regular talks by leading regulators and senior industry practitioners. - Functional training courses are organized broadly under the eight knowledge blocks: - macroeconomics and monetary policy - financial supervision - financial markets and products - risk management - accounting and financial analysis - general management - managing external relations - managing operating processes - MAS provides scholarships to officers to pursue postgraduate studies of up to PhD levels. - MAS staff participate in international initiatives such as FSAP and FATF’s assessment of countries. - MAS undertakes talent reviews and regular assessments of expertise levels to facilitate succession planning and early identification of gaps. - Every officer is given a PC/laptop and other essential equipment/tools on his/her first day of work and resource needs are evaluated annually. ### Information technology programs and data platforms - MAS has embarked on several strategic enterprise-wide, multi-year information technology (IT) programs to support MAS’ core functions, including its banking supervisory function. - New systems and tools which will aid banking supervision work will be rolled out within the next 2 years. - Planned IT improvements include: - an integrated platform to track MAS’ interactions with financial institutions and external stakeholders; - enhanced structures, tools and processes to optimize the way information is managed and used across MAS; - enhancements to MAS’ primary industry data collection platform, in terms of expansion of scope and coverage of regulatory returns. ### Budgeting, inspections and cross-border cooperation - Adequate budget is set aside for the conduct of local and overseas inspections, participation in cross-border cooperation, and domestic and international meetings, including supervisory colleges. ### EC7 — Resource planning, staffing, and skills development (Description and findings) - MAS reviews its staffing needs at least annually. - The review and approval process for increasing full-time employees occurs annually along with the budget review process; departments can also obtain additional resources on an off-cycle basis. - MAS utilizes the PROF competency framework as part of its annual performance review process to identify skill requirements and facilitate structured development of professional financial supervisory skills. - Banking supervision competency requirements include: - ability to identify and assess risks from financial products and activities; - evaluate the adequacy of controls to monitor, manage and mitigate these risks; - identify and analyze thematic issues; - review supervisory returns and indicators for developments that may impact banks’ operations. - The PROF competency roadmap is updated on a yearly basis or when necessary to ensure continued relevance. - To bridge gaps in numbers, MAS continually recruits externally. - Since 2008, the headcount in the banking departments has increased by 30 percent to 199 staff, as of April 2013. - To bridge gaps in specialized skill-sets, MAS has implemented measures including: - setting up Peer Groups comprising officers with extensive knowledge in specific areas; - attaching supervisory staff to international regulatory bodies, large international banks and other financial sector regulators. - Before each financial year, the MAS Academy seeks inputs from line departments on core and new training needs to develop programs addressing knowledge and skills required to regulate and supervise new products and innovation. - Example: following the global financial crisis, training topics on complex products, credit risk and economic capital modeling were delivered to enhance supervisory capabilities. ### EC8 — Risk-based supervision and resource allocation (Description and findings) - MAS adopts a risk-based supervision approach and employs the risk bucketing framework and CRAFT to assess the risk and impact of individual banks and banking groups. - MAS’ supervisory assessment of a bank/banking group’s risk profile and systemic importance determines: - supervisory strategy towards that bank/banking group; - supervisory activities engaged; - intensity of supervisory attention; - amount of supervisory resources allocated. - Measures to assure supervisory activities are proportionate to risk profile and systemic importance include: - Comprehensive operating procedures to guide supervisory staff; - A system of challenge and review by experienced supervisors or panels of senior and specialist staff for key supervisory assessments of individual financial institutions; - Senior management review of major regulatory or supervisory issues at senior management forums; - Regular checks on the efficacy of supervisory processes by MAS’ internal audit function. - MAS’ supervision approach and the measures above are set out in the monograph on MAS’ Framework for Impact and Risk Assessment of Financial Institutions. ### EC9 — Legal protection for supervisors and staff (heading present; description begins) - Laws provide protection to the supervisor and its staff against lawsuits for actions taken and/or omissions made while discharging their duties in good faith. - The supervisor and its staff are adequately protected against the costs of defending their actions and/or omissions made while discharging their duties in good faith. *Source: Section 17(2) of the MAS Act provides that MAS may engage the services of advisers (IMF country report excerpt).* ### Section 22 of the MAS Act provides for the legal protection of MAS, any director, ### _cr13342 - Section 22 of the MAS Act provides for the legal protection of MAS, any director, ### Legal protection, resourcing, and staff safeguards (Principle 2 — assessment: Largely compliant) - Section 22 of the MAS Act provides legal protection for MAS, any director, officer or employee of MAS for anything done, including any statements made, or omitted to be done in good faith. - MAS provides legal aid on a full indemnity basis as and when the costs are incurred. - Key findings on resourcing and staff: - MAS has control over its budget. - MAS has extensive staff training programs. - Staff compensation is very competitive. - MAS has been able to attract strong technical experts onto its staff. - The number of supervisory staff has been steadily increasing over the past five years. - Turnover remains relatively low. - Staff are provided legal protection for actions taken in the course of carrying out their official responsibilities and legal aid is provided if required. - Governance and potential political influence: - The MAS Board composition creates potential for political influence: four out of nine Board members, including the Chairman and Deputy Chairman, are government ministers and another member is a permanent secretary at the MOF. - The Chairman’s Meeting (comprised entirely of government ministers and the Managing Director of the MAS) decides on major changes to regulatory framework and supervisory policies and approves major changes to policies and strategies relating to financial center development. - To date the process has produced supervisory policies more conservative than international guidelines. - The assessment notes a risk that under different leadership the Committee could inappropriately interfere in regulatory and supervisory policy setting or shift emphasis towards development objectives. - Recommendation to improve compliance with the independence criterion: - Consider changing the composition of Board appointments to have more independent board members in lieu of primarily political appointments and the permanent secretary. - Consider establishing effective checks and balances at the highest possible level to ensure MAS’ ability and willingness to act as a supervisory authority and to counter any bias for inaction or delay due to external pressures or other inappropriate political objectives. - Assessment rationale: - MAS has a reputation as a very conservative supervisor and has been an early adopter of capital, liquidity, and governance standards that exceed global standards. - The team assesses Principle 2 as largely compliant, noting the current government’s recognition of the benefits of maintaining high prudential and licensing standards but flagging the governance composition risk. *Source: IMF staff report content provided.* ### Cooperation and collaboration framework (Principle 3 — assessment: Compliant) - Principle statement: Laws, regulations or other arrangements provide a framework for cooperation and collaboration with relevant domestic authorities and foreign supervisors. These arrangements reflect the need to protect confidential information. - EC1 — Domestic cooperation (description and findings): - MAS is the integrated supervisor of financial institutions across banking, insurance and capital markets sectors in Singapore. - MAS supervisory departments cooperate closely, share relevant information and coordinate supervisory activities. - The MFSC (a senior decision-making forum on matters related to supervision and regulation of the financial sector) determines important bank and non-bank policies, decides on supervisory matters raised for their attention, and takes a consistent policy and supervisory approach across sectors. - The MFSC meets regularly to discuss risks and developments that could impact Singapore’s macroeconomic and financial stability; senior management representation includes supervisors and those responsible for macroeconomic surveillance and monetary policy. - MAS participates in cross ministry/agency project teams; example: coordinated design and implementation of calibrated measures to temper the property market since September 2009, with seven rounds of property measures including the latest set introduced in January 2013. - EC2 — Cross-border cooperation (description and findings): - MAS has established several Memorandums of Understanding (MoUs) with foreign supervisors for information sharing and mutual cooperation. - MAS cooperation includes information sharing during authorization/licensing, regular dialogues, periodic meetings and joint examinations. - MAS inspects overseas branches/subsidiaries of Singapore-incorporated banking groups and allows parent supervisors to inspect their banks' branches/subsidiaries in Singapore; results of examinations are exchanged. - MAS has participated in joint supervisory validations of Basel II IRBA systems and non-IRBA related inspections of internal controls and risk management systems. - MAS hosts supervisory college meetings for local banking groups; most recent meetings were held in April 2012. - MAS participates in supervisory college and crisis management group (CMG) meetings, including cross-border CMG meetings of six globally systemic banks. - In 2012, MAS attended some 20 supervisory college meetings for the foreign banks. - EC3 — Conditions on sharing confidential information (description and findings): - Under section 46 of the BA, banks may share inspection/special investigation reports with their parent supervisors if MAS grants approval; reports include prefatory confidentiality notices and require MAS notification if a subpoena/legal process calls for production. - Under the Third Schedule of the BA, customer information disclosure to parent supervisory authorities is permitted only if strictly necessary and subject to prohibitions on further disclosure by the parent authority; no deposit information shall be disclosed to the parent supervisory authority. - Prior to formalizing an MoU, MAS seeks written confirmation from the overseas regulatory authority on their confidentiality protections regime. - Typical MoU clauses include: - Each Authority is subject to certain confidentiality restrictions set out in their own laws. - Each Authority will reciprocate the same level of confidentiality accorded to the information they receive as the level given by the other Authority. - Each Authority will keep the requests and communications made within the framework of the MoU confidential. - Conditions under which information disclosed under the MoU may be further disclosed. - Each Authority should inform the other before making any further disclosure of information. - Each Authority will inform the other if there is any change in confidentiality protection to information being disclosed under the framework. - Supervisory information on banks is not shared with other domestic authorities as MAS is the sole regulator of banks in Singapore. - EC4 — Use and protection of received confidential information (description and findings): - Information received by MAS from foreign supervisors is treated as confidential. - Under section 14 of the MAS Act (Chapter 186), no MAS employee shall disclose information relating to the affairs of MAS or of any person acquired in the performance of duties, except when required by court or written law. - MoUs include clauses on safeguarding confidential information. - Under section 5 of the Official Secrets Act (Chapter 213), wrongful communication of information is an offense. - EC5 — Support for resolution authorities and recovery/resolution planning (description and findings): - MAS is central bank, integrated financial sector supervisor, and resolution authority for financial institutions in Singapore. - The MOF controls reserves that may be utilized in a crisis and may be involved if funding is required. - MAS and MOF have regular meetings for collaboration in business-as-usual and crisis periods; in crises that specifically put public monies at risk, meetings focus on joint decision-making on coordination and execution of crisis responses. - The SDIC administers the DI Scheme; upon MAS’ determination that compensation should be paid, MAS gives notice in writing to SDIC to proceed with permitted payments under the Deposit Insurance and Policy Owners’ Protection Schemes Act (Chapter 77B). Working arrangements between MAS and SDIC currently exist. - MAS has required several systemically important banks to submit recovery plans and engaged banks iteratively to formulate MAS’ rules on recovery and resolution planning. - MAS is working towards a multilateral sharing arrangement amongst EMEAP-WGBS members on resolution planning information via a resolution planning survey to be completed and shared. - MAS engages host supervisors bilaterally on bank-specific resolution issues to inform formulation of resolution plans for local banking groups. - In the global financial crisis MAS stepped up monitoring and sharing of information with foreign counterparts. - Assessment and comments: - Assessment of Principle 3: Compliant. - Strengths: seamless coordination and information sharing among MAS functions; strong working relationships with home supervisors; MAS viewed as strong and trustworthy and actively involved with standard setters and the FSB. - Caution: concentrating functions within one organization may reduce checks and balances and increase the risk of “groupthink”. *Source: IMF staff report content provided.* ### Permissible activities and naming controls (Principle 4) - Principle statement: The permissible activities of institutions licensed and subject to supervision as banks are clearly defined and the use of the word “bank” in names is controlled. - EC1 — Definition of “bank” (description and findings): - The term “bank” is defined in section 2 of the BA as any company which holds a banking license under the BA. - Under section 4 of the BA, no banking business can be transacted in Singapore except by a company holding a banking license under the BA. - “Banking business” is defined under section 2 of the BA as the business of receiving money on current or deposit accounts, paying and collecting checks drawn by or paid in by customers, the making of advances to customers and includes such other business as MAS may prescribe. - EC2 — Permissible activities (description and findings): - Permissible activities of banks are clearly defined under section 30 of the BA. - Section 30 of the BA stipulates that no bank in Singapore shall carry on any business except for: - (I) banking business; - (ii) any business the conduct of which is regulated or authorized by MAS under any other written law; - (iii) any business which is incidental to the business which the bank may carry on under (I) or (ii); - (iv) any business or class of business as MAS may prescribe, subject to such conditions as may be prescribed; or - (v) Any other business as MAS may approve, subject to such conditions as MAS may impose. - Prescribed businesses of any bank in Singapore are provided in Part IX of Banking Regulations 2001. - Part (ii) includes securities dealing, fund management, financial advisory services, and other capital market services. - EC3 — Use of the word “bank” in names (description and findings): - Pursuant to section 5 of the BA, no persons or entities, other than banks, shall use the word "bank" or any of its derivatives in any language, or any other word indicating that it transacts banking business, without MAS’ approval. *Source: IMF staff report content provided.* ### Section 5A of the BA stipulates that no person shall use any name, logo or trade mark ### _cr13342 - Section 5A of the BA stipulates that no person shall use any name, logo or trade mark ### Use of bank names, logos, and trademarks (Section 5A of the BA) - Section 5A of the BA stipulates that no person shall use any name, logo or trade mark in a manner which indicates or represents that he or his trade/business is related to or associated with a bank incorporated in Singapore without MAS’ approval. - No locally-incorporated bank shall knowingly permit any person (other than its related financial institutions) to use its name, logo or trademark without MAS’ approval. ### Deposit-taking reservation (EC4) - The taking of deposits from the public is reserved for institutions that are licensed and subject to supervision as banks. - Section 4A of the BA stipulates that no person is allowed to accept or solicit deposits, except for institutions that are licensed, approved, authorized or otherwise empowered under any written law to accept deposits in Singapore in accordance with such law. - Finance companies may accept from the public fixed deposits like those offered by banks. Such companies are licensed and supervised by MAS under the Finance Companies Act (Chapter 108). The regulatory and supervisory approach is similar to that for banks. - As of December 2012, there were only three finance companies and they held approximately 1 percent of total deposits in the banking system. ### Public list of licensed banks (EC5) - The supervisor or licensing authority publishes or otherwise makes available a current list of licensed banks, including branches of foreign banks, operating within its jurisdiction in a way that is easily accessible to the public. - A list of licensed banks, including branches of foreign banks, is provided in the Financial Institution Directory on MAS’ website: https://secure.mas.gov.sg/fid/ ### Assessment of Principle 4 - Assessment: Compliant - Comments: - The MAS fully meets the principle that any institutions offering banking services must be licensed by MAS and subject to bank supervision. - No entity engaged in deposit taking may call itself a bank (or finance company in the case of three entities that may accept deposits, are supervised like banks and represent less than 1 percent of deposits). ### Principle 5 — Licensing criteria (summary) - Principle: The licensing authority has the power to set criteria and reject applications for establishments that do not meet the criteria. At a minimum, the licensing process consists of an assessment of the ownership structure and governance (including the fitness and propriety of Board members and senior management) of the bank and its wider group, and its strategic and operating plan, internal controls, risk management and projected financial condition (including capital base). Where the proposed owner or parent organization is a foreign bank, the prior consent of its home supervisor is obtained. ### EC1 — Authority for granting and withdrawing licenses - The law identifies the authority responsible for granting and withdrawing a banking license. - MAS is both the licensing and supervisory authority of banks in Singapore. - Under section 4 of the BA, a company may conduct banking business in Singapore only if it holds a banking license granted by MAS. - Section 7 of the BA allows a company to apply for a bank license and gives MAS the power to impose and vary conditions of the banking license. - Where there are concerns but criteria are met, supervisors may impose prudential requirements and limits such as deposit-taking and funding restrictions, leverage ratio and business size limits. ### EC2 — Power to set criteria and reject applications - Section 7(1) of the BA gives MAS the power to set criteria for licensing of banks. - MAS specifies minimum capital requirements (sections 9 and 9A), risk-based capital requirements (section 10) and license fees (section 8). - Sections 7(3) of the BA gives MAS the power to reject an application if the criteria are not fulfilled or if the information provided is inadequate. - MAS performs assessments of track record, financials, standing and reputation of the bank and its substantial shareholders and controllers, including screening and background checks and consultation with home and host regulators. - MAS has discouraged prospective applicants it viewed as raising issues despite claims of authorizations elsewhere, including banks with aggressive expansion and increasing leverage, short track records, lack of expertise, fitness and propriety issues, weak financial capacity, or supervisors’ misgivings about the true purpose of a proposed office. - It is recommended that process be more transparent and that MAS periodically reject an application rather than encouraging applicants to withdraw their application. - Section 20 of the BA allows MAS to revoke a bank license in certain circumstances, including where the information furnished to MAS in connection with an application for a license was false or misleading. ### EC3 — Consistency between licensing criteria and ongoing supervision - In assessing an application, supervisors consider factors including good track record and reputation; sound financials (including ability to satisfy international capital requirements); shareholders and management that meet fit and proper criteria; a well-developed business strategy; and risk management and controls commensurate with the size and complexity of the business. - These criteria are consistent with those applied in ongoing supervision. - As part of on-site and off-site supervision, supervisors assess that the bank satisfies prudential and supervisory requirements on management and board, ownership structure, capital level and risk management on an ongoing basis, and monitor business strategy and compliance with licensing or supervisory conditions. ### EC4 — Assessment of structures for effective supervision and corrective measures - Supervisors assess transparency of ownership structure, identify ultimate shareholders (including beneficial owners) with significant ownership or controlling influence, and consider their suitability. - Assessment determines whether proposed legal, ownership and managerial structures of the applicant and its wider group allow effective supervision on both a solo and consolidated basis, and whether implementation of corrective or resolution measures would be impeded. - Assessment includes how the Singapore entity fits into the group’s structure, reporting lines, intra-group exposures and linkages, linkages to Singapore’s financial network and infrastructure, and any material interconnectedness and complexity that may impede transfer or sale of business or obscure unwinding of positions or trigger contagion in a resolution. - MAS requires foreign bank applicants to be adequately supervised by their home country supervisors and seeks confirmation via onsite visits and review of published reports that the supervisor is competent, and confirmation that the foreign bank applicant is subject to proper consolidated supervision. - MAS requires the home country supervisor to confirm there are no concerns with the bank’s capital adequacy, asset quality, management, earnings and liquidity. - Where impediments exist in legal, ownership or managerial structures, MAS highlights these issues during the application process and grants a license only when issues are satisfactorily resolved. ### EC5 — Suitability of major shareholders and transparency of ownership - Supervisors review organization charts showing all subsidiaries and affiliates and information on any holding company with controlling interest or ability to exercise significant influence. - Supervisors review annual reports and credit rating agencies’ reports (where applicable) of the holding company or shareholders and subject key shareholders to screening and background checks. - Assessment evaluates background, financial standing and strength, credit and support ratings, reputation and integrity, other business holdings, to determine shareholders’ ability to provide additional financial support and to meet MAS’ Guidelines on Fit and Proper Criteria. - Following admission, the bank is required, as a licensing condition, to notify supervisors as soon as it becomes aware of any material information that may result in a substantial shareholder or indirect controller ceasing to be a fit and proper person. ### EC6 — Minimum initial capital - Section 9 of the BA requires a bank incorporated in Singapore to have paid-up capital that is not less than S$1,500 million or such other amount as may be prescribed, and its capital funds are not less than that amount. - In the case of a bank incorporated outside Singapore, its head office capital funds shall not be less than the equivalent of S$200 million. *Source: _cr13342 - Section 5A of the BA stipulates that no person shall use any name, logo or trade mark* ### Section 9A of the BA requires a company incorporated in Singapore which is a ### _cr13342 - Section 9A of the BA requires a company incorporated in Singapore which is a ### Section 9A and qualifying subsidiary capital requirement - Section 9A of the BA requires a company incorporated in Singapore which is a qualifying subsidiary to have paid-up capital that is not less than S$100 million. - A qualifying subsidiary is defined as a company with more than 50 percent of its issued paid-up capital that is owned by a bank incorporated in Singapore, and such a bank meets the S$1,500 million minimum capital requirement. ### EC7 — Fit and proper assessment of Board and senior management - At authorization, the licensing authority evaluates proposed Board members and senior management for expertise and integrity (fit and proper test), and potential conflicts of interest. - Fit and proper criteria include: - (I) skills and experience in relevant financial operations commensurate with the intended activities of the bank; - (ii) no record of criminal activities or adverse regulatory judgments that make a person unfit to uphold important positions in a bank. - Supervisory processes and legal/regulatory references: - Regulation 18 of the Banking (Corporate Governance) Regulations 2005 (CG Regulations) requires MAS’ approval for appointment of all directors, chairman, members of the Nominating Committee, CEO and deputy CEO, chief financial officer and chief risk officer for banks incorporated in Singapore. - MAS Notice 622A and MAS Notice 753 require approval of banks’ CEO/deputy CEO and Head of Treasury for foreign banks’ branches. - MAS’ Guidelines on Fit and Proper Criteria consider (I) honesty, integrity and reputation; (ii) competence and capability; and (iii) financial soundness. - Supervisory checks: - Screening and background checks with former employers, law enforcement agencies and foreign supervisors (if applicable). - Assessment that the Board collectively has sound knowledge of material activities and possesses core competencies: accounting or finance, business or management experience, industry knowledge, strategic planning experience and customer-based experience or knowledge. ### EC8 — Review of strategic and operating plans; governance and AML/CFT controls - Licensing authority reviews proposed strategic and operating plans, including corporate governance, risk management, internal controls, detection and prevention of criminal activities, and oversight of outsourced functions. - Applicant requirements: - Furnish proposed strategic and operating plans including risk management and corporate governance frameworks, internal controls, manpower and risk systems to be based in Singapore. - Supervisors assess whether proposed risk management systems and controls are commensurate with size and complexity. - Where reliance on related or third parties exists for critical functions, supervisors assess ability to exercise effective managerial oversight from Singapore and presence of appropriate AML/CFT policies and processes. - Regulatory requirements: - CG Regulations require locally-incorporated banks to establish a Board and Board committees: Nominating Committee, Remuneration Committee, Audit Committee and Risk Management Committee. - Under MAS Notice 622A, directors and chief executives of foreign-incorporated banks must: - (I) establish sound written policies for all operational areas; - (ii) establish limits of discretionary powers for lending and investing; - (iii) ensure adequate risk management systems and sound internal controls are in place. ### EC9 — Review of pro forma financial statements and parent support - MAS reviews projected financial statements of the proposed Singapore office and assesses adequacy of financial strength and sound credit ratings to support strategic plans and operations. - For foreign bank applicants, MAS additionally requires a letter of responsibility or undertaking from the head office or parent bank to: - accept full responsibility for all operations of the Singapore office; - provide adequate funds to make up for any liquidity shortfall in the Singapore office; - provide appropriate management and technical expertise, employee training and other support if weaknesses are identified. ### EC10 — Home supervisor no-objection and consolidated supervision - Foreign bank applicants must submit an original letter from their home country supervisor approving establishment of the office in Singapore together with the license application. - MAS seeks confirmation that the foreign bank applicant, including Singapore operations, will be subject to proper consolidated supervision and that MAS will be informed immediately if the applicant bank’s license in the home country is withdrawn or if depositors’ interests are threatened. - MAS considers the strength and reputation of home country supervision and whether the home country supervisor practices consolidated supervision (from public sources of information) and is willing/able to cooperate with MAS. ### EC11 — Monitoring progress of new entrants - Newly-admitted banks must comply with all prudential requirements upon commencement, including supervisory reporting and audit. - Ongoing supervision includes review of statistical information, regular updates, meetings with management and auditors, off-site review of regulatory returns, and on-site inspections. - Under MAS’ CRAFT, risk assessment of a new bank must be performed by supervisors no later than 18 months after the bank’s commencement of operation. ### Assessment of Principle 5 - Assessment: Compliant - Key findings: - MAS has set a very high standard for granting banking licenses, particularly for those authorized to gather insured retail deposits. - MAS undertakes thorough assessment of parent banks and home supervisors for foreign entrants, requires prior approval of home supervisors, and monitors newly admitted banks closely to ensure adherence to approved business plans. - Recommendation/observation: MAS’ informal practice of dissuading unqualified applicants could be complemented by a more transparent process of occasionally rejecting applications to signal the high hurdle for market entry. ### Principle 6 — Transfer of significant ownership (EC1–EC6) - EC1 — Definitions: - The BA and section 81 of the CA define "substantial shareholding" as an interest or interests in one or more voting shares where total votes attached are not less than 5 percent of total votes. - “Controlling interest” defined through sections 15A and 15B of the BA: prior approval of the Minister required for a person intending to become a substantial shareholder, 12 percent controller, 20 percent controller or an indirect controller of a designated financial institution. An indirect controller can determine policy or whose instructions will be acted upon by the bank’s directors. - EC2 — Notification and approval requirements: - Section 14 of the BA: a bank incorporated in Singapore cannot be merged, consolidated with, or taken over without the Minister’s prior written approval. Minister may approve only if: - (a) MAS is satisfied that (I) the entity is fit and proper; and (ii) business will be/continue to be conducted prudently and BA provisions complied with; and - (b) Minister is satisfied it is in the national interest. - Sections 15A and 15B require prior approval before any person enters into agreements/arrangements to act together with others regarding acquisition/holding/disposal/exercise of rights relating to aggregate voting interests of 5 percent or more. - Section 7 of the CA covers deemed interest and beneficial ownership. - EC3 — Power to reject or reverse changes in significant ownership: - Under sections 14, 15A and 15B, Minister may approve only if MAS is satisfied; Minister cannot override MAS’ determination. - Under section 15E, Minister may serve written notice of objection if MAS would not have been satisfied or if false/misleading information was furnished; Minister specifies a period for the person to cease being a substantial shareholder/controller. - Under section 16, Minister may direct transfer/disposal of shares, restrict transfer/disposal, or make other directions; until transfer/disposal, no voting rights exercisable in respect of specified shares unless expressly permitted. - EC4 — Reporting and information on significant shareholders: - Licensing process obtains information on shareholding structure including substantial shareholders, controllers and listing location. - Banks required, as a licensing condition, to notify MAS of any changes or proposed changes in ownership/control that result in change in effective control within seven days of becoming aware. - Locally-incorporated banks must annually provide supervisors the shareholdings of bank directors and a list of controlling and substantial shareholders. - Publicly listed locally-incorporated banks publish their 20 largest shareholders in annual reports and disclose substantial shareholdings and changes on an ongoing basis. - Under section 18 of the BA, MAS may require a designated financial institution or its shareholder to provide information about shareholders, including whether shares are held as beneficial owner or trustee and, if trustee, particulars of the person for whom shares are held. - EC5 — Powers to address unauthorized changes of control: - If prior approval was not obtained as required under sections 15A or 15B, the Minister can make directions under section 16 (transfer/disposal/restrictions) and, pursuant to section 17, the person who contravenes sections 15A or 15B is liable on conviction to a fine and/or imprisonment. - EC6 — Notification of material information affecting suitability of major shareholders: - As a licensing condition, a bank must notify supervisors as soon as it becomes aware of any material information which may result in a substantial shareholder or indirect controller ceasing to be a fit and proper person, per MAS’ Guidelines on Fit and Proper Criteria. - Under the Guidelines, a bank should satisfy MAS that: (i) all of its substantial shareholders meet the fit and proper criteria; and (ii) it has adequate internal control systems and procedures to reasonably ensure appointed persons meet fit and proper criteria. *Source: _cr13342 - Section 9A of the BA requires a company incorporated in Singapore which is a* ### Section 18 of the BA gives MAS the power to obtain information relating to the ### _cr13342 - Section 18 of the BA gives MAS the power to obtain information relating to the ### Legal powers and enforcement - Section 18 of the Banking Act (BA) gives MAS power to obtain information relating to a controller for ascertaining or investigating control of shareholding or voting power in the designated financial institution, or exercising any power or function under the BA relating to shareholding control levels and its terms and conditions of approval. - Pursuant to section 15E of the BA, the Minister may serve a written notice of objection on a controller if MAS is satisfied that the controller ceases to be a fit and proper person. - Failure to comply with directions or furnishing false or misleading information is an offense liable on conviction to a fine and/or imprisonment. ### Assessment of Principle 6 (fit and proper, change of control) - Assessment: Compliant - Key findings: - Minister may only approve a person/entity as a substantial shareholder or indirect controller if MAS is satisfied the entity is fit and proper and the bank will continue to be prudently operated under the BA. - MAS must be notified of any changes or proposed changes in ownership or control. - MAS, through the Minister, may direct transfer or disposal of shares if a controller is no longer fit or has filed false or misleading information. - Conclusion: MAS is in full compliance with Principle 6. ### Principle 7 — Major acquisitions: scope and statutory framework - Principle description: Supervisor can approve/reject and impose prudential conditions on major acquisitions/investments by a bank to ensure they do not expose the bank to undue risks or hinder effective supervision. - Essential Criteria (EC) and findings: - EC1: Definitions and thresholds - Section 32 of the BA: prior MAS approval required for a bank to acquire/hold, directly or indirectly, a stake of more than 10 percent voting rights or total number of issued shares in any company, or any interest where directors act in accordance with the bank’s directions or where the bank can determine company policy. - Section 31 of the BA: no bank shall acquire or hold equity investments in a single company which exceeds in the aggregate of 2 percent of its capital funds. - Regulations 22–23E: notification within 14 days for commencement of certain prescribed businesses. - Regulation 23F: pre-approved businesses may be engaged without prior approval but limited to total net book value of 10 percent of capital funds at the bank and banking group level. - Regulation 23G: related/complementary businesses subject to limits; aggregate cap for 23G is 15 percent of capital funds at bank and group level (based on highest of total balance sheet asset value, total revenue or total exposures); combined cap of 20 percent of capital funds for businesses under 23F and 23G. - Quarterly reporting required on businesses under regulation 23G, including requirements in the Fourth Schedule of the Banking Regulations. - EC2: Criteria for proposals - MAS does not ordinarily grant approval for banks to hold >10 percent in entities undertaking prohibited business (businesses other than those in section 30(1) of the BA). - Part IX and Notices (e.g., MAS Notice 630) set parameters and conditions for prescribed businesses (e.g., Islamic banking, private equity/venture capital). - Section 33: immovable property held shall not exceed 20 percent of capital funds. - EC3: Assessment of supervisory impact and information flow - Banks must demonstrate Board/head office deliberation, due diligence, and means to monitor/manage risks for proposed acquisitions requiring approval. - MAS considers whether overseas investee regulatory regimes hinder consolidated supervision and may impose conditions ensuring MAS (or its agent) access for consolidated supervision. - MAS may impose conditions reserving right to revoke approval and require divestment if acquisition/investment: - (i) poses an impediment to the orderly recovery and resolution of the banking group; - (ii) exposes the bank/banking group to undue risks or hinders MAS’ effective consolidated supervision; - (iii) impedes MAS’ ability to implement effective corrective measures. - MAS may reject applications where investee principally carries on prohibited business or risks are too high/improperly managed. - EC4: Resources and capacity assessment - Supervisors assess due diligence covering: - economics of transaction and ability to fund acquisition, specifically impact on capital position; expectation to submit capital management or raising plan where warranted; - representation in and control of the investee and capacity to manage integration and the integrated banking group; - obligation to provide further financial support and materiality of contagion/financial risk. - For large investees threatening financial soundness, supervisors may obtain and review board materials, integration plans, stress testing results and assumptions, and bank’s financial capacity for adverse outcomes. - EC5: Risks from non-banking activities and anti-commingling policy - 2000 MAS policy separating financial and non-financial businesses (“anti-commingling policy”) to limit contagion and non-arms-length transactions. - MAS does not ordinarily approve >10 percent holdings in companies undertaking prohibited business; supervisors verify investee/subsidiaries are not engaged in prohibited activities (e.g., property development). - Additional Criteria AC1: - MAS reviews major acquisitions/investments by other entities in the banking group under section 32 and may impose conditions to address impediments to recovery/resolution, undue risks, or hindrance to consolidated supervision. - Assessment of Principle 7: Compliant - Comments: - MAS exercises high prudence in approving major acquisitions, considering capital and risk profile effects, management capacity, consolidated supervision impediments, interconnectedness and complexity, and resolvability. Suitable acquisitions generally limited to companies engaged in banking or supervised by MAS. ### Principle 8 — Supervisory approach: risk-based framework and forward-looking assessment - Principle description: Supervisor develops forward-looking assessment of risk profiles, identifies system-wide risks, has early intervention framework and resolution plans. - Essential Criteria (EC) and findings: - EC1: Methodology to assess nature, impact and scope of risks - MAS uses impact and risk model in Framework for Impact and Risk Assessment of Financial Institutions: - Impact (relative systemic importance): assesses potential impact on financial system, economy and reputation in event of distress; related institutions grouped for aggregate impact. - Risk (relative risk profile): assesses inherent risks of activities, ability to manage/control them, governance, financial strength, intra-group linkages and risks from wider group. - Combined assessments determine supervisory significance buckets 1 to 4 (Bucket 1 = highest intensity). All banks receive base off-site supervision and inspection; intensity increases from Bucket 4 to Bucket 1. - MAS strengthening recovery and resolution planning for systemically important banks; systemically important banks are developing recovery plans and submitting organizational and critical functions information for resolvability assessments. - EC2: Processes and forward-looking methodology - Supervision performed by bank-specific teams; banks from same group or home country supervised by same team. - Supervisors use CRAFT, activity-based risk assessment identifying “significant activities” and assessing inherent risks and control factors; oversight/governance and financial strength assessed holistically. - Risk assessments are forward-looking with a one-year horizon; annual review for all banks except Bucket 4 (reviewed at least once every two years). - Outcomes of CRAFT feed into supervisory plans and are conveyed annually to senior management and Boards of locally-incorporated banks. - EC3: Compliance assessment - Supervisors evaluate legal and regulatory compliance via inspections, off-site review of returns and audit reports; auditors must highlight non-compliance under MAS Notice 609 and notify MAS of serious offenses under section 58(8) of the BA. - EC4: Macroeconomic environment and cross-sectoral developments - Supervisors incorporate MSD macroprudential work, industry-wide stress tests led by MSD, and regular information sharing across supervisory departments; MFSC coordinates policy and supervisory decisions. - EC5: Identifying and communicating system-wide risks - MAS performs micro- and macro-prudential surveillance with close cooperation between supervisors and MSD; regular indicators and stress-test results inform supervisory actions and bank-specific requirements. - EC6: Resolvability assessments and measures - MAS is resolution authority; licensing applicants must provide organizational structure, critical functions, cross-border inter-dependencies and home resolution regime. - MAS may require licensing conditions to improve separability, arms-length intra-group transactions, resilient operational arrangements, entity-level MIS, and separability for services connected to Singapore’s financial market infrastructure. - MAS can require banks to restructure or simplify to improve resolvability and uses powers under sections 55 and 49 of the BA to give directions or require actions. - EC7: Framework for handling banks in stress - Crisis management framework overseen by CMT and DFI framework with DFI handbooks detailing crisis stages, information gathering, action triggers, escalation, possible actions and crisis communication. - Typical crisis management steps include intensified supervision, dialing up asset maintenance ratios, requiring de-risking/deleveraging, on-site intervention teams, assessment of liquidity/viability, appointment of statutory manager as interim step, and implementation of resolution strategies (transfer of business or winding up). - Resolution regime provides for cooperative solutions with foreign resolution authorities where possible. - MAS has applied these measures during the global financial crisis. - EC8: Supervisory perimeter and regulatory arbitrage - MAS is integrated supervisor for banks, insurers and capital markets; MFSC facilitates consistent policy and reduces supervisory gaps and regulatory arbitrage; similar activities and risks are subject to equivalent treatment across sectors. - Assessment of Principle 8: Compliant - Comments: - MAS’ supervisory approach is intrusive, intensive and forward-looking, centered on CRAFT with proximity to supervised banks, and has a framework for early intervention. ### Principle 9 — Supervisory techniques and tools - Principle description: Supervisor uses on-site and off-site techniques and proportionately deploys resources according to risk and systemic importance. - Essential Criteria (EC) and findings: - EC1: Mix of on-site and off-site supervision - MAS employs both on-site and off-site supervision; all banks subject to base off-site supervision and inspection. - Off-site: monitoring financial soundness, returns, audits, meetings with management, auditors and foreign supervisors. - On-site inspections: statutory powers under sections 43 and 44A of the BA to access books, information and facilities; risk-focused top-down approach with transaction testing; verify reliability of information systems; assess compliance and controls. - Intensity of on-/off-site supervision determined by supervisory bucket; greater reliance on off-site for Buckets 3 and 4. - Supervisory Methodologies, Transactions and Analytics Division (SMTA) develops and enhances supervisory methodologies (e.g., CRAFT). - EC2: Coherent planning and execution - Supervisory teams manage both on-site and off-site activities; supervisory plans derived from CRAFT guide scope and tracking of follow-up. - Policies and procedural manuals govern inspections and communication of findings; inspection reports sent to head office and home regulator for foreign banks. - EC3: Use of varied information and verification - Supervisors use prudential returns, statutory information (section 26 of BA obliges banks to furnish information), inspection findings, audit reports and ad-hoc surveys; auditors and external reports are used for verification. - Regulatory returns validated; directors/executive officers liable for accuracy. - EC4: Variety of analytical tools - CRAFT provides comprehensive activity-based risk assessment combining on- and off-site work. - Monitoring indicators framework reviews financial statements, statistical returns and micro-prudential indicators. - CRAY (Credit Risk Analytics) tool analyzes asset quality using probability of default (PD) and PD distribution for peer comparisons. - Half-yearly top 100 borrowers submission for detailed borrower-level analysis and cross-bank comparison. - Industry-wide stress tests (IWST) and top-down independent stress tests complement bottom-up tests; supervisors challenge banks’ stress testing practices. - Surveys and questionnaires used for theme-based information gathering (property exposures, SME lending, credit conditions). - EC5: Macro coordination and policy response - Integrated supervision with MAS’ FSC and use of macroprudential tools (e.g., LTV caps, minimum cash down payment changes, discontinuation of Interest Absorption Scheme and interest-only loans, restriction on loan tenure) and coordination with whole-of-government measures (transaction taxes, housing supply). - Regular stress-tests and publication of Financial Stability Review. - EC6: Internal audit evaluation - Supervisors assess internal audit function independence, qualifications, methodology, reports and follow-up; poor internal audit quality leads to supervisory concern and non-reliance on internal auditors. - EC7: Regular contacts with boards and management - MAS meets locally-incorporated banks’ Boards and senior management annually; private sessions with non-executive directors; separate annual forum for MAS and bank senior management. - Frequent meetings with CFO (quarterly), CRO, chief internal auditor, chief compliance officer, business heads and heads of overseas subsidiaries. - For foreign banks: annual meetings with Singapore senior management and engagement with head office senior management when present locally. - Supervisors provide effective challenge on business plans, budgets, internal limits, new product approvals and ad-hoc meetings with middle management as needed. - EC8: Timely communication of findings - Off-site issues communicated as identified; inspection findings communicated via comment sheets and formal inspection reports; reports sent to head office and home regulator for foreign banks. - Annual disclosure of risk ratings to senior management and Boards; separate meetings with chairmen or independent board members where needed. - EC9: Follow-up and escalation - Banks required to submit remedial plan progress within one month of inspection report; supervisors monitor remediation and may require quarterly status updates for significant weaknesses. - Severe weaknesses may prompt external expert review or ordering remedial actions; internal escalation to Assistant Managing Director or higher where necessary. - EC10: Notifications of substantive changes and adverse developments - BA requires prior approval or notification for new places of business (section 12), change in control (sections 15A–15C), conduct of certain non-financial businesses (section 30), and major acquisitions/investments (section 32). - Section 48: banks must inform MAS if they are or likely to be unable to meet obligations, insolvent, or about to suspend payments. - Licensing conditions for foreign banks: notify MAS of changes in ownership/control within seven days and inform MAS of material adverse developments including breaches. - MAS Guidelines on Outsourcing: notify MAS for material outsourcing developments or breaches by service providers. - Securities and Futures Regulations: banks conducting specified regulated activities must inform MAS prior to commencement. - “No surprise rule”: banks engage MAS in advance when introducing substantive new business lines or instruments. - MAS Notice 609: external auditors must highlight non-compliance and notify MAS under section 58(8) of the BA. - EC11: Use of independent third parties - MAS does not outsource prudential responsibilities but may direct banks to appoint external auditors or independent consultants; supervisors assess independence, expertise and scope of third parties. - MAS may conduct joint inspections with foreign authorities and consider their work. - EC12: Information systems and analytical infrastructure - MAS uses in-house and external applications; is modernizing IT infrastructure. - Banking Supervision System (BSS) provides institution-specific information, supervisory plans, risk ratings, inspection reports and monitoring. - Business Objects and Microsoft Excel used for validation of returns and generating Monitoring Indicators; BARS hosts reports and CRAY. - Econometric/statistical tools (Eviews, Matlab) used for macroprudential modeling and network simulation. - Additional Criteria AC1: independent review - Internal Audit Department (IAD) conducts audits of supervisory functions, benchmarks against international best practice and tracks recommendations; last audits of risk-impact bucketing, on-site and off-site processes were in 2011, 2010 and 2012 respectively. - Assessment of Principle 9: Compliant - Comments: - MAS uses a wide range of supervisory tools, steps up intensity for more systemically important banks, mainly relies on in-house staff, and uses external experts where appropriate. The supervisory structure provides continuous monitoring and clear accountability. ### Principle 10 — Supervisory reporting (beginning) - EC1 (start of description): MAS has the power to require banks to submit information on solo and consolidated basis on financial condition, performance and risks, including on- and off-balance sheet assets and liabilities, profit and loss, capital adequacy, liquidity, large exposures, risk concentrations (including by economic sector, geography and currency), asset quality, loan loss provisioning, related party transactions, interest rate risk, and market risk. - (Content unit ends at the start of EC1 description for Principle 10 in the provided extract.) *Source: _cr13342 - Section 18 of the BA gives MAS the power to obtain information relating to the (IMF country report extract).* ### Section 26 of the BA requires every bank, including foreign branches to furnish ### _cr13342 - Section 26 of the BA requires every bank, including foreign branches to furnish ### Reporting requirements and regular returns - Section 26 of the BA requires every bank, including foreign branches, to furnish information (including returns) at such time and in such manner as supervisors may reasonably require for the proper discharge of their functions. - Section 36 of the BA gives supervisors the power to require banks to aggregate their assets, liabilities, profits or losses with those of their related corporations and companies in which the banks have major stakes. - Regular returns submitted to supervisors include: - Monthly data on assets, liabilities and off-balance sheet items, profit and loss, analysis of deposits and interbank exposures, loan and asset concentrations, capital, reserves, interest rate risk and market risk (MAS Notice 610 on Submission of Statistics and Returns); - Monthly data on liquidity positions (MAS Notice 613 on Minimum Liquid Assets); - Quarterly returns on related party transactions, including information on exposure limits, gross and net exposure amounts, and amounts of credit facilities which are unsecured (MAS Notice 639A on Exposures and Credit Facilities to Related Concerns); - Semi-annual data on banks’ top 100 borrowers, including the classification, collateral and provision for each borrower; - Annual financial statements including detailed balance sheets and income statements of the Singapore branch, and in the case of a locally-incorporated bank, that of the bank and the banking group, as well as details of individual classified loans and investments (MAS Notice 609 on Auditors’ Reports and Additional Information to be Submitted with Annual Accounts). - Additional reporting and supervisory tools: - Internal and external audit reports, including the long form report. - MAS conducts ad-hoc surveys on property exposures, lending to small and medium-sized enterprises and credit conditions. ### Additional reporting by locally-incorporated banks - Locally-incorporated banks submit: - Monthly data on regional exposures and non-performing loans on a solo and group basis; - Monthly/quarterly data on capital adequacy ratios; - Monthly indicators on the bank's overseas branches; - Semi-annual interim financial statements, including details of individual classified loans and investments on a solo and group basis; - Global consolidated financial information, information on major activities, management structure and control systems of each overseas branch/subsidiary, authority limits issued to overseas entities, and information on the system for monitoring the operations of overseas entities; - Monthly internal management reports on key risk updates and risk management controls, including detailed analysis on each risk type and concentrations; - Quarterly internal earnings pack (tabled to its Board) with more detailed financial performance information than published results. - Supervisory engagement: - Supervisors meet with the chief financial officer of each bank every quarter, ahead of its earnings release, to discuss financial performance, business strategies and risk profile. - Part XI of MAS Notice 637 on Risk Based Capital Adequacy Requirements for Banks Incorporated in Singapore specifies minimum disclosure requirements for capital adequacy (Pillar 3). ### Accounting standards and consolidation (EC2) - Accounting standards adopted by banks: - Based on the Singapore Statements of Accounting Standards (SAS) and the Singapore Standards of Auditing (SSA) as well as the Generally Accepted Accounting Principles and the Generally Accepted Auditing Standards. - The SAS and SSA follow the International Accounting Standards and the International Auditing Standards respectively. - Section 201(19) of the CA prescribes principles and norms regarding consolidation of accounts, accounting techniques and minimum information to be disclosed by banks. - MAS Notice 608 on Disclosure in Financial Statements requires compliance with Companies Act disclosure requirements. - MAS Notice 609 requires audited financial statements and submission of auditors’ long form report (including findings on accounting system, internal controls, quality of loans and advances and other assets, and non-compliance with the BA, CA, notices, guidelines and circulars issued by MAS). - MAS Notice 610 stipulates that information reported should be prepared based on accounting policies adopted in MAS Notices 608 and 609. ### Valuation governance and controls (EC3) - Annex 8N of MAS Notice 637 requirements for valuing positions for credit and market risk capital: - Clear and delineated governance structure for valuation policies and procedures. - Senior management must establish and maintain adequate policies, systems and controls for robust and reliable valuation methodologies. - Mark-to-market using readily available close out prices sourced independently; mark-to-market on a regular and consistent basis; use the more prudent side of bid and offer. - Maximize use of relevant observable inputs when estimating fair value using a valuation technique. - Market prices and model inputs used for marking-to-market and marking-to-model shall be regularly verified for appropriateness and accuracy. - Internal auditors or external auditors must conduct reviews of independent price verification procedures and control processes on an annual basis. - Annex 10A of MAS 637 sets further valuation policy and ICAAP requirements; supervisors may require banks to: (i) take action to improve risk management processes; (ii) maintain additional capital; and/or (iii) apply internal limits, strengthen provisions and reserves, or improve internal controls. - MAS Guidelines on Risk Management Practices—Market Risk: - Valuation processes must be robust and independent of trading; models and statistical analyses appropriate, consistently applied, validated before deployment; validation staff adequately qualified and independent; periodic model review. - Market risk measurement systems must support marked-to-market or marked-to-model pricing and accommodate new valuation methodologies. - Market risk models and assumptions should be regularly evaluated and independently validated. - MAS Guidelines on Risk Management Practices—Credit Risk: - Collateral values updated periodically; more frequent valuations in adverse market conditions for property or shares. - Inspections to verify existence and valuation for inventory-backed facilities. - Reliable and timely collateral valuation system including legal enforceability, ease of realization, market conditions; apply haircuts or forced sale values where appropriate. ### Frequency, comparability and consolidation of data (EC4 and EC5) - Frequency of collection depends on nature of information and risk profile/systemic importance: - Organizational charts: annual submission. - Assets, liabilities and off-balance sheet items: monthly submission. - Problem banks: additional information at more frequent intervals. - During periods of stress, MAS may increase reporting frequency (example: daily cash flow reports during the global financial crisis). - MAS collects data from locally-incorporated banks on both a solo and consolidated basis using the same templates, dates and periods (including exposures, non-performing assets, capital adequacy, related party exposures). - MAS sets common cut-off dates and reporting periods across banks; detailed notes on return completion issued to ensure consistency and comparability (e.g., MAS Notice 610 requires monthly statements of assets and liabilities and quarterly returns on classified exposures and collateral values of housing loans). ### Power to request information and access (EC6 and EC7) - Section 26 of the BA empowers supervisors to require banks to furnish information supervisors find necessary for proper supervisory functions; supervisors have access to all bank records and to Board, senior management and staff. - Banks must provide access to books, information and facilities required for inspection or investigation under section 44A of the BA. - Section 36 of the BA enables supervisors to require aggregation of assets, liabilities, profits or losses with related corporations and companies where banks have major stakes. - Under section 55N of the BA, MAS may require a person to furnish, within the period and manner specified, any information MAS reasonably requires for discharge of duties or functions. - Section 43 of the BA: supervisors have the power to inspect books of each bank in Singapore and any branch, agency or office outside Singapore opened by a locally-incorporated bank. - Section 44 of the BA: supervisors may investigate books where there is reason to believe a bank is operating detrimentally to depositors/creditors, has insufficient assets, or is contravening BA provisions. ### Enforcement, senior management responsibility and penalties (EC8) - Supervisors can require statements submitted by banks to be accompanied by a certificate of an external auditor regarding accuracy. - Senior management required to sign off when furnishing important information such as annual statutory returns. - External auditors required to highlight inaccuracies in bank accounts during annual audits; section 58 of the BA allows supervisors to require external auditors to verify accuracy of other information submitted to MAS. - Offenses and penalties: - Banks that fail or neglect to furnish required information are guilty of an offense and may be fined. - Directors and executive officers guilty under section 66 of the BA if they fail to take all reasonable steps to secure accuracy and correctness of statements submitted under the BA or any applicable laws; offenders may be fined or imprisoned. - Supervisory response to misreporting/errors: - Require amendment and resubmission of affected returns; - Issue formal warnings; - Require independent verification of accuracy of returns; - Take other regulatory actions as appropriate. ### Data verification, validation and supervisory checks (EC9) - Electronic submissions via MASNET: - Statistical staff perform data validation using automated in-built checks to detect anomalies vis-à-vis an institution’s past trends and peer institutions. - Statistical staff verify anomalies with the institution and its supervisors. - Significant supervisory time dedicated to data checking each data collection cycle. - EPIC system supports manual and ad-hoc external surveys not handled via MASNET; banks download files via emailed URL link and submit responses via the system. - MAS also receives supervisory information via encrypted emails. - Inspections: - Supervisors verify that banks keep adequate and proper records and that submitted returns are accurate. - Key returns (annual statutory returns including balance sheet, profit and loss and details on classified assets) are audited by external auditors. - External and internal auditors generally verify accuracy of regulatory returns submitted to MAS. - For locally-incorporated banks: - External auditors evaluate computational accuracy of CAR. - Supervisors review internal and external audit findings on capital computation processes. - Robustness of capital and CAR calculations reviewed as part of supervisory validation prior to adoption of internal ratings based approaches. ### Use of external experts (EC10) - MAS does not normally engage external experts to perform supervisory tasks, including on-site examinations; on-site teams comprise MAS bank supervisors and risk specialists where appropriate. - Supervisors may direct a bank to engage an external expert to perform a special review of internal controls when an independent party is assessed as better placed to perform the work. - Prior to engagement, supervisors typically assess the third party’s necessary expertise and independence and consider whether the scope of work is adequate and clearly defined. *Source: _cr13342 - Section 26 of the BA requires every bank, including foreign branches to furnish* ### Section 58 of the BA gives supervisors the power to require external auditors to ### _cr13342 - Section 58 of the BA gives supervisors the power to require external auditors to ### Powers under Section 58 and EC11 - Section 58 of the BA empowers supervisors to: - require external auditors to submit additional information in relation to the audit; - enlarge or extend the scope of the audit of the business and affairs of the bank; and - carry out a specific examination or establish a specific procedure. - Supervisors will clearly define the roles and responsibilities of the auditors when these powers are exercised. - External auditors have been asked to conduct examinations on specific areas of concern to supervisors, for instance, in response to alleged misconduct by a bank, its management or employees. - EC11 requirement: "The supervisor requires that external experts bring to its attention promptly any material shortcomings identified during the course of any work undertaken by them for supervisory purposes." - Description/findings re EC11: - Under Section 58 of the BA, external auditors are required to immediately inform supervisors of any findings in the course of the performance of their duties as auditors of banks on: - serious breaches or non-observances of the provisions of the BA; - if a criminal offense involving fraud or dishonesty has been committed; or - if serious irregularities have occurred, including irregularities that jeopardize the security of the creditors. - Supervisors hold regular meetings with external auditors on matters relating to individual banks. - Supervisors meet with the "big 4" international accounting firms at least once a year to discuss broader industry-level issues. ### Information collection, periodic review and EC12 - EC12 requirement: "The supervisor has a process in place to periodically review the information collected to determine that it satisfies a supervisory need." - Description/findings re EC12: - Supervisors perform a major review on all regular returns every five to seven years or more frequently, where necessary, to determine if the returns satisfy supervisory needs, streamline and update requirements and improve clarity of instructions. - MAS periodically reviews the relevance of the surveys it conducts and refines them in terms of the information requested. ### Assessment of Principle 10 (Reporting and disclosure) - Assessment: Compliant - Findings and practices: - Banks routinely furnish information required by MAS; frequency can be as frequent as daily in some cases. - Supervisors review returns and other submitted information to assess banks’ financial soundness and compliance. - MAS has developed MASNET and EPIC to facilitate electronic submission of information. - Submission of internal management information to MAS is common for supervisory reporting. - Semi-annual submissions by banks of detailed information on their top 100 borrowers are used as a powerful monitoring tool. - MAS notes that credit risk off-site monitoring could benefit from access to more detailed data from banks to permit greater granularity and frequency. - MAS may wish to assess whether current credit reporting should be supplemented by more granular and timely information of credit risk to benefit off-site monitoring, financial stability surveillance, and impact studies of new regulations. ### Principle 11 — Corrective and sanctioning powers of supervisors (overview) - Principle summary: The supervisor acts at an early stage to address unsafe and unsound practices or activities that could pose risks to banks or the banking system and has an adequate range of supervisory tools, including ability to revoke or recommend revocation of a banking license. - Essential criteria addressed through EC1–EC6. ### EC1 — Early engagement, written requirements and follow-up - EC1 expectation: Supervisor raises concerns early, requires timely remediation, uses written documents to formalize significant corrective actions, and requires regular progress reports. - Description/findings re EC1: - Supervisory activities to identify concerns include off-site surveillance, on-site examinations, reviews of internal/external audit reports and returns, regular contact with management/Board, foreign supervisors and auditors, and use of market information. - MAS classifies supervisory concerns into three categories: - (i) emerging risks; - (ii) weaknesses in risk management systems/controls or governance structure; and - (iii) regulatory breaches. - Supervisory tools categories: - Diagnostic tools: focus reviews of returns/reports; information gathering; conduct inspections; leverage internal/external auditors. - Remedial tools: communicate concerns to Board/senior management/head office; require bank to commission audits; direct implementation of rectification actions; issue supervisory warnings/reprimands; composition of offenses; remove directors/officers; issue directions to restrict business; impose conditions in license; revoke license. - Significant concerns are communicated via comment sheets or formal letters; following on-site examinations, inspection reports with comment sheets are issued to bank, head office and parent supervisor within three months. - Banks must provide regular status updates on corrective actions and supervisors follow up to ensure prompt remedial actions. ### EC2 — Range of enforcement measures - EC2 expectation: Supervisor has an appropriate range of tools when banks breach laws, engage in unsafe practices, or pose risks to depositors or system. - Description/findings re EC2: - MAS uses a varied enforcement toolkit including warnings, private/public reprimands, administrative fines, supervisory conditions, license suspensions or revocations, compositions, civil penalties, criminal fines and custodial terms. - For technical violations, MAS may require assurance breaches will not recur. - Violations such as breach of minimum liquidity, cash balance or asset maintenance requirements may attract financial penalty or composition fine (sections 38, 39 and 40 of the BA respectively). - MAS has issued administrative fines for violations of minimum liquidity and cash balance requirements and has warned/reprimanded banks for errors in regulatory returns. - External auditors are required to verify and confirm that timely remedial actions have been taken. - MAS may impose additional conditions, vary or revoke license conditions (section 7); require higher capital funds (section 10); require higher liquid assets (section 38); or require more assets in Singapore to meet liabilities (section 40). - In extreme circumstances, MAS may revoke a license (section 20) or under section 49: require actions, appoint advisers, assume or appoint persons to manage the business. ### EC3 — Powers when banks fall below regulatory thresholds - EC3 expectation: Supervisor can act when banks fall below regulatory thresholds and can intervene early to prevent breaches. - Description/findings re EC3: - Supervisors monitor compliance with regulatory thresholds and will act if banks fall below requirements. - Under the BA, MAS powers include restricting or suspending operations for failure to meet capital requirements (section 10) and imposing financial penalties for failure to comply with minimum liquid assets (section 38), minimum cash balance (section 39) or asset maintenance (section 40). - MAS may revoke a bank’s license for contravention of the BA (section 20). - Under section 49 of the BA, where a bank is or is likely to become insolvent, is carrying on business detrimental to depositors/creditors, has contravened provisions of the BA, or failed to comply with license conditions, MAS may: - require immediate actions or prohibitions in relation to the bank’s business; - appoint statutory advisers; or - assume control of and manage the business or appoint statutory managers. - MAS may issue notices, directions or impose requirements to prevent a bank from reaching regulatory threshold breaches. ### EC4 — Broad range of early-stage measures - EC4 expectation: Supervisor has a broad range of measures applied according to gravity, including restricting activities, imposing limits, barring individuals, replacing management, facilitating takeovers, interim management, and revoking licenses. - Description/findings re EC4: - MAS may, in the public interest or in interest of depositors/system, give directions or impose requirements on operations/activities/standards of a bank or class of banks (section 55). - MAS may require higher capital, liquid assets, or assets in Singapore (sections 10, 38, 40). - Examples: - Withheld approval for new or expanded activities where asset quality or risk management weaknesses persisted; - Imposed higher prudential requirements on banks; - Required a branch perceived as threatened by insolvency to hold adequate assets and to inform MAS of plans prior to certain transactions, tightening conditions if monitoring revealed deterioration. - Under section 54 MAS may make an order prohibiting a bank from carrying on banking business in the interests of depositors. - Section 54A empowers MAS to apply to the Court for winding up where MAS exercised powers under section 49. - Sections 55A to 55C require MAS approval for voluntary transfer of whole or part of a bank’s business to a licensed transferee. - MAS sets out grounds for actions taken and required corrective actions where necessary. ### EC5 — Sanctions on individuals and governance accountability - EC5 expectation: Supervisor applies sanctions to banks and, when necessary, to management/Board or individuals. - Description/findings re EC5: - Section 66 of the BA: any director or executive officer may be fined or imprisoned for failing to take all reasonable steps to secure compliance by the bank with the BA or other applicable written law. - Section 66 also provides penalties for furnishing false or misleading information to the Minister or MAS. - Section 67 of the BA: any director, executive officer, trustee, auditor, employee or agent who willfully falsifies, omits, alters, conceals or destroys entries or reports may be fined or imprisoned. - Banking (CG) Regulations 2005 (regulation 18A) permit supervisors to direct a locally-incorporated bank to remove key executive officers (including CEO, chief financial officer and chief risk officer) if they: - (i) willfully contravened or willfully caused the bank to contravene any provision of the BA; - (ii) failed to secure compliance of the bank with any provision of the BA; or - (iii) failed to discharge duties of their office. - Section 49 of the BA allows MAS to require removal of a director where the bank is carrying on business detrimentally to depositors/creditors, is or likely to become insolvent, has contravened the BA, or failed to comply with license conditions. - Section 59 of the Financial Advisers Act (Chapter 110) (FAA) empowers MAS to make prohibition orders against bank representatives (example given: six-month prohibition of an individual representative for unsuitable recommendations). ### EC6 — Ring-fencing and corrective actions vis-à-vis related entities - EC6 expectation: Supervisor can take corrective actions including ring-fencing the bank from parent companies, subsidiaries, parallel-owned structures and related entities where those actions could impair safety and soundness. - Description/findings re EC6: - MAS is able to take corrective actions, including ring-fencing of the bank, under (content truncated in source at this point). *Source: _cr13342 - Section 58 of the BA gives supervisors the power to require external auditors to* ### section 49 of the BA as it empowers MAS to: (i) require a bank concerned ### _cr13342 - section 49 of the BA as it empowers MAS to: (i) require a bank concerned ### MAS statutory powers under section 49 and section 55 of the BA - Section 49 empowers MAS to: - (i) require a bank concerned immediately to take any action or not to do any act or thing whatsoever in relation to its business; - (ii) appoint one or more persons as statutory adviser to advise the bank on the proper management of its business; or - (iii) assume control of and manage the business of the bank or appoint one or more persons as statutory manager to do so, - where MAS is of the opinion that a bank – (i) is carrying on its business in a manner likely to be detrimental to the interests of its depositors or its creditors; (ii) is or is likely to become insolvent, or is likely to become unable to meet its obligations; (iii) has contravened any of the provisions of the BA; or (iv) has failed to comply with any condition attached to its license; or where MAS considers it in the public interest to do so. - Section 55 empowers MAS to, if it appears to be necessary or expedient in the public interest or in the interest of depositors or the financial system in Singapore, give directions or impose requirements on or relating to the operations or activities of, or the standards to be maintained by a bank or class of banks in Singapore. - Example supervisory action under section 55: MAS directed a bank to comply with certain requirements, including limits on the bank’s exposures to entities in its parallel-owned banking organizations to mitigate risks associated with parallel-owned banking structures. ### Resolution authority role and cooperative approach (EC7) - MAS is the resolution authority with primary responsibility for exercising resolution powers under the BA to effect orderly resolution of a distressed bank. - The resolution regime envisages MAS committing to cooperative solutions with foreign resolution authorities, wherever possible, and taking intervention actions either individually or in the financial system, consistent with MAS’ objectives of fostering a sound and reputable financial center. - MAS’ resolution powers can be exercised in relation to the Singapore branch of a bank that is incorporated elsewhere to support a resolution carried out by a foreign home authority. - MAS may share information with a domestic authority or foreign resolution authority if the information is necessary in the resolution of a bank. ### Resolution strategies under the BA (description of powers and triggers) - (a) Winding up a bank (section 54A of the BA, read with Part X of the CA) - MAS has the power to apply to the Singapore court to wind up a bank provided certain grounds are satisfied (examples of grounds include exercise by MAS of any power set out in section 49(2) of the BA; the bank is unable to pay its debts; the bank is carrying on or has carried on banking business in Singapore in contravention of the provisions of the BA). - (b) Taking control of a bank (section 49 of the BA) - MAS or the statutory manager appointed by MAS may assume control where: - (i) The bank informs MAS that it is or is likely to become insolvent, or that it is or is likely to become unable to meet its obligations, or that it has suspended or is about to suspend payments; - (ii) The bank becomes unable to meet its obligations, or is insolvent, or suspends payment; or - (iii) MAS is of the opinion that the bank: (A) is carrying on business in a manner likely to be detrimental to the interests of its depositors or its creditors; (B) is or is likely to become insolvent, or that it is or is likely to become unable to meet its obligations, or that it is about to suspend payments; (C) has contravened any of the provisions of the BA; or (D) has failed to comply with any condition attached to its license. - (c) Transfer and disposition of business of a bank (sections 55E to 55G of the BA) - Compulsory transfer of business: The Minister may approve a determination by MAS (based on conditions and criteria set out in section 55E(1) of the BA) that the whole or any part of the business of a bank in Singapore (transferor) shall be transferred to another bank in Singapore or a company which has applied for or will be applying for a license to carry on banking business in Singapore (transferee). - (d) Transfer of shares in a bank (sections 55H to 55J of the BA) - The Minister may transfer shares of a bank incorporated in Singapore held by a person (transferor) to another person (transferee) where MAS makes a determination (based on conditions and criteria set out in section 55I(1) of the BA) that such shares ought to be transferred. - (e) Restructuring of share capital of a bank (sections 55K to 55M of the BA) - (i) Cancelling the whole or any part of the share capital of a bank incorporated in Singapore where unpaid or if paid-up capital is lost or unrepresented by available assets; the Minister will decide where MAS makes a determination (based on conditions and criteria set out in section 55L(1) of the BA). - (ii) Requiring a bank incorporated in Singapore to issue new shares to specified subscribers where MAS makes a determination (based on conditions and criteria set out in section 55L(2) of the BA). - (f) Prohibitions and court orders - MAS may prohibit a bank (including a bank branch) from carrying on banking business or from doing or performing any act or function connected with banking business or apply to the court for orders to stay certain proceedings with respect to a bank (this includes orders to stay winding up proceedings or execution or distress proceedings against the property of the bank (section 54 of the BA)). - Procedural note: For sub-paragraphs (c), (d) and (e), while the Minister may give an opportunity to be heard to affected parties, the Minister does not need the consent of such affected parties (including shareholders or creditors) to transfer shares or business or restructure capital. ### Enhancements from the MAS (Amendment) Bill 2013 (passed March 2013) - Amendments enhanced MAS’ resolution powers to include: - any direction issued to a bank, which has not been revoked by MAS, continues to be in force notwithstanding the bank surrendering its license; - MAS is empowered to issue directions to a person who is no longer licensed as a bank by MAS; - MAS is vested with the power to issue directions to a non-regulated entity that is incorporated or established in Singapore where the entity belongs to a group of companies of which a bank licensed by MAS is part of and where the entity is significant to the business of such a group; - MAS may apply to the Court to claw back the salary, remuneration or benefits given to a director or executive officer under certain circumstances, for example where the director or executive officer has failed to discharge his duties; - MAS may share information with a domestic authority or foreign resolution authority if the information is necessary in the resolution of a bank. ### Additional criteria: Laws guarding against undue delay in corrective actions (AC1) - Section 55 of the BA empowers MAS to give directions or impose requirements where necessary or expedient in the public interest, or in the interest of depositors or the financial system in Singapore. - Accountability mechanisms: - Failure by MAS to exercise supervisory powers in taking prompt and corrective actions under section 55 makes MAS answerable to Parliament and the public. - Section 22 of the MAS Act grants immunity to MAS and its officers from legal suits so long as they act in good faith, mitigating concerns that MAS may be restrained from taking prompt corrective actions. - MAS must act in good faith and abide by due process of law; due process for fair hearing is abided in cases such as revocation of licenses, though MAS may suspend a license pending outcome. - Section 7 of the MAS Act: MAS Board shall furnish the Minister with such information as the Minister may require in respect of duties and functions of MAS; MAS is ultimately accountable to Parliament through the Minister. - Section 34 of the MAS Act requires MAS, within 6 months from the close of its financial year, to transmit to the President, cause to present to Parliament and also publish a report by the MAS Board on the performance of the functions and duties of MAS. - Supervisory practice example: - MAS has taken early intervention actions such as requiring banks to promptly rectify risk management control weaknesses and system glitches. - Following the outage of a bank’s online and branch banking services on September 13, 2011, MAS reprimanded the bank on October 31, 2011 and directed it to adopt certain remedial measures. *Excerpt from IMF staff report section on MAS powers and resolution framework.* ### section 55 of the BA. Following this incident, MAS also required other banks to ### _cr13342 - section 55 of the BA. Following this incident, MAS also required other banks to ### AC2 — Coordination with supervisors of non-bank financial entities - MAS is the integrated supervisor across banking, insurance and capital markets sectors in Singapore. - Supervisory departments cooperate closely, share relevant information and coordinate supervisory activities. - Sharing of information on formal corrective action in relation to a bank and coordination of actions between departments occur at the MFSC meeting (a weekly senior management decision-making forum on matters relating to supervision and regulation of the financial sector). - When taking formal corrective action in relation to a bank, the supervisor informs the supervisor of non-bank related financial entities of its actions and, where appropriate, coordinates its actions with them. ### Assessment of Principle 11 — Powers, governance, and enforcement - Assessment: Largely compliant - Findings: - MAS has the full range of traditional supervisory powers to address unsafe and unsound practices or activities for application to locally incorporated banks. - Governance arrangements at the branch level differ from incorporated banks; some supervisory instruments (e.g., higher capital requirements) are not available for branches. - Foreign branches hold significantly more assets than domestically incorporated banks, posing supervisory challenges. - MAS imposes high asset maintenance and liquidity requirements on weak foreign branches and works with head offices and home supervisors when concerned. - For serious issues, the home supervisor often sends an inspection team and/or the home office may replace weak staff in the branch. - MAS can require a bank or foreign branch to cease certain business activities and may impose higher prudential reserves requirements. - MAS can replace officers and senior management and appoint a “statutory advisor or manager” to oversee or run the bank. - No barriers were identified to MAS taking resolution actions vis-à-vis branches, though such actions are more difficult given potential impact on foreign parents and their home jurisdictions. - Being integrated within the central bank, supervisory communications across financial sectors are seamless. - MAS often uses moral suasion for issues that are not clear legal/regulatory violations or not safety-and-soundness concerns; this can be efficient but may not send clear signals of disapproval to the industry. - Where violations or unsafe practices exist, MAS will take enforcement actions ranging from warnings, reprimands and fines to supervisory conditions and license suspensions or revocations. - MAS may revoke or suspend licenses on its own, with ex-post judicial review. - MAS staff operate under an immunity clause protecting them from legal suit when operating in accordance with their official mandate. ### Principle 12 — Consolidated supervision: overview - Principle statement: Supervisor supervises the banking group on a consolidated basis, monitoring and applying prudential standards to all aspects of the business conducted by the banking group worldwide. ### EC1 — Understanding group structure and material activities - Findings: - MAS supervises locally-incorporated banking groups on both a solo and group-wide basis, including domestic and cross-border operations. - Consolidated supervision extends to the banking group’s insurance, securities and fund management activities, and foreign branches and subsidiaries. - Legal limits include prohibiting non-financial business unless allowed under section 30 of the BA and an equity investment aggregate limit of 2 percent of capital funds (section 31 of the BA). - Supervisors require coherent, transparent group structures to assess totality of risks. - Tools used to monitor and understand group structure and material activities include: (i) inspections; (ii) review of host supervisors’ reports, internal/external auditors’ reports and regulatory returns and internal risk reports from the group; (iii) regular engagements with the Board, senior management, host supervisors and auditors; (iv) use of market information; and (v) review of applications for opening a place of business outside Singapore (section 12 of the BA) or acquiring/holding a major stake (section 32 of the BA). - MAS uses CRAFT as a consolidated risk-assessment tool adopting a risk-based supervision approach. - CRAFT identifies inherent risks on a solo and group-wide basis in areas: credit, liquidity, market, operational, technology, market conduct, and legal, reputational and regulatory risks, and assesses adequacy of control factors to determine overall net risk. ### EC2 — Prudential standards and consolidated reporting - Findings: - MAS imposes prudential standards and supervises local banking groups on a consolidated basis, collecting and analyzing financial and other information. - Under section 36 of the BA, local banking groups must comply with: risk-based capital requirements (section 10), large exposure limits (section 29), equity investment limits (section 31), investment in major stake entities (section 32), immovable property limits (section 33), property sector exposure caps (section 35), and recommendations by supervisors concerning credits and investments (section 42), and ensure adequate provision for non-performing assets (section 23) on both a solo and consolidated basis. - Under section 55 of the BA/MAS Notice 643, MAS has imposed requirements for related party transactions. - Under section 26 of the BA and MAS Notices, supervisors require submission of information essential for effective consolidated supervision, including: - global consolidated financial information (including that of non-bank subsidiaries); - annual business plans and information on major activities, management structure and control systems of each foreign branch/banking subsidiary; - authority limits issued to the foreign branch/banking subsidiary; - systems for monitoring operations of foreign branches/banking subsidiaries; and - internal risk reports. - Under section 27 of the BA and MAS 639A on Exposures and Credit Facilities to Related Concerns, banks must submit a quarterly statement showing particulars of all credit facilities granted to related parties to enable supervisors to assess detriment to depositors’ interests. ### EC3 — Oversight of foreign operations and access to information - Findings: - As part of annual CRAFT assessments, supervisors review Board and senior management oversight of foreign operations and effectiveness of group-wide risk management. - Supervisors identify higher-risk operations and assess whether management oversight is commensurate with risk profile. - Oversight assessments draw on meetings with management, foreign supervisors, auditors, inspections, compliance reports, internal/external audit reports, and management minutes. - MAS assesses quality of head office and foreign operation management and knowledge of foreign jurisdictions; assessments inform a 4-point scale rating: strong, medium strong, medium weak and weak. Ratings and supervisory concerns are disclosed to the Board and senior management annually. - Locally-incorporated banks generally do not face hindrance accessing material information from foreign branches and subsidiaries for data collation and risk management. - MAS’ Guidelines on Fit and Proper Criteria require appropriate recruitment policies and internal control systems to ensure employees (including foreign staff) meet fit and proper criteria (competency and capability). - Local management of cross-border operations are assessed for necessary expertise and compliance with laws and regulations. - Local banking groups report incidents of fraud or severe misconduct, including in foreign operations. - MAS may leverage host supervisors’ work where effectiveness and intensity of host supervision are strong; considerations include cooperation, compliance with international standards, reputation and track record. ### EC4 — On-site visits, inspections, and supervisory coordination with host supervisors - Findings: - MAS conducts on-site inspections of overseas branches and subsidiaries; frequency and scope determined by: (i) materiality of the foreign office to group operations; (ii) relative importance to Singapore and host country; (iii) quality of host supervision; and (iv) complexity and reported weaknesses. - In practice, supervisors inspect major foreign branches/subsidiaries at least once in three years, with supervisory visits and other meetings annually in between. - MAS meets host supervisors during such visits and has conducted joint inspections. - Legal powers: section 43 of the BA permits inspections of any branch, agency or office outside Singapore opened by a locally-incorporated bank; section 44A requires the bank to produce books and provide information/facilities for inspections. - Supervisors have powers under sections 26 and 36 to require additional reporting or information. - MAS has bilateral supervisory MoUs with several host supervisors to allow mutual exchange of information. - MAS performs on-site examinations for new IRBA applications and IRBA adoption approvals; supervisors assess whether on-site review of a foreign entity’s processes is required based on materiality and alignment with head office rating processes. ### EC5 — Review of parent and affiliate activities - Findings: - None of the local banking groups are subsidiaries of non-bank conglomerates. - As an integrated supervisor, MAS supervises on a consolidated basis, examining parent company activities and all material affiliates. - Controllers of local banking groups must satisfy criteria under section 15C of the BA and obtain Ministerial approval; MAS must be satisfied that the person is fit and proper and that the bank’s business will be conducted prudently and in compliance with the BA. The Minister must be satisfied that approval is in the national interest. - Supervisors assess corporate owner activities and related entities to evaluate financial contagion risk to the local banking group. - Under section 15C of the BA, MAS can vary or impose additional conditions on an existing controller and can object and/or make directions if the controller ceases to be fit and proper or the bank is no longer likely to be conducted prudently under the controller’s influence. ### EC6 — Limiting activities and locations - Findings: - MAS introduced an “anti-commingling policy” in 2000 to separate financial and non-financial businesses of banks. - The policy aims to limit risks from non-financial activities to banks’ soundness, including contagion from non-financial activities or non-arms-length transactions between banks and non-bank affiliates. *Source: IMF staff report content provided in the supplied PDF excerpt.* ### Section 30 of the BA stipulates that no bank in Singapore shall carry on any business ### _cr13342 - Section 30 of the BA stipulates that no bank in Singapore shall carry on any business ### Legal scope of permitted bank activities (Section 30, 32, 12, 49 of the BA) - Section 30: no bank in Singapore shall carry on any business except for: - (i) banking business; - (ii) any business the conduct of which is regulated or authorized by MAS under any other written law; - (iii) any business which is incidental to the business which the bank may carry on under (i) or (ii); - (iv) any business or class of business as MAS may prescribe (under Part IX of the Banking Regulations 2001), subject to such conditions as may be prescribed; or - (v) any other business as MAS may approve, subject to such conditions as MAS may impose. - MAS does not normally allow the local banking groups to carry out non-financial activities unless allowed under section 30 of the BA. - Section 32: locally-incorporated banks must seek MAS’ approval to acquire or hold (directly or indirectly) major stakes in any company, including foreign-incorporated subsidiaries; MAS considers subsidiary activities and may revoke approval if necessary. - Section 12: local banking groups require MAS’ approval to open a new place of business or change location in Singapore, or open a new branch, agency or office outside Singapore; supervisors evaluate cross-border risks and may impose conditions to mitigate risks. - MAS will consider whether proposed new offices or entities and their activities are subject to host supervision and reserves power to revoke approval and require foreign branches to cease operation where warranted. - Section 49: where a bank is unable to meet obligations, likely insolvent, has contravened the BA, or it is in the public interest, MAS may: - require the bank to take or refrain from actions in relation to its business; - appoint advisers on proper management; - assume or appoint persons to assume control of and manage the bank’s business. ### Consolidated and solo supervision (EC7 / Principle 12) - MAS supervises on both consolidated and stand-alone (solo) bases: - supervises each bank on a stand-alone basis and understands its relationship with other group members; - collects and reviews financial information and risk reports on both a solo and consolidated basis; - monitors intra-group/related party transactions pursuant to sections 27 and 29 of the BA. - Audit expectations: - group internal and external auditors should audit each bank on a stand-alone basis. - Supervisory frequency and engagement: - MAS examines major foreign branches and subsidiaries of locally incorporated banks on average once every three years and conducts supervisory visits and meetings at least annually. - MAS regularly engages with host supervisors and has bilateral supervisory relationships enabling mutual exchange of information. ### Home–host supervisory cooperation (Principle 13, EC1–EC10) - EC1: supervisory colleges - MAS hosts supervisory college meetings for Singapore-incorporated banking groups involving regional supervisors with sizeable or strategic operations. - Most recent colleges hosted in April 2012; MAS benchmarks against BCBS’ Good practice principles and reviews college structures periodically. - Colleges include sessions where senior management present business strategies, risk outlook and controls; MAS follows up with supervisory letters. - EC2: information sharing - MAS has bilateral supervisory MoUs with several host supervisors; for colleges, MAS requests college-specific confidentiality agreements. - MAS notifies host supervisors of planned inspections of overseas branches/subsidiaries and shares inspection reports upon completion; it receives inspection reports from host supervisors. - As host supervisor, MAS shares inspection reports on foreign banks in Singapore with head offices and home supervisors and participates in supervisory colleges and crisis CMG meetings (including cross-border CMG meetings of six globally systemic banks). - EC3: coordination of supervisory activities - MAS and host supervisors coordinate supervisory plans during colleges and via regular dialogues (email/phone/letters/ad-hoc meetings). - MAS conducts joint supervisory validations and on-site inspections with host supervisors (e.g., joint validations of Basel II IRBA systems). - EC4: communication strategy - MAS maintains regular dialogues with host supervisors; after colleges MAS writes to banks to highlight common issues and to host supervisors summarizing remedial actions. - Joint activities (e.g., IRBA validations) have resulted in joint reports to banking groups. - EC5: cross-border crisis cooperation - MAS is both supervisor and resolution authority; working towards a multilateral sharing arrangement amongst EMEAP-WGBS members on resolution planning information via a resolution planning survey. - MAS will engage host supervisors bilaterally on bank-specific resolution issues and has arrangements to update one another on supervisory contacts and cooperate in crises. - EC6: group resolution planning - MAS requires local banking groups to submit recovery plans and detailed information on critical functions and cross-border inter-dependencies to support resolution planning. - MAS engages host supervisors to understand their crisis management and resolution regimes and the systemic relevance of Singapore operations. - For foreign banks, MAS considers home-authority recovery/resolution work (e.g., CMG for globally systemic banks); MAS will step up engagement during crises and work with home authorities to implement global resolution strategies. - EC7: prudential parity for foreign banks - Foreign banks (branches or subsidiaries) in Singapore are subject to prudential, inspection and regulatory reporting requirements similar to Singapore-incorporated banks. - They must comply with BA limits and restrictions including: large exposures limit (section 29), equity investment limit (section 31), restrictions on investments in non-financial business (section 32), immovable property limit (section 33), and property sector exposure limit (section 35). - Under section 43, foreign banks are subject to inspections by MAS; frequency determined by supervisors’ assessment of impact and risk. - Regulatory returns required include MAS Notice 610 (statement of assets and liabilities including off-balance sheet items), MAS Notice 658 (minimum cash balance), MAS Notice 613 (minimum liquid assets), MAS Notice 639A (exposures to single counterparty groups), and details on top 100 borrowers. - EC8: home supervisor on-site access - Under section 45, a home supervisor may inspect branches/offices in Singapore with prior MAS approval if: - inspection is for sole supervisory functions; - home supervisor is prohibited by domestic law from disclosing information or gives written confidentiality undertaking; - home supervisor gives written undertaking to comply with BA and MAS conditions. - MAS has approved all on-site examination requests of home supervisors. - MAS seeks approval or notifies host supervisors before visiting foreign offices/subsidiaries of Singapore-incorporated groups, meets host supervisors during visits, and shares inspection reports thereafter. - EC9: booking offices and shell banks - MAS prohibits shell banks and admits banks only if they generate real economic activities/value in Singapore operations. - Foreign banks must have local management teams accountable for local operations; responsibilities set out in MAS Notice 622A. - MAS ensures booking-office activities complement locally-originated activities; Singapore operations’ balance sheet, exposures and positions are subject to common prudential requirements and limits. - EC10: consultation before consequential action - MAS treats information from foreign supervisors as confidential and will consult with foreign supervisors, as appropriate, before taking consequential action based on such information. - Assessment: MAS is compliant with Principle 13; it routinely shares examination reports, engages in supervisory colleges and crisis groups, requests recovery and resolution plans from locally incorporated banks (not yet completed), and is working on multilateral resolution planning arrangements. ### Corporate governance supervision (Principle 14, EC1–EC9, AC1) - EC1: Board and senior management responsibilities and guidance - MAS’ Guidelines on Risk Management Practices—Board and Senior Management (Board and Management Guidelines) set out Board/senior management roles on risk management. - 2005 CG Regulations require locally-incorporated banks to establish Board committees: Nominating Committee, Remuneration Committee, Audit Committee, Risk Management Committee; responsibilities embodied in MAS’ CG Guidelines. - Committee responsibilities include: - Nominating Committee: identify candidates and review nominations for directors, board committee members and key executive officers (regulation 13). - Remuneration Committee: recommend framework for directors’ and executive officers’ remuneration (regulation 16). - Audit Committee: responsible for adequacy of external and internal audit functions and review scope/results of audits and external auditor independence (regulation 17). - Risk Management Committee: oversee independent enterprise-wide risk management system and adequacy of risk management function/resourcing and reporting lines (regulation 17A). - CG Guidelines give supervisory expectations, e.g., Principle 1 (effective Board) and Principle 17 (chief risk officer reporting line to Board). - EC2: assessment and remediation - Supervisors assess corporate governance via inspections and off-site reviews, including ICAAP submissions, internal audit reports, stress testing frameworks, and self-assessments against CG Regulations/Guidelines. - Supervisors meet Board committees annually and review Board/committee minutes. - Deficiencies require timely remedial action; supervisory assessments feed into MAS’ CRAFT and disclosure of CRAFT ratings to banks’ Board/senior management. - EC3: nomination and appointment processes - MAS requires prior approval for appointment of directors, chairman, Nominating Committee members, CEO, deputy CEO, CFO and CRO. - CG Regulations require at least a majority of directors to be independent; independence criteria defined in regulation 2(1) (including continuous service cap of nine years). - Nominating Committee to ensure candidates are fit and proper considering track record, age, experience, capabilities, skills and independence. - Terms of directorship limited to a maximum period of three years; prior MAS approval required for appointments and re-appointments. - EC4: director qualifications and duties - Nominating Committee assesses candidate qualifications (regulation 13); CG Guidelines provide further guidance on committee expertise. - Section 157 of the Companies Act (CA) requires directors to act honestly and use reasonable diligence. - CG Guidelines require director training on duties and continuous professional development; MAS Academy has organized a Bank Directors’ Program. - EC5: Board oversight of strategy, risk appetite and culture - Board responsibilities include approving and overseeing strategic direction, risk appetite and related policies, establishing corporate culture/values and conflict-of-interest policies (Board and Management Guidelines). - Under MAS Notice 637, Board must define risk appetite, establish acceptable risk levels and capital strategy, review target level/composition of capital at least annually. - Senior management responsibilities include establishing robust policies/procedures for risk identification, measurement and reporting; instituting strong internal control culture; and communicating internal controls and policies across the bank. - EC6: fit and proper standards, succession and oversight of senior management - Board expected to establish fit and proper standards and succession planning (Board and Management Guidelines). - Nominating Committee responsible for identifying/reviewing nominations for key executive officers; MAS’ Guidelines on Fit and Proper Criteria apply to key executive officers. - Regulation 16(3) requires Remuneration Committee to align remuneration with job functions, risk time horizon and corporate/individual performance. - Supervisors evaluate compliance via inspections and off-site reviews and incorporate findings in CRAFT. - EC7: compensation oversight and risk alignment - Board to oversee remuneration policies ensuring alignment with long-term objectives, financial soundness and avoidance of incentives for excessive risk-taking (Board and Management Guidelines). - Regulation 16(3) requires Remuneration Committee to ensure executive remuneration: - aligned with risks relevant to job function; - sensitive to time horizon of risks (variable compensation not finalized over short periods when risks realized over long periods); - linked to personal, job-function and overall bank performance. - RC must review remuneration practices annually. - EC8: understanding operational structure and opaque arrangements - Board/Management Guidelines and CG Guidelines require Board approval and understanding of organizational structure and discourage complex structures that impede transparency. - Supervisors assess Board and senior management understanding during inspections/off-site reviews; deficiencies require prompt mitigation. - EC9: power to require Board composition changes - Section 54B of the BA allows MAS to direct removal of a director if satisfied that a director failed to discharge duties and removal is necessary in the public interest or for depositor protection. - MAS typically uses moral suasion for less serious problems. - AC1: notification of material adverse information - Board and senior management should notify MAS in advance of substantive changes or as soon as aware of material adverse developments, including information affecting fitness and propriety of Board or senior management; banks must notify supervisors promptly when aware of material information affecting a prospective appointee. - Assessment: MAS is compliant with Principle 14; supervisors regularly meet committee chairs, review board minutes and ensure Nominating Committee annual assessments of director suitability. ### Risk management supervision (Principle 15, EC1–EC5) - EC1: Board-approved risk strategies and risk appetite - MAS’ Risk Management Guidelines and Internal Controls Guidelines require Board-approved comprehensive policies for prudent management of significant risks. - Part X of MAS Notice 637: Board must define risk appetite and capital strategy and ensure senior management: - institutes strong internal control culture (paragraph 10.2.5(f)); - establishes robust policies/procedures to identify, measure and report all material risks and evaluate their effect on capital levels (paragraphs 10.2.8(a) and (b)); - evaluates sensitivity/reasonableness of key assumptions in capital assessment and holds capital for uncertainties (paragraphs 10.2.8(c) and 10.2.17); - sets firm-wide prudential limits consistent with risk appetite (paragraph 10.2.5(d)) and communicates internal controls and policies (paragraph 10.2.5(g)); - establishes frameworks relating risks to capital levels (paragraph 10.2.5(c)). - EC2: comprehensive bank-wide risk management - ICAAP requirements: locally-incorporated banks’ ICAAP must identify all material risks, including Pillar 1 risks, risks not fully captured under Pillar 1, and risks outside Pillar 1 (e.g., interest rate risk in the banking book, liquidity risk, business risk, reputational risk, strategic risk, concentration risk) and external factors (paragraph 10.2.10). - Banks must integrate enterprise-wide perspectives, account for inter-linkages of risk types, and ensure sophistication of processes is commensurate with nature/size/complexity (paragraphs 10.2.7, Annex 10A). - Banks required to conduct regular stress testing (see CP15 EC13 in source). - EC3: documentation, review and communication of policies and limits - Risk management frameworks must be adequately documented (Annex 10A, paragraph 2.1(a)), periodically reviewed and updated (Annex 10A, paragraph 2.1(a); paragraph 10.2.13). - Senior management must communicate policies and monitor/report significant risk concerns to the Board; procedures for reporting deviations/limit breaches to Board/senior management are required (Annex 10A, paragraph 2.1(d)). - For foreign bank branches, MAS Notice 622A assigns chief executive responsibilities for written policies, limits of discretionary powers, and adequate risk management systems. - EC4: Board/senior management awareness of risk, capital and liquidity - Board must ensure processes for adequate capital and liquidity and review limitations/assumptions in risk management information (Board and Management Guidelines; Part X of MAS Notice 637, paragraph 10.2.4 and 10.2.8). - Supervisors review Board/ALCO minutes, management reports and key risk indicators including capital and liquidity levels during inspections/off-site reviews to confirm Board/management obtain adequate information and understand limitations/uncertainties. - EC5: internal capital and liquidity adequacy assessment - Banks required to have internal processes (ICAAP) to assess overall capital and liquidity adequacy relative to risk appetite and profile; supervisors review and evaluate these assessments and strategies (Part X of MAS Notice 637 and related guidance). - Supervisory approach: - Supervisors assess adequacy of risk management strategies, controls, policies and processes through inspections, continuous off-site supervision, and review of external and internal audit reports; findings incorporated into CRAFT assessments. *Source: _cr13342 - Section 30 of the BA stipulates that no bank in Singapore shall carry on any business_* ### Part X of MAS Notice 637 requires a locally-incorporated bank to develop its own ### _cr13342 - Part X of MAS Notice 637 requires a locally-incorporated bank to develop its own ### Key regulatory requirements under Part X - The bank is required to develop its own ICAAP and maintain capital levels that are commensurate with its risk profile and control environment (paragraph 10.1.1). - The bank shall conduct annual independent review of the ICAAP for robustness and integrity (paragraph 10.2.8(f)). ### Implementation implications - ICAAP must reflect the bank’s specific risk profile and control environment to determine appropriate capital levels. - An independent review of the ICAAP must be performed annually to assess robustness and integrity, as specified in paragraph 10.2.8(f). *Source: _cr13342 - Part X of MAS Notice 637 requires a locally-incorporated bank to develop its own* ### Annex 10A of MAS Notice 637 requires a bank to have in place a liquidity strategy, ### _cr13342 - Annex 10A of MAS Notice 637 requires a bank to have in place a liquidity strategy, ### Liquidity strategy and information systems - Annex 10A of MAS Notice 637 requires a bank to have in place a liquidity strategy that sets out specific liquidity management policies, such as: - the composition of assets and liabilities; - the approach to managing liquidity across currencies and locations; - the use of specific financial instruments; and - the liquidity and marketability of assets. - The bank shall also have adequate information systems for measuring, monitoring, controlling and reporting liquidity risk, including liquidity risks from complex products and contingent commitments (paragraph 7.1). ### Supervisory review of ICAAP, capital and liquidity adequacy - Supervisors review and assess the ICAAP of a bank, compliance with requirements in MAS Notice 637, and the adequacy of capital maintained by the bank (paragraphs 10.3.1 and 10.3.2 of Part X of MAS Notice 637). - The supervisory review includes evaluation of the bank’s ICAAP and strategies, and the bank’s ability to monitor and ensure compliance with regulatory capital adequacy ratios. - During inspections and off-site reviews, supervisors determine that a bank has appropriate policies and processes to ensure overall capital and liquidity adequacy are commensurate with the bank’s risk profile and systemic importance. - Senior management should closely monitor current trends and potential market developments and make appropriate and timely changes to the bank’s capital and liquidity strategies where warranted. ### Use, governance and validation of models (EC6) - EC6 supervisory determinations: - (a) banks comply with supervisory standards on their use; - (b) the banks’ Boards and senior management understand the limitations and uncertainties relating to the output of the models and the risk inherent in their use; and - (c) banks perform regular and independent validation and testing of the models. - Description and findings: - Under MAS’ Board and Management Guidelines, where models are used to measure components of risk, the Board and senior management must ensure models are validated and tested regularly by an independent party and understand limitations and uncertainties relating to model outputs. - Paragraph 10.3.2 of Part X of MAS Notice 637 requires supervisory assessment of compliance with minimum standards, qualifying criteria and requirements for internal methodologies, credit risk mitigation techniques and securitizations for regulatory capital purposes on an ongoing basis. - Supervisors hold senior management responsible for evaluating sensitivity and reasonableness of key assumptions used in capital assessment and measurement systems (paragraph 10.2.8(c)). - The bank shall hold capital for uncertainties in the precision of risk measures and volatility of exposures (paragraph 10.2.17). - Board and senior management review and approve important aspects of the advanced approach frameworks (paragraphs 2.1 and 2.2, Annex 7AB of Part VII; paragraphs 9.5.47 and 9.5.53, Division 5 of Part IX; paragraphs 8.3.22, 8.3.26 and 8.3.27, Part VIII, MAS Notice 637). - Independent review requirements: paragraph 10.2.19 of Part X requires systems relating risks to capital to be reviewed independently by persons other than those responsible for ICAAP design/implementation; same applies to validations of IRBA, IMA, AMA models per referenced paragraphs. The bank is required to conduct a high level review at least annually. - Supervisors review Board and senior management minutes and independent validation processes, including front office/back office controls, valuation parameters, algorithms, assumptions, and validation approaches/results. ### Management information systems (EC7) - EC7 supervisory determination: - Banks must have adequate information systems (both normal and stress periods) for measuring, assessing and reporting exposures across all risk types, products and counterparties; reports must reflect the bank’s risk profile and capital and liquidity needs and be timely for Board and senior management use. - Description and findings: - MAS’ Internal Controls Guidelines require banks to have adequate MIS for effective management and control; sophistication should be commensurate with complexity and diversity of operations. - Under Annex 10A of MAS Notice 637, a locally-incorporated bank shall have appropriate MIS at business and bank-wide level to enable proactive management of risk (paragraph 2.3). - MIS requirements include: providing regular, accurate and timely information on aggregate risk profile and main assumptions; adaptability to changes in underlying risk assumptions; incorporation of multiple perspectives of risk exposure; inclusion of off-balance sheet exposures; flexibility to aggregate exposures across business lines; support for forward-looking bank-wide scenario analyses and stressed conditions. - Supervisory assessment methods: walkthroughs of key MIS during inspections, off-site reviews of internal management reports, assessment of MIS flexibility to respond to ad-hoc data requests from MAS, and review of management reports and minutes to confirm timely information provision. ### New products, product approval and governance (EC8) - EC8 supervisory determination: - Banks must have adequate policies and processes to ensure Boards and senior management understand risks in new products, material modifications, and major initiatives; such activities require Board or committee approval. - Description and findings: - MAS’ Internal Controls Guidelines require a new product policy for review and authorization of new business lines/activities and variations to existing products; Board or appropriate management must approve variations. - Under Part X of MAS Notice 637, banks shall incorporate changes in risk profile into risk assessments timely (paragraph 10.2.14) and ensure senior management understands assumptions for new/complex products (paragraph 2.1a of Annex 10A). - Banks must consider valuation difficulty and stressed performance for new products and ensure infrastructure and internal controls are in place before introduction. - Senior management minimum obligations under paragraph 10.2.8 include: - establishes robust policies and procedures to identify, measure and report all material risks; - evaluates the level and trend of material risks and their effect on capital levels; - determines if the bank holds sufficient capital against the risks facing the bank; - assesses future capital needs based on the risk profile and makes necessary adjustments to strategic plan; - subjects the ICAAP to annual independent review for robustness and integrity. - Supervisors review adequacy of new product approval policies, governance frameworks, organizational structures and control mechanisms for monitoring and managing new risks. ### Risk management function and internal audit (EC9) - EC9 supervisory determination: - Banks must have risk management functions covering all material risks with sufficient resources, independence, authority and Board access; duties must be segregated from risk-taking functions and report directly to Board/senior management; internal audit must regularly review risk management function. - Description and findings: - MAS’ Risk Management Guidelines and Board and Management Guidelines require competent personnel, adequate resourcing, independence, clear authority and Board access for risk management functions. - CG Guidelines require adequate resources, experienced and qualified employees, independence from business lines, direct CRO reporting line to Board, and rights to seek information from senior management; CRO and risk management should have access to consolidated information and affiliates/subsidiaries. - Internal auditor responsibilities include evaluating reliability, adequacy and effectiveness of internal controls and risk management processes; assessing operation according to risk appetite framework; providing overall opinion to AC or Board annually. - Supervisors assess coverage of material risks, segregation of duties, direct reporting lines to Board/senior management, and review internal audit reports on risk management functions. ### Dedicated CRO and approval/disclosure requirements (EC10) - EC10 supervisory determination: - Larger and more complex banks are required to have a dedicated risk management unit overseen by a CRO or equivalent; removal of a CRO should be Board-approved, generally publicly disclosed, and discussed with the supervisor. - Description and findings: - Regulation 18 of the Banking (Corporate Governance) Regulations 2005 requires locally-incorporated banks to obtain MAS’ prior approval for appointment of a CRO. - CG Guidelines require the CRO role to be distinct with no “double hatting.” - The three locally-incorporated banks each have a dedicated risk management unit overseen by a CRO providing group-wide oversight. - Board should approve resignation/dismissal of the CRO, disclose resignation/dismissal publicly, and discuss reasons with MAS. Similar requirements in MAS’ Guidelines on Risk Management Practices—Board and Senior Management Oversight. ### Risk standards issued by the supervisor (EC11) - EC11 supervisory determination: - The supervisor issues standards related to credit risk, market risk, liquidity risk, interest rate risk in the banking book, and operational risk. - Description and findings — MAS issuances listed: - Credit risk: - MAS Notice 612 on Credit Files, Grading and Provisioning - MAS Notice 637 (Part VII, X and XI) - Guidelines on Risk Management Practices—Credit Risk - Market risk: - MAS Notice 637 (Part VIII, X and XI) - Guidelines on Risk Management Practices—Market Risk - Liquidity risk: - MAS Notice 613 on Minimum Liquid Assets - MAS Notice 758 on Minimum Cash Balances - Guidelines on Risk Management Practices—Liquidity Risk - Interest rate risk in the banking book: - MAS Notice 637 (Part X and XI) - Guidelines on Risk Management Practices—Market Risk - Operational risk: - MAS Notice 637 (Part IX, X and XI) - Guidelines on Risk Management Practices—Internal Controls, Business Continuity Management and Outsourcing - Technology risk: - Guidelines on Risk Management Practices—Internet Banking and Technology Risk Management ### Contingency arrangements, recovery and resolution (EC12) - EC12 supervisory determination: - Banks must have appropriate contingency arrangements as integral to risk management, including recovery plans where warranted by risk profile and systemic importance; supervisor assesses adequacy and feasibility and seeks improvements if deficiencies identified. - Description and findings: - Part X of MAS Notice 637 requires locally-incorporated banks to: - make allowances for unexpected events and put in place contingency plans for raising additional capital (paragraph 10.2.16); - have contingency plans addressing strategy for handling liquidity crises and procedures for making up cash flow shortfalls in emergency situations (paragraph 7.1(f) of Annex 10A); - incorporate reputational risk into risk management, ICAAP and liquidity contingency plans (paragraph 8.2 of Annex 10A). - Stress testing is intended to facilitate development of mitigation or contingency plans across stress conditions (paragraph 10.1(g) of Annex 10A). - Supervisors use stress test reviews (including MAS’ annual industry-wide stress test) to challenge approaches and assumptions and encourage contingency arrangements; supervisors have required corrective actions based on stress tests. - Business continuity preparedness reviews focus on mission-critical activities, recovery strategies and recovery time objectives (for business functions and IT); business continuity plans should be commensurate with scale, nature and complexity of activities (see CP 25 EC 4). - MAS has required several systemically important banks to submit recovery plans and detailed organizational/critical function information to facilitate resolution planning; MAS can require simplification or restructuring to improve resolvability and considers home authority work for foreign banks. ### Stress testing requirements and supervisory assessment (EC13) - EC13 supervisory determination: - Supervisor requires forward-looking stress testing programs commensurate with banks’ risk profile and systemic importance, regularly assesses programs to ensure capture of material risks and plausible adverse scenarios, and that results are integrated into decision-making, risk management, and capital/liquidity assessment. - Scope includes whether stress testing: - (a) promotes risk identification and control on a bank-wide basis; - (b) adopts suitably severe assumptions and addresses feedback effects and system-wide interactions; - (c) benefits from active Board and senior management involvement; and - (d) is appropriately documented and regularly maintained and updated. - Supervisor requires corrective action if material deficiencies are identified. - Description and findings: - Banks in Singapore conduct stress tests regularly; MAS conducts an annual IWST, including a liquidity risk stress test, to assess banks’ ability to withstand adverse shocks and evaluate potential impact on Singapore’s financial stability (see CP9 EC4). - Stress test results are used to assess robustness of methodologies, compare conservatism across banks (e.g., stress testing of common corporate borrowers), and encourage contingency arrangements including capital planning and contingency funding plans. - Supervisors challenge banks’ approaches and assumptions, use results as pre-emptive supervisory tools, and require corrective actions where needed; inspections evaluate robustness and adequacy of stress-testing framework and systems. - Under Annex 7AB of MAS Notice 637, a locally-incorporated bank adopting the IRBA must have sound and comprehensive stress testing processes for capital adequacy assessment. The bank is required to conduct credit risk stress tests to assess the effect of a mild recession scenario (i.e. two consecutive quarters of zero growth) on its IRBA minimum capital requirements at least semi-annually (Pillar 1 Credit Stress Test). Stress test results and management actions (if needed) are submitted to supervisors for review. *Source: IMF staff summary of Annex 10A and related provisions of MAS Notice 637 as presented in the provided content.* ### Annex 10A of MAS Notice 637 sets out MAS’ requirements on a bank’s annual stress ### Annex 10A of MAS Notice 637 sets out MAS’ requirements on a bank’s annual stress ### Stress testing requirements (Pillar 2 Capital Stress Test) - Banks must perform a careful analysis of their capital instruments and their potential performance during times of stress, including: - ability to absorb losses and support ongoing business operations; - examination of future capital resources and capital requirements under adverse scenarios. - Forward-looking stress testing results must be considered when evaluating the adequacy of a bank’s capital buffer. - Capital adequacy under stressed conditions must be assessed against a variety of capital ratios, including regulatory ratios and ratios based on the bank’s internal definition of capital resources. - Banks must consider that a crisis may impair even very healthy banks’ ability to raise funds at reasonable cost. - Supervisory review: - Supervisors review Pillar 1 and Pillar 2 stress testing approaches, including scenario-setting, stress translation and generation of stress results. - Supervisors determine that stress testing frameworks are subject to independent verification within the bank. - Governance and documentation: - Under Annex 7AB of MAS Notice 637, senior management must establish comprehensive and adequate written policies and procedures, approved by the Board, on stress test processes. - Documentation must include objectives, techniques, assumptions, reporting requirements, remedial actions, responsibilities and lines of authority. - Board and senior management must exercise effective oversight: setting objectives, defining scenarios, discussing results, assessing potential actions and decision-making. - Senior management must take an active interest in development and operation of stress testing; results should contribute to strategic decision-making and internal debate (Annexes 7AB and 10A). ### Internal controls, pricing, new product approval and remuneration - EC14: supervisor assesses whether banks appropriately account for risks (including liquidity impacts) in internal pricing, performance measurement and new product approval for all significant business activities. - MAS Guidelines on Risk Management Practices—Internal Controls require new product policy and a product program document containing: - analysis of risks arising from the activity and details of risk management procedures and systems (procedures for identifying, measuring, monitoring and controlling risks); - evaluation of impact on overall financial condition and capital level; - recommendation on structure and staffing for key risk control functions. - Supervisory practice: - During inspections and off-site reviews, supervisors assess whether banks appropriately account for risk in internal pricing, remuneration and new product approval processes and comply with the above requirements. - Specific Notice provisions: - Part VII of MAS Notice 637: internal ratings and estimates of IRBA parameters must be used pervasively and play an essential role in internal capital allocations and pricing (paragraph 2.7). - Paragraph 7.1(c) of Annex 10A: banks shall appropriately price costs, benefits and risks of liquidity into internal pricing, performance measurement and new product approval for all significant business activities. - Part XI requires qualitative and quantitative disclosures on remuneration practices and how they support overall risk management. - Paragraph 4.14 of Annex 10A: for new products, include all internal stakeholders relevant to risk measurement, risk control, and assignment/verification of valuations. - Paragraph 5.6 of Annex 10A: banks shall identify interest rate risk embedded in new products and ensure adequate policies and procedures to monitor and control these products prior to introduction. ### Additional criteria AC1 — other material risks - MAS’ Board and Management Guidelines require institution-wide risk management policies to cover material risks including: credit, market, underwriting, liquidity, country and transfer, interest rate, legal, compliance, fraud, reputational, strategic, regulatory and operational risks. - Part X of MAS Notice 637 requires senior management to establish robust policies and procedures to identify, measure and report all material risks, and evaluate level and trend of material risks and their effect on capital levels (paragraphs 10.2.8(a) and (b)). - Material risks explicitly include reputational and strategic risks and external factors outside direct control (paragraph 10.2.10). ### Assessment of Principle 15 - Assessment: Compliant. - Comments: - MAS encourages banks to adopt strong risk management systems commensurate with their risks and is in full compliance with essential and additional criteria. - Local banking structure (only three locally incorporated banking groups and a foreign subsidiary) and conservative MAS approach limit risky activities. - Strict limits on retail activities of foreign branches; nine foreign branches hold QFB privileges. - Branches must appoint chief executives and deputy chief executives accountable to MAS for adequate risk management. - MAS regularly reviews internally-generated risk management reports to assess banks’ analysis, stress testing, reporting, governance, and follow-up. - MAS sets minimum capital requirements that exceed Basel III and monitors ICAAP to ensure capital charges generated above MAS minimums based on bank-specific riskiness. ### Principle 16 — Capital adequacy (overview) - Principle statement: The supervisor sets prudent and appropriate capital adequacy requirements reflecting risks undertaken by a bank and the market/macro context; supervisor defines components of capital mindful of loss-absorbing ability; for internationally active banks, capital requirements are not less than applicable Basel standards. ### EC1 — legal and regulatory framework for capital - Section 10 of the BA requires banks to maintain capital funds in Singapore and as required by MAS, including minimum CAR requirements; MAS may restrict or suspend operations for non-compliance. - MAS Notice 637 establishes minimum capital requirements (solo and group), methodology for calculation, and defines qualifying components of capital to emphasize elements available to absorb losses. - From January 1, 2013, MAS applied higher standards for qualifying components of capital in accordance with Basel III; prior to that, Basel II standards applied. - MAS Notice 637 complies with Basel II, II.5 and III capital computation rules. ### EC2 — Basel-consistent standards for internationally active banks - Locally-incorporated banks are required to meet capital adequacy requirements higher than Basel III global capital standards: - From January 1, 2015, MAS will require a minimum Common Equity Tier 1 (CET1) CAR of 6.5 percent, Tier 1 CAR of 8 percent and Total CAR of 10 percent. - These standards are higher than Basel III minimums of 4.5 percent, 6 percent and 8 percent for CET1 CAR, Tier 1 CAR and Total CAR, respectively. - MAS required Basel III minimum requirements from January 1, 2013, two years ahead of the BCBS’ January 1, 2015 timeline: - From January 1, 2013 banks required a minimum CET1 CAR of 4.5 percent and Tier 1 CAR of 6 percent. MAS’ existing Total CAR requirement remains unchanged at 10 percent. - Capital conservation buffer: - In line with Basel III, MAS will introduce a capital conservation buffer of 2.5 percent above the minimum, met fully with CET1 capital and phased in on January 1 each year, from 2016 to 2019 (an increment of 0.625 percent each year). - Including the capital conservation buffer, locally-incorporated banks will be required to meet a CET1 CAR of 9 percent (higher than Basel III requirement of 7 percent). - Banks may also be required to meet a countercyclical buffer within a range of 0 to 2.5 percent, comprised of CET1 capital, phased in on January 1 each year, from 2016 and 2019. - MAS’ definition of capital (Part VI), risk coverage (Parts VII, VIII, IX) and method of calculation (Part IV) are compliant with applicable Basel standards. - BCBS Regulatory Consistency Assessment Program (July 2012–March 2013) assessed Singapore’s capital regulations as “compliant” in 12 of 14 components; two components “largely compliant” with deviations not considered material. - MAS imposes additional stricter capital requirements relative to Basel in areas including: - full deduction from CET1 of deferred tax assets that rely on future profitability and all intangible assets (including mortgage servicing rights), whereas Basel permits limited recognition; - requirement to meet Basel 1 capital floors on both Tier 1 and total capital levels (Basel framework imposes Basel I floors on total capital level); - no netting of on-balance sheet assets and liabilities in calculation of credit risk capital requirements; - no recognition of unrated debt securities issued by banks as eligible financial collateral; - for IRBA adoption, requirement of a parallel run for at least one year and capital calculations based on both IRBA and standardized approach during parallel run. ### EC3 — supervisor powers to impose capital charges or limits - Section 10(3) of the BA: MAS may vary the CAR applicable to a bank, having regard to risk from its activities and other relevant factors. - Under Part X of MAS Notice 637 (Pillar 2-aligned supervisory review), MAS may require additional capital and apply other supervisory measures if necessary (paragraph 10.3.3). - MAS Notice 637 requires inclusion of on-balance sheet and off-balance sheet risks in calculation of: - credit risk weighted assets (paragraph 7.1.2 of Part VII); - market risk weighted assets (paragraph 8.1.1 of Part VIII). ### EC4 — prescribed capital reflects risk profile and systemic importance - Prescribed capital requirements for locally-incorporated banks are set higher than Basel III minimums because each bank is systemically important and has a substantial retail presence. - Higher capital requirements strengthen ability to operate under stress, protect depositors, reduce risks to the economy and safeguard financial stability. - Section 10(3) of the BA allows MAS to vary CAR based on risk arising from activities and other relevant factors. ### EC5 — approval and governance of internal models and assessments - Locally-incorporated banks adopted IRBA: - advanced IRBA (A-IRBA) for retail exposures (bank estimates PD, LGD and EAD); - foundation IRBA (F-IRBA) for wholesale exposures (bank estimates PD; supervisory prescribed LGD and EAD). - Banks use standardized approach for market and operational risk capital. - (a) Prior regulatory approval required for use of internal assessments for regulatory capital; supervisors perform on-site and off-site reviews including validation, reasonableness of assumptions, historical data and periodic stress tests. Supervisor assessments undergo peer comparison and challenge before senior management committee approval. - (b) Cessation of advanced approach use or change to standardized approach requires MAS’ approval; changes to IRBA processes/models require notification at least 3 months prior and MAS can direct bank to seek approval (paragraph 7.4.13). Banks must submit annually a list of all changes to models or credit processes. - (c) MAS has risk specialists to review models/processes via on-site and off-site validations; MAS requires a recognized parallel run (bank calculates CAR using advanced and prevailing approaches) before approving advanced approaches. MAS may withhold or extend parallel run if issues are identified. - (d) MAS may grant approvals subject to conditions or restrictions (paragraphs 7.4.10, 8.3.12 and 9.5.15). - (e) MAS may suspend or revoke approvals, subject bank to higher bank-specific capital requirements under section 10(3) of the BA, or take other actions if conditions unmet or risk management inadequate (paragraphs 7.4.12, 8.3.15 and 9.5.20). ### EC6 — forward-looking capital management and contingency arrangements - MAS has the power to require a forward-looking approach to capital management including stress testing and to require banks: - (a) to set capital levels and manage available capital in anticipation of adverse events or market changes; and - (b) to have feasible contingency arrangements to maintain or strengthen capital positions in times of stress, proportionate to risk profile and systemic importance. *Source: Annex 10A and related sections of MAS Notice 637 as presented in the supplied IMF text.* ### Part X of MAS Notice 637 sets out the requirements for a bank to have an ICAAP for ### _cr13342 - Part X of MAS Notice 637 sets out the requirements for a bank to have an ICAAP for ### ICAAP requirements and stress testing - Part X of MAS Notice 637 requires a bank to have an ICAAP for determining the adequacy of its capital to support all risks to which it is exposed and to take into account the current stage of the business cycle and be a forward-looking process capable of timely response to changes in the risk profile and business strategies of the bank, as well as its external environment (paragraph 10.2.2). - Annex 7AB of MAS Notice 637 gives MAS the power to require a bank to conduct credit risk stress tests to assess the effect of a mild recession scenario (i.e. two consecutive quarters of zero growth) on its IRBA minimum capital requirements at least semi-annually (Pillar 1 Credit Stress Test). - Annex 10A of MAS Notice 637 sets out MAS’ requirements on a bank’s annual stress test (Pillar 2 Capital Stress Test) under its ICAAP (see CP15 EC 13 for details of the Pillar 1 and Pillar 2 stress tests). - MAS conducts an annual industry-wide stress test to assess banks’ ability to withstand adverse financial and economic shocks and to evaluate the potential impact on Singapore’s financial stability (see CP9 EC4 for details). ### Capital buffers, remedial powers and contingency planning - Banks are required to maintain an appropriate level of capital above Pillar 1 requirements so that all risks, including on- and off-balance sheet, are adequately covered (paragraph 10.1.3). - Under Annex 10A of MAS Notice 637, a bank shall ensure it has sufficient capital to meet regulatory capital requirements under Pillar 1 and to cover the results of its credit and market risk stress tests performed; if this is not met, MAS may take action (paragraph 10.5). - If MAS is not satisfied with ICAAP outcomes, MAS may: - require the bank to take action to lower the risks which it assumes; - require the bank to maintain additional capital; - restrict the payment of dividends by the bank; - require the bank to implement a satisfactory capital adequacy restoration plan, including plans to correct capital shortfalls in subsidiaries that are financial institutions regulated by MAS or financial services regulatory authorities outside Singapore; - apply other supervisory measures to address heightened risk or risk management deficiencies (e.g., intensifying supervisory monitoring, requiring strengthening of risk management, applying internal limits, strengthening provisions and reserves, or improving internal controls) (paragraph 10.3.3). - Senior management involvement requirements (Annex 7AB): senior management must be actively involved in drawing up plans for remedial actions in response to the Pillar 1 Credit Stress Test results, including steps to manage risk (hedging and asset sales) and conserve capital (paragraph 6.3). - Under MAS’ ICAAP requirements, a bank is required to make allowances for unexpected events, including contingency plans for raising additional capital (paragraph 10.2.16 of Part X). ### Supervisor powers to vary CAR and capital requirements - Pursuant to section 10(3) of the BA, MAS may vary the CAR applicable to a bank, having regard to the risk arising from its activities and other such factors as MAS may consider relevant. - Section 10(3) and Annex 10A give MAS authority to instruct banks to lower risk or maintain additional capital or provisions so that existing capital resources can cover Pillar 1 requirements (paragraph 10.5). ### Distribution of capital within banking groups (AC2) - Part X of MAS Notice 637 requires a bank to ensure every subsidiary (including subsidiaries excluded from consolidation at a group level) that is a financial institution regulated by MAS or a financial services regulatory authority outside Singapore complies with the regulatory capital requirements imposed on that subsidiary and is adequately capitalized at all times (paragraph 10.2.9). ### Assessment of Principle 16 — Capital adequacy (summary) - Assessment: Compliant. - MAS has established capital regimes that equal or exceed global minimum standards and fully complies with all essential and additional criteria. - Singapore voluntarily underwent a Regulatory Consistency Assessment during the 2012–13 period by the Basel Committee; its overall capital regime was found to be in line with the requirements of the Basel framework. - Comment: Higher capital requirements imposed by MAS may have in some respects placed locally incorporated banks at an apparent competitive disadvantage versus more leveraged foreign competitors; Singapore has chosen a very conservative regulatory approach. ### Capital requirements for specific institutions (AC1) - Merchant banks: - Required to maintain a Tier 1 CAR of at least 6 percent and total CAR of at least 8 percent. - MAS’ definition of capital (part VI of MAS Notice 1111), risk coverage (Parts VII, VIII and IX), method of calculation (Part IV) and scope of application (Part III) are broadly consistent with applicable Basel standards. - Paragraph 4.1.5 of MAS Notice 1111 empowers MAS to vary the Tier 1 CAR or Total CAR applicable to a merchant bank. - Finance companies: - Required to maintain a CAR of at least 12 percent. - Finance companies hold capital in the form of common equity. - Method of calculation is based on the Basel I capital framework, appropriate given finance companies’ focus on lending to retail customers and smaller corporates. - For lending to unrated corporates, the risk weight is 100% under both Basel I and the Standardized Approach in Basel II. - For residential mortgages and lending to retail customers, Basel I’s risk weights are higher than those under Basel II. - Section 7A of the Finance Companies Act (Chapter 108) empowers MAS to require finance companies to maintain capital funds in proportion to total assets or categories of assets and to require a CAR of at least 12 percent or any other percentage as determined by MAS. ### Credit risk supervision — Principle 17 (overview) - Principle 17: Supervisor determines banks have adequate credit risk management covering risk appetite, risk profile, market and macroeconomic conditions, and the full credit lifecycle (underwriting, evaluation, ongoing management). ### EC1 — Bank-wide credit risk management processes - Banks required to adopt a holistic approach and integrate credit risk management with overall financial risk management. - Requirements set out in Parts VII and X of MAS Notice 637, MAS Notice 612 on Credit Files, Grading and Provisioning, and MAS’ Guidelines on Risk Management Practices—Credit Risk (Credit Risk Guidelines). - Supervisors during inspection assess credit risk management systems, processes, oversight, and internal controls to ensure commensurateness with risk profile, size, and complexity. - Supervisors document inspection findings on comment sheets and formal inspection reports; banks must respond and remediate promptly. - MAS conducted a horizontal review of major banks in the residential property loans market; some banks were found to have granted credit facilities based on borrower net worth and liquid assets instead of debt servicing capacity and were required to take immediate corrective action. ### EC2 — Board and senior management oversight of credit risk - MAS’ Board and Management Guidelines require regular review and adjustment of risk management strategies, policies, processes and limits. - Under Part X of MAS Notice 637: - Board must define risk appetite, acceptable level of risks, and capital strategy. - Board shall review and approve target level and composition of capital and the process for setting and monitoring such targets at least annually. - Senior management duties include: - developing a risk management framework appropriate to the bank’s risk profile and business strategy; - establishing robust policies and procedures to identify, measure and report all material risks (including counterparty credit risk); - establishing monitoring methods for compliance with internal policies; - instituting a strong internal control culture with written policies and procedures and communicating them throughout the bank (paragraphs 10.2.5 to 10.2.7). - MAS Notice 622A: chief executives of branches of banks incorporated outside Singapore must establish sound written policies for operational areas, set discretionary limits, and ensure risk management systems and internal controls are in place. - Supervisors verify Board approval and periodic review of credit strategy and policies and test implementation via transaction testing; deficiencies are commented on and remediation timeliness assessed. - Note: Inspections will benefit from greater first-hand knowledge of banks’ credit exposure quality and loan loss provisioning; distinction between external auditors’ work and supervisory on-site inspections is important. ### EC3 — Comprehensive credit risk environment and controls - Supervisors require banks to establish comprehensive credit policies and procedural manuals covering the credit lifecycle; manuals should be periodically reviewed and updated. - Specific supervisory coverage during inspections includes: - Credit granting/evaluation: prudent procedures for approving/renewing credit, without undue reliance on external credit ratings; transaction testing to ensure borrower financial analysis and collateral valuation. - Credit approval authority structures and limits: Board-approved delegated authority commensurate with size and complexity; prudent exposure limits based on obligor credit strength and risk appetite. - Credit monitoring and administration: periodic monitoring via key indicators (borrower financial position, account conduct, covenant adherence, collateral valuation), timely identification and reporting of problem credits, and maintenance of adequate provisions. Banks must categorize credit facilities into five credit grades: (i) pass; (ii) special mention; (iii) substandard; (iv) doubtful; and (v) loss. - MIS: credit MIS to measure and monitor composition and quality of on- and off-balance sheet portfolios, support portfolio management and monitor aggregate exposures to borrower, group, industry or country. Supervisors review timeliness, frequency and adequacy of reports. - Use of models: under MAS Notice 637, locally-incorporated IRBA banks must have systems, processes and controls to calculate credit RWA accurately; internal audit at least annually; internal validation of rating systems at least annually. Supervisory validation covers reasonableness of model assumptions and data integrity; supervisors require prompt remediation where weaknesses are observed. ### EC4 — Monitoring total indebtedness and related risks - Supervisors require MIS that captures credit risk in all on- and off-balance sheet activities and aggregates exposures to single borrowers and groups under common ownership or control. - During inspections, supervisors verify monitoring of borrower indebtedness, conduct of account, covenant adherence, collateral valuation, borrowing from other financial institutions and borrower ability to obtain foreign exchange to service cross-border debt. ### EC5 — Arm’s length credit decisions and conflicts of interest - The supervisor requires that banks make credit decisions free of conflicts of interest and on an arm’s length basis (description and findings re EC5 not included in the supplied excerpt). *Source: Part X, Annexes 7AB and 10A of MAS Notice 637; MAS Notice 1111; MAS Notice 612; MAS Notice 622A; Credit Risk Guidelines as summarized in the provided IMF country report excerpt.* ### Section 28 of the BA requires every director of a bank to declare to the Board his ### _cr13342 - Section 28 of the BA requires every director of a bank to declare to the Board his ### EC6 — Credit policy authority, limits, and investment policy - Requirement: Credit policy should include roles/responsibilities, delegation of credit authority, and management of concentration risk, including limits and portfolio monitoring. - Banks should stipulate credit approval limits by amount, type of facility, industry, country and/or geographical area. - Banks should specify Board, management committee or senior management approval requirements for credit exceeding prescribed limits. - Investment policies should stipulate permissible products and tenure, trading authorities, permissible counterparties, and approval authorities for departures from policy. - Supervisory practice: - During inspections and off-site reviews, supervisors assess credit and investment policies and require remediation of deficiencies. - Supervisors have required banks to reduce senior management credit approving limits if limits are deemed too high. ### EC7 — Supervisory access to credit and investment portfolio information - Legal/access powers: - Banks must provide MAS: (i) all information required for supervisory functions; (ii) access to books, accounts and documents; (iii) other information for inspection/investigation (sections 26 and 44A, BA). - Data and access: - Supervisors access regulatory returns, internal management risk reports, and collect ad-hoc information on specific portfolio exposures. - Supervisors have full access to bank officers involved in credit functions. ### EC8 — Credit stress testing requirements - Bank obligations: - Banks are required to perform adequate credit stress testing to determine potential exposure under adverse market conditions. - Senior management should be involved in stress test design; scenarios should reflect portfolio risk characteristics and prevailing market conditions. - Senior management is expected to review results and formulate contingency plans/actions (including hedging and asset sales) when results exceed accepted tolerance levels. - MAS activity: - MAS conducts regular industry-wide stress tests covering banks’ credit risk exposures. - During inspections, supervisors verify periodic performance of credit stress testing and review contingency plans. - Locally-incorporated banks: required under MAS Notice 637 to conduct credit risk stress tests at least semi-annually and the ICAAP stress testing annually. ### Assessment of Principle 17 — Credit risk management and supervision - Overall assessment: Largely compliant. - Context and risks: - Credit risk is the most relevant risk; macroeconomic conditions indicate expansionary part of the credit cycle. - NPLs are at historical low levels in several sectors; interest rates pushed down due to central bank easing in a number of countries. - Vulnerable credits may be hidden in performing portfolios. - Supervisory philosophy and approach: - MAS places significant emphasis on holding bank management accountable and on on- and off-site reviews. - MAS has developed an intensive and intrusive risk-based supervisory approach. - Team recommendations and findings: - MAS should increase attention to on-site inspections of credit risk. - For major banks, MAS should establish an on-site multiyear supervisory cycle to review all sectors of banks' credit exposures according to their CRAFT analyses. - Inspections should include sample credit file reviews focused on borrowers’ ability to repay under stressed circumstances and on loan restructurings that might mask weaknesses. - Since 2009, authorities implemented “cooling” measures and exposure limits to property market; full assessment deferred to a future evaluation. - MAS should ensure resources assigned to assess banks’ loan and investment portfolio management are commensurate with level and impact of credit risk. - MAS’ assessment of banks’ credit risk systems might benefit from greater first-hand knowledge of credit exposure quality and adequacy of loan loss provisioning. ### Principle 18 — Problem assets, provisions and reserves (summary) - Principle statement: Supervisor determines banks have adequate policies/processes for early identification and management of problem assets and maintenance of adequate provisions and reserves. EC1 — Policies/processes and regular review - Legal/regulatory bases: - Paragraph 4.1 of MAS Notice 612 requires proper credit files and regular/systematic reviews; grading into five categories—Pass, Special Mention, Substandard, Doubtful and Loss. - Section 23 of the BA requires banks to make adequate provisions for bad and doubtful debts before any profit and loss is declared. - Supervisory practice: - Inspections assess loan review/grading, provisioning, write-offs, suspension of interest on delinquent loans, watchlist monitoring, and remedial actions. EC2 — Adequacy of grading/classification and provisioning - Regulatory requirements: - Paragraph 6.2.1 of MAS Notice 612 requires sound loan loss estimation methodologies for timely and prudent impairment estimates. - MAS Notice 609 requires external auditors to assess whether adequate provision has been made for known material doubtful debts. - Supervisory action: - Supervisors review grading against paragraph 4.2 of MAS Notice 612 and require reclassification or increased provisions where warranted. EC3 — Off-balance sheet exposures included - Paragraphs 4.1 and 6 of MAS Notice 612 require off-balance sheet exposures to be included as part of overall credit exposure and subject to same classification, monitoring and provisioning. EC4 — Timely provisioning reflecting realistic expectations - Paragraph 6.1.5 of MAS Notice 612 requires prudence in determining collective and individual provisions sufficient to absorb credit losses inherent in entire loan portfolio. - MAS requires half-yearly submission of top 100 borrowers including amount outstanding, collateral value, loan grading and level of provisioning. - Supervisors follow up on outliers and require reclassification and increased specific provisions where warranted. EC5 — Early identification, oversight and testing for circumvention - Specific rules: - Paragraph 4.3: classify loan where principal or interest outstanding for 90 days or more. - Paragraph 4.2: consumer loans past due 120–180 days classified as Doubtful; past due 180 days or more classified as Loss. - Paragraphs 4.5 and 4.6: restructured facilities placed on appropriate classified grade; restoration to unclassified only when borrower can service future payments per terms. - Supervisory practice: - Transaction testing during inspections and off-site reviews, including internal/external audit reports. - Assessment of bank resources for independent management of non-performing assets and recovery actions. EC6 — Regular information and documentation to supervisor - Reporting cadence and content: - Quarterly submission of total outstanding exposures by five credit grading categories with breakdowns into actual and contingent outstanding, proportion secured and specific provision set aside. - Locally-incorporated banks submit such information monthly on a group-wide basis. - MAS Notice 609 Appendix 1: annual aggregate information on loans and receivables by classified grades at amortized cost and fair value with associated impairment losses. - Half-yearly top 100 borrowers submission. EC7 — Supervisor’s power to require adjustments - Legal powers: - Section 49 of the BA to direct banks to strengthen lending practices and policies. - Section 10 of the BA to require banks to maintain capital funds above minimum until weaknesses rectified. - Practice: - Supervisors have required banks to increase provisions following inspections or off-site reviews and inform parent banks/regulators as needed. EC8 — Valuation of risk mitigants and collateral - Requirements: - Credit Risk Guidelines require systems for monitoring individual credits and assessing value of risk mitigants. - Banks must have reliable/timely collateral valuation systems, consider legal enforceability, ease of realization and current market conditions, apply haircuts or forced sale value where appropriate. - Paragraph 3 of MAS Notice 612 requires credit files to contain periodic reports on facility utilization, appraisal of security, financial standing, and performance. - Supervisory verification: - Assess independence of in-house valuation units, review of panel external valuers, and benchmarking of valuations with public property price data. EC9 — Criteria for problem asset identification and reclassification - Identification: - Paragraphs 4 and 5 of MAS Notice 612: classify loan when borrower’s ability to repay from normal sources is in doubt; classify every facility where principal or interest past due for more than 90 days or where characteristics set out for classified grades are met. - Reclassification to performing: - A bank may restore a classified facility to unclassified when: (i) repayment of past due principal and interest received and remaining repayments expected per terms; or (ii) for restructured facility, reasonable grounds that borrower will service future payments per restructured terms. - For restructured facilities to be upgraded: continuous servicing of all principal and interest payments for 6 months for monthly repayments; 1 year for quarterly or semi-annual repayments; for annual or longer repayments, upgrade only after one repayment period post-compliance. - Upgrading must be supported by credit assessment of repayment capability, cash flows and financial position. EC10 — Board information on asset portfolio condition - Supervisory review: - Supervisors assess Board oversight, adequacy of information provided to Board, minutes of meetings, issues discussed and timeliness of management actions. - For foreign-incorporated bank branches, supervisors assess oversight/accountability of branch senior management and escalation of information consistent with delegated authority. EC11 — Individual valuation/classification for significant exposures - Requirement: - MAS Notice 612 requires value, grade and make specific provisions on a loan-by-loan basis except for homogeneous loans below a materiality threshold (e.g., housing loans, consumer loans, credit card receivables may be pooled and provided collectively). - Banks must establish portfolio types or loan sizes that warrant individual assessment; supervisors regularly review appropriateness. EC12 — Supervisory monitoring of trends and concentrations - Sector/system monitoring: - Quarterly collection and monitoring of proportion of problem assets across banking sector and identification of build-up trends by country or industry. - Locally-incorporated banks submit monthly data on problem assets by industry and country. - MAS uses CRAY tool: PD and PD distribution as main credit risk indicators; peer comparison is important. - IWST: annual industry-wide stress tests for systemically important banks to simulate common stress impacts on asset quality, earnings and capital; results analyzed for trends and concentration effects. - MAS collects data on counterparty credit risk from OTC derivatives and assesses concentration in exposures. - Surveys conducted (e.g., annual SME lending survey; project financing survey) to monitor trends and use of risk mitigation instruments. Assessment of Principle 18 - Overall assessment: Compliant. - Comment: Supervisors assess banks have adequate policies/processes for asset quality evaluation and provisioning. However, as noted in CP17, MAS supervision would benefit from greater emphasis and supervisory efforts to gain first-hand knowledge of actual credit exposure quality and loan loss provisioning. ### Principle 19 — Concentration risk and large exposure limits (summary) - Principle statement: Supervisor determines banks have adequate policies/processes to identify, measure, evaluate, monitor, report and control/mitigate concentrations; supervisors set prudential limits on exposures to single counterparties or groups. EC1 — Bank-wide view of concentration risk and regulatory limits - Legal/regulatory bases: - Sections 29, 31, 33 and 35 of the BA, MAS Notice 639, MAS Notice 637, and Credit Risk Guidelines require bank-wide view of concentration risk including on- and off-balance sheet exposures. - Statutory limits: - Under section 29 of the BA and MAS Notice 639: aggregated exposures to a single counterparty (or group of connected counterparties) must not exceed 25 percent of the bank’s capital funds. - Aggregate of substantial exposures (those which exceed 10 percent of the bank’s capital funds) must not exceed 50 percent of the bank’s total exposures. - “Exposures” defined in the Fifth Schedule of the BA as the maximum loss from counterparty failure; computation comprises on- and off-balance sheet exposures. - Section 31 / paragraph 16 of MAS Notice 639: bank not allowed to acquire/hold equity investment in a single company exceeding 2 percent of its capital funds, or invest in any index or investment fund exceeding 2 percent of its capital funds. - Section 33 of the BA: bank not allowed to acquire/hold interests in immovable property exceeding 20 percent of capital funds. - Section 35 of the BA: bank not allowed to have property sector exposures exceeding 35 percent of total eligible assets. - Governance: - Annex 10A of MAS Notice 637: senior management responsible for policies/procedures for concentration risk; Board to review and endorse framework (paragraph 3.10). EC2 — Information systems to identify and aggregate concentrations - Expectations: - Guidelines require MIS to identify and aggregate exposures across legal entities, asset types, risk areas and geographies (paragraph 3.8). - Supervisory actions: - Supervisors evaluate MIS adequacy and require enhancements where manual processes are inaccurate or untimely. EC3 — Internal thresholds, communication and Board reporting - Requirements: - Part X of MAS Notice 637 and Risk Management Guidelines require senior management to develop policies for identifying/measuring/monitoring/controlling concentration risk at solo and group levels, consistent with risk appetite and capital. - Banks to establish internal limits reasonable relative to capital/total assets or overall risk level; regularly report to Board. - Supervisory verification: - Supervisors assess that exposure limits comply with prudential limits and are communicated and implemented; supervisors review reporting to Board and remedial measures taken. EC4 — Supervisor obtains information to review sectoral/geographical/currency concentrations - Reporting: - MAS Notice 610: monthly reports on measures of concentration including industry and country classification of non-bank loans and investments, loan size and type. - Half-yearly top 100 borrowers submission to assess large exposures. - Supervisory practice: - Regular review of concentration risk via periodic monitoring, annual account reviews and inspections; follow-up on material changes. EC5 — Definition and discretion over “group of connected counterparties” - Legal basis: - Section 29(1) of the BA enables MAS to impose requirements limiting exposure to single counterparty or group of connected counterparties (including substantial shareholder group, financial group, director group); definitions in Fifth Schedule of the BA. - MAS Notice 639 issued pursuant to section 29(1); paragraph 8 allows MAS discretion to aggregate exposures case-by-case where exposures pose a single risk. EC6 — Prudential limits on large exposures and monitoring - Regulatory instrument: - MAS Notice 639 sets limits on large exposures and substantial exposures to single counterparty groups, applied at solo and consolidated levels. - “Exposures” per Fifth Schedule of the BA includes on- and off-balance sheet claims; Appendix 3 of MAS Notice 639 provides computation examples. - Supervisory findings: - Supervisors determine during inspections that concentration limits are monitored by senior management and are not exceeded. EC7 — Stress testing for significant concentrations - Expectation: - Credit Risk Guidelines require banks to conduct stress tests to assess market segment risk under adverse conditions and identify vulnerable obligors/groups. - Remedial measures from stress tests may include pricing for additional risk, unwinding positions, increasing capital or reserves, securitization and credit risk hedging. - Banks should consider stress test results in limit setting and monitoring. *Source: _cr13342 - Section 28 of the BA requires every director of a bank to declare to the Board his* ### Part X of MAS Notice 637 requires a locally-incorporated bank to perform periodic ### _cr13342 - Part X of MAS Notice 637 requires a locally-incorporated bank to perform periodic ### Scenario analysis and stress testing - Banks must perform periodic scenario analysis and stress testing of material risk concentrations and analyze the results to identify potential changes in key risk factors such as economic cycles, interest rate movements, liquidity and market conditions, and to assess the ability of the bank to withstand such changes. - Scenarios must consider possible concentrations arising from contractual and non-contractual contingent claims. - Stress testing can identify concentrations in portfolios or different exposures, since seemingly uncorrelated exposures during normal market conditions may become correlated under stressed conditions. ### Additional criteria — AC1 (credit exposure to single counterparties or groups of connected counterparties) - (a) ten per cent or more of a bank’s capital is defined as a large exposure; and - (b) twenty-five per cent of a bank’s capital is the limit for an individual large exposure to a private sector non-bank counterparty or a group of connected counterparties. - Minor deviations from these limits may be acceptable, especially if explicitly temporary or related to very small or specialized banks. Description and findings re AC1 (MAS Notice 639) - (a) A bank is not allowed to have substantial exposures (defined as exceeding 10 percent of the bank’s capital funds) to any single counterparty group, which in aggregate, exceeds 50 percent of the bank’s total exposures. - (b) A bank is not allowed to have aggregated exposures to a single counterparty group that exceed 25 percent of the bank’s capital funds. - MAS is empowered under section 29(1) of the BA to prescribe lower limits on exposures to any person or class of persons; there has not been a case that warrants the exercise of this power. ### Assessment of Principle 19 - Assessment: Compliant - Comments and related limits: - MAS imposes a 2 percent of capital limit on equity investments in a single company or investment fund. - Real estate holdings: aggregate limit of 20 percent of capital. - Property exposure: aggregate limit of 35 percent of total assets. - MAS requires banks to maintain a list of large exposures to single and connected counterparties and to submit this information on a semi-annual basis; banks and branches must report their top 100 borrowers to MAS including financial information and loan classification. - MAS guidelines require banks to establish limits to monitor and control concentration risks at a portfolio level to certain industries or economic sectors, individual country or group of countries with inter-related economies and specific type of credit product and collateral. - Observations and recommendation: - Effectiveness may be tempered by the relatively high exposure limit of 25 percent of capital to any one counterparty and an overall aggregate limit that large exposures may not exceed 50 percent of the bank’s total exposures. - Rationale: limits accommodated small foreign branches that are niche players; MAS staff indicated they would object if major banks or foreign branches chose to fully utilize these limits. MAS analysis shows major banks and foreign branches have not made such large loans. - Team recommendation: MAS should revisit this policy once the Basel Committee finishes its work on concentration risk to ensure MAS policy remains at least as conservative as any new global standard. - Because MAS has adopted the current Basel standard on concentrations but is not in practice allowing major banks and branches to fully utilize these limits, the principle is assessed as compliant. ### Principle 20 — Transactions with related parties (overview) - Supervisor requires banks to: - enter into transactions with related parties on an arm’s length basis; - monitor these transactions; - take appropriate steps to control or mitigate the risks; and - write off exposures to related parties in accordance with standard policies and processes. ### Essential Criteria — EC1 (definition of “related parties”) - Section 27(1) of the BA lists persons/entities deemed related to the bank: - (a) any person in a director group of the bank; - (b) any firm or limited liability partnership of which the bank is a partner, a manager, an agent, a guarantor or a surety; - (c) any company of which any of the directors of the bank is a director or an agent; - (d) any company of which the bank or any of its officers (other than directors), employees or other persons who receive remuneration from the bank (other than for professional services rendered to the bank) is a director, an executive officer, an agent, a guarantor or a surety; - (e) certain officers (other than directors), employees or other persons who receive remuneration from the bank (other than for professional services rendered to the bank); - (f) in the case of a bank incorporated in Singapore, any person in a substantial shareholder group of the bank; - (g) any person in the financial group of the bank; - (h) any related corporation of the bank; - (i) any individual in whom, or any firm, limited liability partnership or company in which, any of the directors of the bank has an interest, directly or indirectly, as declared under section 28 other than the credit facilities or exposures particulars of which have already been supplied under this subsection; and - (j) such other person or class of persons as may be prescribed. - Definitions of “associate,” “affiliate,” “director,” “director group,” “financial group” and “substantial shareholder group” are in the Fifth Schedule of the BA. - Terms “director” and “substantial shareholder” include spouse, parent and child of the director and substantial shareholder and they are deemed related to the bank. - Section 27(1)(j) allows MAS discretion to prescribe other related persons or classes. ### EC2 (arm’s length terms; reporting) - Section 28 of the BA requires every director to declare to the Board his interest in a credit facility from the bank or any conflict of interest; bank must ensure related party transactions are on an arm’s length basis and not more favorable than transactions with non-related parties under similar circumstances. - Banks must submit a quarterly statement to supervisors showing particulars of all credit facilities granted to related parties or staff; supervisors may require repayment, prohibit further facilities or impose restrictions (section 27 of the BA and MAS Notice 639A). - Supervisors review loans to related parties for arm’s length, proper credit assessment and independent approval; minutes of Board and senior management meetings are reviewed. - External auditors may review related party transactions during audits. - Listed banks (SGX) must make immediate announcements of any interested person transactions amounting to three percent or more of latest audited net tangible assets and include Audit Committee statement that terms are normal commercial terms and not prejudicial to minority shareholders (Chapter 9 of SGX Listing Rules). ### EC3 (Board approval, conflict exclusion, write-off approvals) - Section 28 requires directors to declare interests and abstain; Board or senior management must not be involved in decision making for credits to related companies/individuals. - Material related-party credit transactions should be subject to Board approval (excluding conflicted members) and disclosed publicly when necessary (Credit Risk Guidelines). - Under MAS Notice 639, unsecured credit facilities (other than credit card and charge card facilities) to any director group (excluding companies in which bank directors are executive officers) in the aggregate cannot exceed S$5,000. - Aggregate unsecured credit facilities to companies in which bank directors are executive officers cannot exceed S$5,000 unless approved by the board; in such a case, aggregate unsecured credit facilities to any director group shall not exceed 2percent of the bank’s capital. - MAS’ approval is required to write off loans to related parties (MAS Notice 606 on Provision For and Writing Off of Bad Debts). - MAS issued MAS Notice 643 on Transactions with Related Parties, effective July 1, 2014, formalizing expectations in existing guidelines. - Listed banks must obtain shareholder approval for interested person transactions that amount to 5 percent or more of latest audited net tangible assets; interested person and associates must abstain from voting. Immediate announcements required for transactions amounting to 3 percent or more; aggregate value disclosed in annual report (Chapter 9 of SGX Listing Rules). ### EC4 (prevention of beneficiaries participating in process) - Supervisors determine during off-site reviews and inspections that banks have adequate policies and processes to address conflicts of interest. - Supervisors review loans to related parties to ensure arm’s length terms, proper credit assessment and independent approval. - Section 27(3) of the BA gives MAS power to take corrective action if exposure to any person is to the detriment of depositors, including requiring repayment, prohibiting further facilities, or imposing restrictions. ### EC5 (limits, capital treatment, collateralization) - Section 29(2) of the BA allows MAS to specify limits on any exposure, specify the method of measuring exposure or vary any limit. - Under MAS Notice 639: - Banks are not permitted to grant unsecured credit facilities (other than credit card and charge card facilities) to any director group which, in the aggregate, exceeds S$5,000. - Aggregate unsecured credit facilities to companies in which bank directors are executive officers cannot exceed S$5,000 unless approved by the board; in such a case, aggregate unsecured credit facilities to any director group shall not exceed 2 percent of the bank’s capital. - The definition of single counterparty group includes related parties; large exposure and substantial exposure limits imposed on single counterparties apply to related parties (see CP19 AC1). - MAS may require aggregation of exposures if supervisors view them as posing a single risk and may set lower limits on exposures to related parties. ### EC6 (identification, monitoring, reporting, independent review) - Supervisors review banks’ policies and procedures for identification and reporting of related-party transactions during off-site reviews and inspections. - Banks have independent credit monitoring processes for all loans, including related parties; exceptions must be escalated to appropriate management or Board approving authority. - Internal and external auditors review policies and processes as part of audits. - Section 27(1) requires every bank in Singapore to submit a quarterly statement showing as at the end of that quarter all credit facilities from and exposures of the bank to a list of related parties. - For locally-incorporated banks, the statement must be brought up and read at the next Board of directors meeting after preparation. - For banks incorporated outside Singapore, the statement shall be submitted to the head office of the bank. ### EC7 (supervisory information on aggregate exposures) - The supervisor obtains and reviews information on aggregate exposures to related parties. *Source: _cr13342 - Part X of MAS Notice 637 requires a locally-incorporated bank to perform periodic* ### Section 27 of the BA requires every bank in Singapore to submit to MAS a quarterly ### _cr13342 - Section 27 of the BA requires every bank in Singapore to submit to MAS a quarterly ### Reporting requirements and supervision (Section 27) - Section 27 of the BA requires every bank in Singapore to submit to MAS a quarterly statement showing as at the end of that quarter all the credit facilities from and all the exposures of the bank to related parties. - Supervisors review the information submitted, which includes exposure limits, gross and net exposure amounts as well as amounts of credit facilities which are unsecured. - The details of the submission are specified in MAS Notice 639A on Exposures and Credit Facilities to Related Concerns. ### Assessment of Principle 20 - Assessment: Compliant - Supervisory expectations and controls: - Banks must ensure related-party transactions are conducted on an arm’s length basis and that the relevant terms and conditions are not more favorable than transactions with non-related parties under similar circumstances. - Material credit transactions with related parties are subject to the approval of the bank’s Board (excluding Board members with potential conflicts of interest). - Senior management are required to provide oversight of the policies and processes to identify and address the risk of conflicts of interest. ### Principle 21 — Country and transfer risks (overview) - Principle statement: The supervisor determines that banks have adequate policies and processes to identify, measure, evaluate, monitor, report and control or mitigate country risk and transfer risk in their international lending and investment activities on a timely basis. ### Essential Criterion 1 (EC1) — Requirements - EC1: The supervisor determines that a bank’s policies and processes give due regard to the identification, measurement, evaluation, monitoring, reporting and control or mitigation of country risk and transfer risk. The supervisor also determines that the processes are consistent with the risk profile, systemic importance and risk appetite of the bank, take into account market and macroeconomic conditions and provide a comprehensive bank-wide view of country and transfer risk exposure. Exposures (including, where relevant, intra-group exposures) are identified, monitored and managed on a regional and an individual country basis (in addition to the end-borrower/end-counterparty basis). Banks are required to monitor and evaluate developments in country risk and in transfer risk and apply appropriate countermeasures. ### Description and findings re EC1 - Under MAS’ Guidelines on Risk Management Practices—Credit Risk (Credit Risk Guidelines): - A bank that grants credit internationally should have adequate policies and procedures for identifying, measuring, monitoring, and controlling country risk and transfer risk in its international lending and investment activities. - Monitoring of country risk factors should include the potential for default of foreign private sector obligors arising from country-specific economic, social and political factors. - A bank should also assess an obligor’s ability to obtain foreign exchange to service cross-currency debt and honors its contracts across jurisdictions. - Supervisory practice: - During inspections, supervisors determine if a bank has established and implemented policies and processes with regard to the identification, measurement, evaluation, monitoring, reporting and control or mitigation of country risk and transfer risk. - Bank-level monitoring and controls: - A bank is to monitor country risk by tracking internal and external country risk ratings and economic, social and political developments of the relevant countries. - Risk exposures should be aggregated for all business activities that involve elements of country risk. - Country risk limits could be managed centrally by the head office or allocated to different branches or business lines. - Country risk should also be considered at the individual transaction level. - When assessing an application for credit extension, the institution should take into consideration its existing exposure to a particular country. - Adverse developments and countermeasures: - Appropriate measures should be taken when adverse developments occur in a particular country. These measures include closer analysis of the obligor’s capacity to repay, provisioning and preparation of contingency plans if the country risk continues to deteriorate. - Capital and ICAAP linkage: - Under Part X of MAS Notice 637 on Risk Based Capital Adequacy Requirements for Banks Incorporated in Singapore, a locally-incorporated bank shall ensure that it has in place a sound risk management framework and a robust ICAAP, and set capital targets that are consistent with its overall risk profile and operating environment. - This includes defining the risk appetite and establishing an acceptable level of risks that the bank may take, as well as the capital strategy of the bank. *Source: _cr13342 - Section 27 of the BA requires every bank in Singapore to submit to MAS a quarterly* ### Annex 10A of MAS Notice 637 provides that a bank shall, at a minimum, cover ### _cr13342 - Annex 10A of MAS Notice 637 provides that a bank shall, at a minimum, cover ### Country and transfer risk governance (EC2) - Supervisors determine banks’ strategies, policies and processes for the management of country and transfer risks have been approved by the banks’ Boards and that the Boards oversee management to ensure effective implementation and full integration into overall risk management. - Under the Credit Risk Guidelines: - Banks are to consider country risk at the individual transaction level. - When assessing an application for credit extension, the bank should take into consideration its existing exposure to a particular country. - Significant country risk should be assessed and highlighted in credit proposals submitted to management for approval. - Organizational expectations: - Risk management structure commensurate with size and nature of activities. - Senior management committee to oversee credit risk management framework, covering approval of business and credit risk strategy (including country and transfer risks, and concentration risks), review of credit portfolio and profile, approval of credit policy, delegation of credit approving authority and evaluation of credit processes. - Supervisory practice: - Inspections assess delegation of approving authority for country limits and exceptions. - Under Part X of MAS Notice 637, Board and senior management of a locally-incorporated bank are responsible for a sound risk management framework to mitigate country and transfer risk (paragraph 10.2.5). - Senior management responsibilities include: analysis of current and future capital requirements relative to strategic objectives; establishing frameworks for risk categories; developing systems relating risks to capital; setting firm-wide prudential limits consistent with risk appetite; monitoring compliance; and instituting written policies and procedures. ### Information systems, monitoring and limits for country risk (EC3) - Supervisors determine that banks have information systems, risk management systems and internal control systems that accurately aggregate, monitor and report country exposures on a timely basis and ensure adherence to established country exposure limits. - Supervisory assessments include: - Adequacy of processes on limit setting, approval, monitoring and reporting, and escalation of limit triggers and breaches of country and transfer risks. - Periodic review of country limits. - Aggregation of exposures across activities that could contribute to risk, such as trade financing, capital market and treasury activities. - Annex 10A of MAS Notice 637 requires MIS that: - Provide regular, accurate and timely information on aggregate risk profile and main assumptions used for risk aggregation. - Are adaptable and responsive to changes in underlying risk assumptions. - Aggregate exposures and risk measures across business lines, support customized identification of concentrations and emerging risks, and capture limit breaches. - Credit Risk Guidelines require reporting and monitoring of country exposures against limits. ### Provisions for country and transfer risk (EC4) - International acceptable practices for provisioning (a), (b), (c) are listed; MAS adopts practice (c). - Under MAS Notice 612: - Banks required to review, grade and make adequate specific provisions on a loan-by-loan basis except for homogeneous loans below a certain materiality threshold. - Homogeneous loans may be pooled and provided for collectively using historical loss experience. - Banks must establish portfolio types or loan size thresholds warranting individual assessment. - Supervisory practice: - Inspections assess appropriateness and regular review of provisioning practices and credit grading; country and transfer risks are part of this assessment. - MAS Notice 609 requires external auditors, as part of annual audits, to assess and confirm whether adequate provision has been made for known material doubtful debts and material impairment of other assets, and to highlight internal control and loan quality findings in the long form report. ### Stress testing and concentration analysis for country risk (EC5) - Supervisor requires banks to include appropriate scenarios into stress testing programs to reflect country and transfer risk. - Supervisory assessments: - Periodic reviews of industry trends and susceptibility of credit to external adverse scenarios. - Review whether stress tests include country and transfer risk scenarios and whether contingency plans follow stress tests. - Annex 10A of MAS Notice 637 (paragraph 3.10(g)) requires banks to: - Consider risks from concentrations based on common risk factors, including exposures to counterparties in the same geographic region. - Perform periodic scenario analysis and stress testing of material risk concentrations and analyze results to identify changes in key risk factors (economic cycles, interest rate movements, liquidity and market conditions) and assess bank’s ability to withstand such changes. ### Supervisory information collection and escalation (EC6) - Supervisors regularly obtain and review timely information on country and transfer risk and have power to obtain additional information as needed. - Reporting requirements: - MAS Notice 610 collects information on loans, interbank indebtedness and investments classified by country monthly, and classified exposures by country quarterly. - Supervisors review these returns for significant changes and follow up with banks where warranted. - Legal powers: - Section 26 of the BA requires banks to furnish information (including returns) as required by MAS. - Supervisors obtain additional information where necessary and have increased granular data collection and engagement with banks for countries with deteriorated fiscal and macroeconomic environments since the global financial crisis. - MAS ensures appropriate classification and provisioning or transfer of credits to head office for management where banks lack resources. ### Assessment of Principle 21 - Compliant - Comments: - Country and transfer risk are relevant for locally incorporated banks in Singapore. - MAS’ requirements on country and transfer risk management are in place and assessed during inspections or ICAAP reviews. - MAS has a dedicated team of credit risk specialists supporting bank supervisors. --- ### Market risk governance and processes (Principle 22, EC1–EC6) - EC1: Legal/regulatory requirements and supervisory expectations - Laws/regulations/supervisor require banks to have market risk management processes providing a comprehensive bank-wide view consistent with risk appetite, risk profile, systemic importance and capital strength, taking into account market and macroeconomic conditions and market liquidity deterioration risk. - MAS’ Guidelines on Risk Management Practices—Market Risk (Market Risk Guidelines) set detailed expectations on strategy, policies, procedures, measurement, monitoring and controls. - Supervisors apply a risk-based approach in on-site and off-site work and use MAS’ CRAFT to assess market risk profile and controls. - Part VIII of MAS Notice 637 details roles of Board, senior management and independent risk management unit and requirements on risk identification, measurement, model validation, monitoring, control and incremental risk for locally-incorporated banks. - EC2: Board and senior management oversight - Market risk policies should be approved by the Board; changes/exceptions require Board approval. - Board should ensure senior management skills and active oversight; supervisors review Board minutes, agendas and risk-management reports to verify oversight and reporting of positions, limits, and excesses commensurate with trading activity. - MAS’ CRAFT assesses adequacy of Board and senior management oversight. - EC3: Information systems, limits, model controls, trading book allocation - Banks expected to establish MIS commensurate with scope/complexity of trading activities to identify, measure, monitor and control market risks and aggregate institution-wide for Board/senior management reporting. - Limits must be consistent with risk appetite, approved and periodically reviewed by Board/senior management; compliance monitored by independent unit. - Procedures for limit excesses and approvals of temporary excesses/limit increases required. - Models must be based on accepted concepts, independently validated, back-tested and re-calibrated where necessary. - Trading book allocation policies required for positions held with trading intent or hedging the trading book. - EC4: Valuation systems and independent verification - Systems should measure current exposures via marked-to-market or marked-to-model, provide positions and unrealized P/L information daily, and support real-time monitoring for active treasury/derivatives participants. - Data integrity: appropriate, accurate, complete, timely, and independently sourced. - Valuation processes must be robust and independent; models validated and staff adequately qualified and independent. - Supervisors conduct walkthroughs to confirm revaluation frequency, timely transaction capture, independent verification of market data/models, and documentation for illiquid positions. - EC5: Capital and valuation adjustments - Banks expected to hold appropriate capital against unexpected losses and make valuation adjustments for fair value uncertainties. - MAS expects banks to set aside adequate market risk capital and have processes triggering capital adequacy analysis when scope of activities changes. - Under MAS Notice 637, banks must base market risk capital assessment at minimum on both value-at-risk (VaR) modeling and appropriate stress testing, assess market concentration and market illiquidity impacts, and maintain sufficient capital to meet Pillar 1 and stress test results. - Banks must be able to produce valuations using alternative methods when primary inputs become unreliable or unavailable due to market discontinuities or illiquidity. - EC6: Market risk stress testing - Banks required to perform qualitative and quantitative scenario analysis and stress testing for market risk; MAS conducts annual industry-wide stress test. - MAS Notice 637 requires banks to supplement VaR with stress tests (factor shocks or integrated scenarios, historic or hypothetical) and to demonstrate adequate capital to withstand severe but plausible market shocks reflecting portfolio nature and time to hedge/manage risks. - Assessment of Principle 22: - Compliant - Comments: - MAS has Market Risk Guidelines and market risk regulatory capital requirements. - MAS has a dedicated team of market risk specialists involved in inspections and raising market risk management standards. ### Interest rate risk in the banking book (Principle 23, EC1–EC4) - EC1: Strategy and management framework - Laws/regulations/supervisor require appropriate interest rate risk strategy and management framework with policies/processes to identify, measure, evaluate, monitor, report and control material interest rate risk sources; strategy must be consistent with risk appetite and regularly reviewed. - Market Risk Guidelines require sound strategy to manage market risk including interest rate movements and appropriate MIS to quantify and monitor interest rate exposures. - Supervisors assess Board approval of interest rate risk strategy, and through annual off-site ICAAP reviews determine whether capital is commensurate with IRRBB. - Annex 10A of MAS Notice 637 requires identification and timely assessment of material IRRBB sources and Board-approved strategies and policies (paragraph 5.6); Board to be kept informed of exposures. - Senior management must ensure framework, comprehensive policies and procedures, and regular monitoring and reporting to keep risks within approved policies and limits. - EC2: Board approval and senior management implementation - Supervisors review IRRBB policies for adequacy of Board and senior management oversight and controls. - Annex 10A requires Board approval of IRRBB strategies and policies and regular information to Board to facilitate oversight (paragraph 5.6). - On-site and off-site ICAAP reviews assess whether capital held is commensurate with IRRBB by evaluating exposure, identification/measurement/control processes and capital determination; supervisors review ICAAP submissions and Board/senior management minutes. - EC3: Measurement systems, model validation, limits, MIS - Supervisors evaluate adequacy of risk/valuation models for interest rate risk and that all interest rate sensitive products are captured. - Banks expected to have risk measurement systems and MIS integrated with risk management practices; outputs used to inform Board and senior management. - Annex 10A places responsibility on Board to approve IRRBB policies and on senior management to implement comprehensive policies and procedures (paragraph 5.6). - Independent reviews of internal control systems and regular validation of material models and assumptions are required; supervisors review escalation processes for limit breaches and exceptions. - EC4: Stress testing for IRRBB - Supervisors require inclusion of appropriate scenarios into stress testing programs to measure vulnerability under adverse interest rate movements. - Market Risk Guidelines recommend regular scenario analysis and stress tests (quantitative and qualitative) institution-wide considering market volatilities, historical correlations and stressed conditions. - MAS annual industry-wide stress test specifies different interest rate scenarios, including various changes in the sovereign yield curve and interest rate swap curve for major currencies; supervisors challenge assumptions, review methodologies and assess results at bank and industry levels, requiring mitigation where warranted. ### Annex 10A of MAS Notice 637 sets out standardized interest rate shocks which draw ### _cr13342 - Annex 10A of MAS Notice 637 sets out standardized interest rate shocks which draw ### Interest rate risk (Principle 23) - Regulatory requirements and guidance - Annex 10A of MAS Notice 637 sets out standardized interest rate shocks drawing guidance from BCBS’ Principles for the management and supervision of interest rate risk. - Banks are required to satisfy themselves on the appropriateness of the magnitude of the standardized interest rate shocks and to subject positions to an appropriate level of shock if market condition or historical observations warrant it (paragraphs 5.8 to 5.10). - Banks must perform simulations such as tilting and inversions of the yield curve and apply appropriate shocks across the yield curve to determine the impact on economic value; banks must assess the impact on non-interest income and capital where interest rate environment changes. - For locally-incorporated banks, paragraph 7.1(b) of Annex 10A requires the Board to determine a liquidity risk appetite communicated throughout the bank and reflected in strategy and policies (relevant for interest rate management interactions with liquidity governance). - Supervisory assessment criteria and findings - AC1: Supervisor obtains results of banks’ internal interest rate risk measurement systems, expressed in terms of the threat to economic value, including using a standardized interest rate shock on the banking book. - Through on-site and off-site reviews supervisors request management reports (quarterly Group Audit reports, ALCO packs) that include monitoring and assessment of IRRBB and changes to economic value as a result of interest rate changes. - Banks are required to notify and engage MAS where impact of IRRBB on economic value relative to capital is material. - In ICAAP inspections supervisors review results of the standardized interest rate shock (change in EVE as a result in 200 basis point shifts in the yield curve) and the ratio of change in economic value to the sum of Tier 1 and Tier 2 capital to facilitate comparisons across banks. - AC2: Supervisor assesses whether internal capital measurement systems adequately capture interest rate risk in the banking book. - As part of Pillar II ICAAP review, supervisors assess whether bank holds capital commensurate with level of IRRBB and evaluate banks’ methodology for determining capital requirements in relation to IRRBB. - Supervisors compare capital set aside for IRRBB among peer banks, considering risk profile, internal stress test results, and standardized interest rate shock results. - Where a bank is not holding capital commensurate with its level of interest rate risk, the bank will be required to reduce risk, hold additional capital or both. - Assessment outcome - Assessment of Principle 23: Compliant. - Comment: MAS fully meets the principle; banks identify sources of interest rate risk, adopt policies/strategies/limits regularly reviewed by the Board, run robust stress tests and provide monthly management and quarterly Board information which is shared with MAS. Supervisors determine ICAAP assessments of capital needs are commensurate with interest rate risk. ### Liquidity risk (Principle 24) - Regulatory requirements and minimums - Sections 38 and 39 of the BA require locally-incorporated banks and branches of foreign banks to maintain minimum cash balances (MCB) and minimum liquid assets (MLA). - MAS Notice 758 and MAS Notice 613 impose MCB and MLA of 3 percent and 16 percent of the bank’s qualifying liabilities respectively. - MAS Notice 613 defines qualifying liabilities to include on- and off-balance sheet liabilities such as undrawn commitments and net liabilities due to other banks within one month. - Banks failing to comply with sections 38 or 39 of the BA shall be liable to pay a financial penalty. - Liquidity monitoring, data collection and standards - Supervisors receive monthly data from all banks on contractual maturity mismatches, top non-bank and interbank depositors, liability and deposit mix, and liquid assets (available, unencumbered). - During annual IWST, MAS collects data on Liquidity Coverage Ratio (LCR) by significant currency from participating banks. - MAS instituted a liquidity data collection exercise in August 2012 covering all banks; data required is based on Basel III monitoring metrics, including LCR by significant currency and granular breakdown of selected liquid assets. - MAS supports Basel III liquidity standards and will implement them according to Basel Committee timelines. - Key design features of MLA and bank-specific frameworks - General MLA ratio for most banks: 16 percent. - Bank-specific framework: MLA computed using cash flow volatility formula, subject to a floor of 5 percent of qualifying liabilities and a cap of between 10 percent and 15 percent of qualifying liabilities. - The specific MLA cap assigned depends on supervisor assessment of strength and robustness of bank’s liquidity risk management. - Current number of banks on the bank-specific framework: 9 banks. - Liquidity management and supervisory processes (EC2–EC5, EC7–EC8) - EC3: MAS Guidelines on Risk Management Practices—Liquidity Risk require robust liquidity management frameworks, Board-approved policies, institution-wide view of liquidity risk, and maintenance of sufficient liquidity to withstand stress events. MAS conducts thematic liquidity inspections supported by liquidity risk specialists; off-site reviews include monitoring compliance with MCB and MLA and review of monthly statistical reports (MAS Notices 613 and 610). - EC4: Supervisors verify Board-approved liquidity risk appetite, day-to-day and intraday liquidity practices, information systems capable of measuring liquidity positions by currency and legal entity, Board oversight, and annual review of liquidity strategy and policies. - Paragraph 7.1(b)–(f) of Annex 10A specify Board responsibility, senior management monitoring and control, information system adequacy, intraday liquidity management, and maintenance of a liquidity cushion. - EC5: Requirements for funding strategies include analyses of funding under alternative scenarios; maintenance of cushion of high quality unencumbered liquid assets; diversification of sources and tenor; ongoing relationships with liability holders; assessment of capacity to sell assets. - Paragraph 2.1 and Paragraph 7.1 of Annex 10A require review processes, liquidity strategy content (composition of assets/liabilities, cross-currency management, use of instruments, liquidity and marketability of assets) and adequate information systems. - EC7: Stress testing expectations—banks required to include a variety of short-term and protracted bank-specific and market-wide liquidity stress scenarios, use conservative assumptions, and use results to adjust liquidity strategy and contingency funding plans. - MAS conducts annual IWST including three liquidity stress test scenarios: the Basel III scenario, a combined bank-specific and general market liquidity stress scenario, and a reverse stress test scenario. - Paragraph 7.1(h) of Annex 10A requires regular stress testing and use of results in strategic planning and CFP design. - EC8: MAS identifies banks with significant foreign currency liquidity transformation through IWST and 2012 data collection; banks must undertake separate currency-level analyses, stress testing, and set and review limits on cash flow mismatches by significant currency. - Paragraphs 7.1(g) and (h) require measurement, monitoring and control of liquidity positions in major currencies and separate analyses per currency. - Encumbrance and covered bonds - AC1 (additional criterion): Supervisor determines banks’ levels of encumbered balance-sheet assets are managed within acceptable limits; banks required to disclose assets pledged to third parties. - MAS Notice 608 requires disclosure in financial statements of assets pledged to third parties and aggregate related secured liabilities. - March 2012 MAS consultation paper on covered bonds proposed a 2 percent cap on aggregate value of assets in the cover pool relative to total assets, requirement to notify MAS prior to issuance, and appointment of an independent cover pool monitor to certify annual compliance with the proposed 2 percent cap. - Supervisory actions, outcomes and observations - Assessment of Principle 24: Compliant. - Comments and observations: - MAS carefully monitors liquidity risk in locally incorporated banks and foreign bank branches; monthly maturity mismatch data and internal risk reports are shared with MAS. - MAS imposed liquidity requirements on local banks in early 2000 that were more stringent than Basel III’s LCR adopted in 2012. - Local banks’ funding is primarily based on retail deposits (around 80 percent of liabilities), resulting in excess liquidity for local banks and foreign branches active in the local retail deposit market. - Foreign branch operations in foreign currencies (primarily US$) and reliance on home office funding make liquidity risk an area of vulnerability; foreign branches have been required to reduce liquidity risk through matched funding and issuance of medium-term notes for longer-dated assets. - MAS may wish to consider requiring banks and branches with large foreign currency exposures to hold liquidity on a separate currency basis (noting challenges in identifying safe foreign currency assets). ### Operational risk (Principle 25) - Regulatory expectations and guidance - MAS issued guidelines and circulars covering business continuity management, technology risk management and outsourcing; MAS’ Operational Risk Guidelines encourage banks to consider BCBS’ Principles for the Sound Management of Operational Risk. - MAS Notice 637 Part IX imposes Pillar 1 operational risk capital requirements on locally-incorporated banks; locally-incorporated banks using the Standardized Approach to Operational Risk (SA(OR)) must have an operational risk management function to develop strategies and codify policies and procedures. - Part X of MAS Notice 637 sets Pillar 2 supervisory review expectations; Annex 10A Section 6 requires banks to adopt practices set out in BCBS’ Sound Practices for the Management and Supervision of Operational Risk and to have a comprehensive bank-wide operational risk management framework (paragraph 6.1 and Section 6.3). - Supervisory assessment processes and findings - EC1: Supervisors assess robustness of operational risk frameworks through inspections and off-site reviews; reviews include operational risk policies, Board and management minutes, incident reports, key risk indicators and transaction testing. - Supervisors engage internal and external auditors and home supervisors on operational risk issues and follow up on rectification of deficiencies. - Under MAS’ CRAFT, operational risk is rated based on risk of loss from inadequate personnel management, internal controls, processes, information systems, organizational changes, complexity and interdependencies. - Supervisors have power to impose additional capital requirements to address operational risk issues: - Example: In July 2010 MAS required a bank to apply a multiplier of 1.2 times to its RWA for operational risk, which translated to the bank setting aside an additional amount of approximately S$230 million in regulatory capital on a group basis. - Governance and Board oversight - EC2: The supervisor requires operational risk strategies, policies and processes to be approved and regularly reviewed by the Board; the Board must oversee management in effective implementation. - During inspections supervisors review management reports and Board/committee minutes to verify Board approval and oversight. - For banks using SA(OR), Part IX requires the Board to be actively involved in oversight of the operational risk management framework, including ensuring the operational risk management function develops strategies, codifies policies and designs/implements operational risk assessment and reporting systems. *Source: IMF staff report excerpt on MAS supervisory requirements and assessments (Annex 10A of MAS Notice 637).* ### Part X of MAS Notice 637 states that the ultimate responsibility for ensuring a sound ### _cr13342 - Part X of MAS Notice 637 states that the ultimate responsibility for ensuring a sound ### Board responsibility and risk appetite - Part X of MAS Notice 637 states that the ultimate responsibility for ensuring a sound risk management framework resides with the Board. - The Board shall define the bank’s risk appetite and establish an acceptable level of risks that the bank may take. ### Governance and senior management obligations - More specifically, the Board and senior management are required under paragraph 6.2 of *Source: _cr13342 - Part X of MAS Notice 637 states that the ultimate responsibility for ensuring a sound* ### Annex 10A of MAS Notice 637 to be familiar with major aspects of the bank’s ### Annex 10A of MAS Notice 637 to be familiar with major aspects of the bank’s ### Operational risk governance and board responsibilities (EC3) - Board responsibilities: be familiar with major aspects of the bank’s operational risk, and be responsible for the effective implementation of the operational risk management framework, including the approval and regular review of the risk management framework, taking into consideration the bank’s appetite and tolerance for operational risk. - Ongoing obligations: continually monitor operational risk exposures, and report significant operational risk concerns and deviations from the established policies to the Board. - Supervisory role: supervisor determines that the approved strategy and significant policies and processes for the management of operational risk are implemented effectively by management and fully integrated into the bank’s overall risk management process. - Supervisory activities: - Off-site reviews and inspections obtain and review operational risk-related policy and procedural documents, management/incident reports, audit reports and key risk indicators. - On-site transaction testing to determine effective implementation and integration of operational risk strategy, policies and processes. ### Business continuity and disaster recovery (EC4) - Supervisory objective: review quality and comprehensiveness of disaster recovery and business continuity plans to assess feasibility in scenarios of severe business disruption and determine that the bank can operate as a going concern and minimize losses (including disturbances to payment and settlement systems). - MAS guidance and standards: - Guidelines on Risk Management Practices—Business Continuity Management (BCM); - Circular on Further Guidance on BCM (focus on security and pandemic events); - Internet Banking and Technology Risk Management Guidelines; - Circular on Information Systems Reliability, Resiliency and Recoverability. - Outsourcing constraint: Under MAS’ Guidelines on Outsourcing, banks should ensure that their disaster recovery and business continuity capabilities are not compromised by outsourcing. - Supervisory focus: - Review of processes and documentation to ensure sufficient measures to cope with operational disruptions. - Emphasis on key mission critical activities: dealing activities, clearing and settlement operations, and payment services; ensure recovery strategies and recovery time objectives (for both business functions and IT) can be met. - Bank should continue to meet regulatory requirements and manage exposures and outstanding business obligations in disruption scenarios; BCM plans should be commensurate with scale, nature and complexity of activities. - Payment and settlement systems reviewed: MAS Electronic Payment System (MEPS+) [SGD RTGS and SGS], Cheque Clearing System (CCS) [S$ and US$], and eGIRO. - Industry testing: supervisors review bank participation in industry tests for payment and settlement systems. - Industry-wide exercises (IWE): - MAS conducts periodic IWEs to simulate severe business disruptions, test crisis management, exercise business continuity with external dependencies, and test coordination with authorities. - Previous IWE: Exercise Raffles III conducted on September 15, 2011; scenario featured physical and cyber terrorism; involved more than 4,000 executives and senior management from 137 banks, finance companies, insurance firms, securities and broking houses, the Singapore Exchange, and financial market infrastructure providers. ### Information technology risk management and supervision (EC5) - Supervisory determination: banks must have appropriate IT policies and processes to identify, assess, monitor and manage technology risks, and appropriate IT infrastructure to meet current and projected business requirements (normal and stress), ensuring data and system integrity, security and availability. - MAS supervisory channels: (i) Technology Risk Management Guidelines: - IBTRM Guidelines require banks to establish a sound and robust technology risk management framework; strengthen system and data security, integrity, reliability, resiliency, availability and recoverability; deploy strong two-factor authentication; and emphasize proactive risk management. (ii) Inspections: - Dedicated team of technology risk specialists conducts technology risk supervision and inspections; IBTRM requirements incorporated into inspection work programs; assess IT governance, technology risk management, IT policies, processes, internal controls, and infrastructure robustness (e.g., data centers). (iii) Supervisory Rating: - Under MAS’ CRAFT, supervisors assess and rate banks’ technology risk profile by determining inherent IT risks and quality of internal control systems. - Enforcement examples: - MAS imposed additional capital requirements on a bank in July 2010 for failure to adequately manage outsourced IT systems, networks, operations and infrastructure, resulting in a widespread system outage on July 5, 2010. - MAS reprimanded another bank in September 2011 for failing to adopt sound IT practices (as set out in the IBTRM Guidelines) that led to disruption of online and branch banking systems on September 13, 2011; bank was directed to conduct a thorough review and remediation. ### Operational risk information systems and reporting (EC6 and EC7) - EC6 requirements: - Banks to establish appropriate and effective information systems to monitor operational risk, compile and analyze operational risk data, and facilitate reporting to Boards, senior management and business lines to support proactive operational risk management. - MAS expectations and supervisory actions: - Operational Risk Guidelines and Guidelines on Risk Management Practices—Internal Control require adequate MIS for effective management and control; risk exposures reported to Board and senior management using a common framework. - Inspections review MIS reports, internal and external audit reports to determine MIS effectiveness. - Under Part IX of MAS Notice 637, locally-incorporated banks using the SA(OR) must design and implement an operating risk-reporting system to systematically track operational risk data including material losses by business line; regular reporting of operational risk exposures, including material operational losses, to business unit management, senior management and the Board. - EC7 supervisor reporting requirements: - MAS relies on required regulatory reporting and on-site/off-site supervision to keep apprised of operational risk developments. - For locally-incorporated banks, requirement stipulated in paragraph 6.6 of Annex 10A of MAS Notice 637. - Circular on Further Guidance on Business Continuity Management: bank should inform MAS immediately of emergencies where business operations are or will be severely disrupted, and once contingency plan has been activated; MAS provided a situation report template that has been exercised in previous IWEs. - MAS Notice 634 on conditions for outsourcing requires notification to MAS about outsourcing arrangements that entail disclosure of customer information; Guidelines on Outsourcing require notification of material outsourcing or planned variation. - Supervisors obtain and review operational risk related policies, management/incident reports, audit reports and key risk indicators; monthly surveillance performed on performance trends in various financial indicators. ### Outsourcing risk management (EC8 and AC1) - EC8 supervisory determination: banks must have policies and processes to assess, manage and monitor outsourced activities covering: - conducting appropriate due diligence for selecting potential service providers; - structuring the outsourcing arrangement; - managing and monitoring risks associated with the outsourcing arrangement; - ensuring an effective control environment; and - establishing viable contingency planning. - Contractual expectations: comprehensive contracts and/or service level agreements with clear allocation of responsibilities between service provider and bank. - MAS regulations and guidance: MAS Notice 634, Guidelines on Outsourcing, IBTRM Guidelines, Circular on Information Technology Outsourcing. - Pre- and post-outsourcing obligations: - Banks should conduct pre- and post-outsourcing implementation reviews and periodic reviews; notify MAS about material outsourcing arrangements. - Prior to IT outsourcing involving sensitive data (e.g., customer data), banks should consult MAS and may be required to submit the MAS Technology Questionnaire for Outsourcing. - Specific guidance excerpts from Guidelines on Outsourcing: - Paragraph 6.3: subject service providers to appropriate due diligence when considering, renegotiating or renewing outsourcing arrangements. - Paragraph 6.4: contractual terms governing relationships, functions, obligations and responsibilities should be carefully and properly defined in written agreements. - Paragraph 6.2: Board and senior management should be fully aware of outsourcing risks; framework for systematic risk evaluation required; evaluations performed before and periodically after entering arrangements. - Paragraph 6.7: establish structure for management and control of outsourcing commensurate with nature, scope and complexity. - Paragraph 6.8: periodically commission independent audit and expert assessments on service provider security and control environment. - Paragraph 6.6: ensure business continuity preparedness is not compromised by outsourcing and adopt BCM sound practices. - Supervisory inspections: - Review extent of outsourced mission critical functions and business continuity plans of service providers; examine tests validating recovery within stated recovery time. - Ensure contractual detail is appropriate to nature and materiality and vetted by competent authority. - AC1 (common points of exposure): - MAS Notice 634 requires notification to MAS of outsourcing arrangements involving customer information; Guidelines on Outsourcing require notification of material outsourcing arrangements. - Circular on Information Technology Outsourcing expects consultation before IT outsourcing commitments involving sensitive data; possible submission of MAS Technology Questionnaire for Outsourcing. - MAS has compiled information on IT outsourcing arrangements to monitor extent and identify concentration to common service providers. - Financial District Security Program (public-private partnership) identified critical outsourcing providers (telecommunications, power, data centers, business recovery sites). - Industry-wide exercise in 2011 observed reliance on common telecommunication service providers. - Supervisors regularly identify and assess common points of exposure to operational risk. ### Internal control, audit, compliance and supervisory assessments (Principles 25–27, EC1–EC5) - Principle 25 assessment: Compliant. - MAS holds banks accountable for effective operational risk frameworks with management support and routine monitoring by audit functions and management; operational risk frameworks adapted to include IT, outsourcing, and business continuity. MAS is fully compliant on this principle. - Principle 26 (Internal control and audit) essentials: - EC1: Laws/regulations require banks to have internal control frameworks addressing organizational structure, accounting policies and processes, checks and balances, and safeguarding assets. - CG Regulations 2005 require Board and Board committees; Audit Committee responsibilities (Regulation 17); Risk Management Committee responsibilities (Regulation 17A). - CG Guidelines: Board responsibility for prudent and effective controls (Principle 12) and robust risk management (Principle 17); Board to set roles and delegation (Principle 1) and division of responsibilities (Principle 3). - Section 199 of the CA requires proper accounting records; Internal Controls Guidelines require adequate controls and documentation. - MAS Notice 622A assigns responsibilities to chief executive and deputy chief executive of foreign bank branches in Singapore. - Internal Controls Guidelines require adequate MIS considering timeliness, accuracy, consistency, completeness and relevance. - Physical and computer access controls, dual control for sensitive items, and use of fireproof safes and vaults are expected. - EC2: Supervisors assess balance in skills/resources between back office/control functions and business origination; prior approval requirement for appointment of chief risk officer (Regulation 18); chief risk officer should report to Board (Principle 17). - EC3: Compliance function expectations: independent, permanent, adequately staffed; assessed under CRAFT for effectiveness and independence; non-compliance escalated to management; Board should comment on adequacy of internal controls in annual report (Principle 12). - EC4: Internal audit independence and responsibilities: Board-level Audit Committee required; Audit Committee to review adequacy of internal controls and ensure annual review of internal controls; supervisors verify internal audit evaluates adequacy/effectiveness of controls and that management addresses deficiencies. - EC5: Internal audit resourcing, independence, access and methodology: - Supervisors review auditors’ resumes, certifications and experience; expect reporting directly to Audit Committee; expect head office internal audit to audit Singapore branches at least once every 12 to 18 months where applicable; internal auditors must have full access to records and authority to act across departments; supervisors review audit plans and coverage; outsourcing agreements should allow bank audits of service providers. - Assessment of Principle 26: Compliant. - MAS is fully compliant; supervisors ensure effective internal control functions with competent staffing and prompt resolution of weaknesses via home office notification for branches. - Principle 27 (Financial reporting and external audit): - EC1: Supervisor holds Board and management responsible for preparation of financial statements in accordance with accounting policies and practices widely accepted internationally and supported by recordkeeping systems. *Source: Annex 10A of MAS Notice 637 (excerpt provided).* ### Section 201 of the CA requires directors to present at the annual general meeting a ### _cr13342 - Section 201 of the CA requires directors to present at the annual general meeting a ### Accounting and financial reporting requirements - Section 201 of the CA requires directors to present at the annual general meeting a profit and loss account that complies with the requirements of the FRSs and gives a true and fair view of the company’s profit and loss for the period. - Section 199 of the CA requires directors and managers to keep accounting and other records that will sufficiently explain transactions and financial position and enable true and fair financial statements to be prepared from time to time. - Records must be kept for a minimum period of five years in such manner as to enable them to be conveniently and properly audited. - Section 373 of the CA requires foreign banks operating as branches in Singapore to lodge with ACRA a copy of their duly audited financial statements which comply with the FRSs. - The FRSs are promulgated by the Accounting Standards Council and are closely modeled after the International Financial Reporting Standards (IFRS). - Section 26 of the BA requires every bank to send to MAS a copy of its latest audited financial statements not later than three months after the close of its financial year. - Section 25(2) of the BA requires every bank to publish in newspapers a copy of its latest audited balance sheet and profit and loss accounting within 5 months after the close of each financial year. - MAS Notice 607 requires banks to include a copy of the auditors’ report when publishing its financial statements and to make available a complete set of audited financial statements, list of bank directors and list of subsidiaries to members of the public upon request. ### Governance and board/audit committee responsibilities - The Banking (Corporate Governance) Regulations 2005 require locally incorporated banks to establish a Board-level Audit Committee. - MAS’ Guidelines on Corporate Governance for Banks, Financial Holding Companies and Direct Insurers (CG Guidelines) set out Board and senior management responsibilities regarding financial statements. - The Board-level Audit Committee should review significant financial reporting issues and judgments to ensure the integrity of the financial statements and any announcements relating to the bank's financial performance. - Under MAS Notice 622A, chief executive and deputy chief executive of branches of banks incorporated outside Singapore are responsible for prudent and professional management, including establishing sound written policies on accounting, internal control and internal auditing. ### Supervisory expectations on audit quality and external auditors (EC2, EC4, EC6, EC8, EC9) - The supervisor holds the bank’s Board and management responsible for ensuring annual financial statements bear an independent external auditor’s opinion as a result of an audit conducted in accordance with internationally accepted auditing practices and standards. - Section 205 of the CA and MAS Notice 615 require banks to appoint auditors annually, subject to MAS’ approval under section 58 of the BA. - Auditors comply with the Singapore Standards on Auditing (SSA) in carrying out an audit; SSA is issued by ICPAS and is based on the International Standards on Auditing. - Section 58(5) of the BA empowers MAS to impose a duty on an external auditor to enlarge or extend the scope of the external audit of the business and affairs of banks. - MAS conducts regular meetings with external auditors of individual banks; frequency ranges from once a year to once every quarter depending on bank complexity. Supervisors also meet external auditors as a group through the industry working committee. - Section 58(8) of the BA requires the external auditor to report to MAS if satisfied that: - (a) there has been a serious breach or non-observance of the provisions of the BA or that otherwise a criminal offense involving fraud or dishonesty has been committed; - (b) losses have been incurred which reduce the capital funds of the bank by 50 percent; - (c) serious irregularities have occurred, including irregularities that jeopardize the security of the creditors; or - (d) he is unable to confirm that the claims of creditors are still covered by the assets. - The law protects external auditors from being held liable for breach of confidentiality in making such reports in good faith. - Section 207(9) of the CA requires the external auditor to report to ACRA if satisfied there has been a breach or non-observance of any provisions of the Act; the auditor will keep MAS informed of any such report. - MAS has the authority to not approve or to revoke approval of auditors for banks where they are deemed not to meet required conditions or standards. ### Audit scope, standards, and monitoring (EC4, EC5, AC1) - Section 207(3) of the CA sets out auditors’ duties in relation to their reports on company accounts; auditors comply with SSA 320 on Audit Materiality requiring consideration of materiality and its relationship with audit risk. - MAS Notice 609 requires external auditors to report, in the long form report, findings or recommendations on banks’ accounting system, internal controls, adequacy of provisions for impaired assets and asset quality. - MAS Notice 609 also requires banks to furnish to MAS the auditors’ long form report and supplementary report; the supplementary report contains auditors’ comments relating to write-offs, adequacy of provisions and asset impairment. - Section 58(5) of the BA empowers MAS to obtain from external auditors any additional information in relation to their audit of banks. - ACRA has the power to access external auditors’ working papers in discharging its responsibilities as national regulator of business entities and public accountants. ### Valuation practices and provisioning (EC3) - Supervisors determine banks’ compliance with the FRSs when reviewing audited financial statements. - FRS 39 on Financial Instruments: Recognition and Measurement prescribes principles for recognizing and measuring financial assets and financial instruments. - FRS 107 on Financial Instruments: Disclosures contains requirements for disclosing information about financial instruments. - For collective impairment provisions (CIP), MAS Notice 612 allows maintenance of a CIP that is not less than one percent of the loans and receivables, net of collaterals and after deducting any individual impairment provisions that have been made. - Banks have confirmed that the one percent CIP maintained is more conservative than what is required under the FRS 39 incurred loss impairment model. - Audit opinion template reflecting MAS Notice 612 modification is provided in the source text and auditors express qualified opinions in response to such a modification. - During inspections, supervisors review valuation practices for consistent pricing assumptions and methodologies, effective controls and independent verification, treatment of adjustments due to revaluation estimate changes, and model robustness (assumptions, backtesting results and governance arrangements). ### Auditor rotation and continuity (EC7) - SGX Listing Manual requires rotation of audit partners every five years for listed companies. - MAS Notice 615 requires banks to submit annually, for MAS’ approval, the name of the auditor they propose to appoint or re-appoint and locally-incorporated banks shall not, except with prior written approval of MAS, appoint the same audit firm for more than 5 consecutive financial years. - In 2008 MAS temporarily suspended the requirement for the three locally-incorporated banks to change their audit firms after five years to minimize disruption during the global financial crisis; the three local banks continued to submit annually the name of the external auditor proposed to appoint or reappoint. - MAS carried out a detailed review of the audit firm rotation policy and intends to re-introduce the requirement and will consult the industry in due course. - For foreign banks, supervisors determine whether banks rotate their audit firm or audit engagement partners from time to time, particularly when supervisors observe a drop in audit quality. ### Assessment and compliance conclusions - Assessment of Principle 27: Compliant. - MAS holds local banks’ and foreign branches’ management fully accountable for producing timely and accurate financial reports and holds banks’ external auditors fully accountable for verifying compliance with MAS requirements and FRS, as modified by MAS Notice 612 for loan loss provisioning. - MAS works closely with external auditors to identify weaknesses in banks’ reporting systems and has the authority to enlarge or extend the scope of an external audit. - Under Singapore law, auditors have a duty to report to MAS any breach or non-observance of the BA and any serious irregularities or material capital shortfalls. MAS receives a detailed long form report from the external auditor and can revoke authorization to conduct further bank audits where warranted. - Principle 28 (Disclosure and transparency) is introduced with EC1 beginning, indicating requirements for periodic public disclosures on consolidated and, where appropriate, solo basis that reflect a bank’s true financial condition and performance. *Source: _cr13342 - Section 201 of the CA requires directors to present at the annual general meeting a* ### Section 199 of the CA requires every company to keep proper accounting records that ### _cr13342 - Section 199 of the CA requires every company to keep proper accounting records that ### Accounting and statutory reporting requirements - Section 199 of the CA requires every company to keep proper accounting records that will enable the preparation of true and fair financial statements. - Section 201 of the CA requires directors to present at the annual general meeting a profit and loss account that complies with the requirements of the FRSs and gives a true and fair view of the company’s profit and loss for the period. - Under section 373 of the CA, foreign bank branches in Singapore are required to lodge with the ACRA a copy of their duly audited financial statements which comply with the FRSs. The financial statements are available to the public at a nominal fee. - Section 25 of the BA requires every bank to publish in newspapers within 5 months of the financial year-end its latest audited balance sheet and profit and loss account; these, together with a copy of the auditors’ report, shall be exhibited in each of the bank’s offices and branches in Singapore. - Locally-incorporated banks are required to submit consolidated financial statements and separate financial statements of any company in which the bank holds 20 percent or more of the issued share capital. ### Financial Reporting Standards and presentation - The FRSs are promulgated by the Accounting Standards Council and are closely modeled after the IFRS. - FRS 1 on Presentation of Financial Statements requires entities to achieve a fair presentation by compliance with applicable FRSs. - Under paragraph 17(b) of FRS 1, a fair presentation provides information that is relevant, reliable, comparable and understandable. - FRS 24 on Related Party Disclosures requires the disclosure of relationship between a parent and its subsidiaries, and in situations where control exists, irrespective of whether there have been transactions between them. - With effect from January 1, 2014, FRS 112 on Disclosure of Interests in Other Entities will require an entity to disclose information about its interests in subsidiaries, joint arrangements and associates, and structured entities that are not controlled by the entity. ### MAS reporting and disclosure notices - Under MAS Notice 609 on Auditors' Reports and Additional Information to be Submitted with Annual Accounts, every bank shall furnish to MAS a set of its audited financial statements not later than 3 months after the close of its financial year. - Part XI of MAS Notice 637 on Risk Based CAR for Banks Incorporated in Singapore sets out the minimum level of public disclosures to assist market participants in forming an opinion on the scope of application, risk profile and capital adequacy of a bank; these disclosure requirements are consistent with the Basel III Capital Framework Pillar 3 requirements. - MAS Notice 608 on Disclosure in Financial Statements prescribes the minimum information that banks have to disclose in its balance sheet, profit or loss account, cash flow statement, or notes to the financial statements. - Part XI of MAS Notice 637 requires a bank to describe its risk management objectives and policies for areas including capital, credit risk, market risk, operational risk, interest rate risk in the banking book and remuneration; the description for each area shall include: - (i) its strategies and processes; - (ii) the structure and organization of the relevant risk management function; - (iii) the scope and nature of risk reporting and measurement systems; and - (iv) its policies for hedging and mitigating risk, and processes for monitoring the continuing effectiveness of such policies. - MAS Notice 637 requires the bank to make public qualitative and quantitative disclosures on areas such as their capital instruments, risk weighted assets, capital adequacy and risk exposures; the bank shall take all reasonable steps to ensure the accuracy and correctness of all disclosure items required, and assess the appropriateness (e.g., validation and frequency) of its disclosures. ### SGX listing and periodic disclosure obligations - Banks listed on the SGX are required to announce their financial statements for each of the first three quarters not later than 45 days after the quarter-end. - These banks are also required to announce their financial statements for the full financial year not later than 60 days after the year-end (Chapter 7 of SGX Listing Rules on Continuing Obligations). - A bank that is listed on SGX is required to make immediate announcements of any interested person transactions if the transactions amount to three percent or more of the value of its latest audited net tangible assets; announcements should include a statement that the bank's Audit Committee is of the view that the transactions are on normal commercial terms and the terms are not prejudicial to the interests of the bank and its minority shareholders. - The bank also has to disclose the aggregate value of interested person transactions entered into during the financial year in its annual report (Chapter 9 of SGX Listing Rules on Interested Person Transactions). ### Scope, content and supervisory use of disclosures - The supervisor determines that required disclosures include both qualitative and quantitative information on a bank’s financial performance, financial position, risk management strategies and practices, risk exposures, aggregate exposures to related parties, transactions with related parties, accounting policies, and basic business, management, governance and remuneration. - The scope and content of information provided and the level of disaggregation and detail is commensurate with the risk profile and systemic importance of the bank. - MAS supervisors, as part of off-site supervision, determine from the auditors’ report whether banks’ financial statements have been drawn up in accordance with the CA and FRSs. - Supervisors review the banks’ financial statements and annual reports, and in the case of locally-incorporated banks, supervisors meet with the chief financial officer of each bank every quarter, ahead of its earnings release to discuss the financial performance, business strategies and risk profile of the banking group. ### Corporate governance guidance on remuneration disclosure - MAS’ Guidelines on Corporate Governance for Banks, Financial Holding Companies and Direct Insurers (CG Guidelines) set out best corporate governance practices. - The CG Guidelines provide that a locally-incorporated bank should clearly disclose its remuneration policies, level and mix of remuneration, and the procedure for setting remuneration in its annual report. - The bank should provide disclosure in relation to its remuneration policies to enable investors to understand the link between remuneration paid to directors and key executives, and performance. *Source: IMF staff report content provided in the supplied PDF excerpt.* ### Section 25 of the BA requires every bank to exhibit at each of its branches its latest ### _cr13342 - Section 25 of the BA requires every bank to exhibit at each of its branches its latest ### Disclosure and transparency (Principle 28 / EC4–EC5) - Section 25 of the BA requires every bank to exhibit at each of its branches its latest audited financial statements and auditors’ report, as well as the names of all the bank’s subsidiaries. - Where a bank is the subsidiary of another corporation at its financial year-end, section 201(10) of the CA requires the bank to state the name of its ultimate holding company in the financial statements. - The supervisor or another government agency effectively reviews and enforces compliance with disclosure standards: - ACRA monitors and enforces compliance of FRSs by companies and administers a repository of documents and information relating to business entities and public accountants; section 7 of the Accounting and Corporate Regulatory Authority Act (Chapter 2A) confers powers to prescribe, regulate or implement measures and standards related to its functions. - MAS determines that banks meet the requirements set out in MAS’ notices and supervisors review banks’ financial statements and annual reports for compliance with MAS Notice 608. - MAS publishes aggregated information to facilitate public understanding and market discipline: - MAS publishes a Monthly Statistical Bulletin containing detailed aggregate statistics on banks’ assets and liabilities. - MAS publishes an annual FSR analyzing the banking sector with statistics on financial soundness indicators: capital adequacy, profitability, loan concentrations, liquidity and asset quality. ### Additional disclosure criteria (AC1) - The CA, FRSs and MAS Notices 608, 609 and 637 stipulate minimum disclosure requirements enabling understanding of banks’ risk exposures and concentration. - MAS Notice 637 (Part XI) requires disclosure of: - total gross credit exposures and average gross credit exposures over the reporting period, broken down by major types of credit exposure; - geographic and industry distribution of credit exposures; and - residual contractual maturity, all broken down by major types of credit exposure (paragraph 11.3.8). ### Assessment of Principle 28 - Assessment: Compliant - Comment: The quarterly and annual disclosures by banks incorporated in Singapore and the reports periodically published by MAS fully meet the principle of full disclosure and transparency. ACRA monitors and enforces compliance with FRS and MAS requires banks to disclose their financial position and their credit exposures, broken down by geography and industry, and residual contractual maturity. ### Abuse of financial services / AML-CFT (Principle 29) — overview of essential criteria EC1–EC8 - Principle 29: The supervisor determines that banks have adequate policies and processes, including strict customer due diligence (CDD) rules to promote high ethical and professional standards and prevent use of banks for criminal activities. EC1 — Legal and institutional framework - Singapore is a FATF member and adopts FATF Recommendations and the Basel Committee’s Statement of Principles on Prevention of Criminal Use of the Banking System. - Functions of MAS are set out under section 4 of the MAS Act; sections 43 and 44 of the BA empower MAS to conduct inspections and special investigations of any bank in Singapore and any overseas operations of a locally-incorporated bank. - Sections 27A and 27B of the MAS Act empower MAS to issue directions or regulations necessary for prevention of money laundering or financing of terrorism and for implementation of UN Security Council decisions. - Examples of directions/regulations: MAS (Anti-terrorism Measures) Regulations 2002; MAS (Sanctions and Freezing of Assets of Persons—Iran) Regulations 2007; MAS (Sanctions and Freezing of Assets of Persons—Libya) Regulations 2011. - MAS Notice 626 on Prevention of Money Laundering and Countering the Financing of Terrorism is a legally enforceable notice under section 27B; Guidelines to MAS Notice 626 provide guidance. - Penalties for failure to comply with regulations: liable on conviction to a fine not exceeding $1 million, and may be liable for a further fine of $100,000 for every day which the offense continues after conviction. - MHA (Ministry of Home Affairs) oversees wider AML/CFT legislation (CDSA Chapter 65A; TSOFA Chapter 325); CAD investigates laundering of proceeds from serious crimes; STRO resides within CAD as central agency for suspicious transaction reports; STRO officers are deemed enforcement officers with police powers under section 64 of the Police Force Act (Chapter 235). EC2 — Supervisor determines adequacy of banks’ policies and processes (CDD, reporting) - Paragraph 12 of MAS Notice 626 requires banks to develop and implement internal policies, procedures and controls covering CDD, record retention, detection of suspicious transactions and obligation to make suspicious transaction reports. - Paragraph 11.2 of MAS Notice 626 requires banks to submit reports on suspicious transactions (including attempted transactions) to the STRO and extend a copy to MAS for information. - Supervisors assess compliance via inspections and off-site reviews, review internal and external auditors’ assessments, and conduct thematic and regular AML inspections using a risk-based approach. - MAS-wide AML/CFT peer group facilitates sharing of inspection methods, best practices, AML/CFT compliance, off-site supervision and inspection cycles; regular internal and external AML/CFT training is provided to supervisory and policy staff. EC3 — Reporting to supervisor when material to safety, soundness or reputation - MAS Notice 641 requires a bank to report to MAS suspicious activities and incidents of fraud that are material to the safety, soundness or reputation of the bank. - For incidents of fraud, banks should lodge a police report and submit a copy to MAS; if not lodged, the bank should notify MAS of reasons. In both cases, the bank shall lodge a report in a prescribed format to MAS after discovery. EC4 — Supervisor shares information with FIU and other authorities - When supervisors discover additional suspicious transactions (e.g., through inspections or other information channels), supervisors will pass information to CAD for further investigation. EC5 — CDD policies and elements of CDD program - Required CDD program essential elements: - (a) customer acceptance policy identifying unacceptable business relationships; - (b) customer identification, verification and due diligence on an ongoing basis, including verification of beneficial ownership, understanding purpose and nature of the business relationship, and risk-based reviews to ensure records are updated and relevant; - (c) policies and processes to monitor and recognize unusual or potentially suspicious transactions; - (d) enhanced due diligence on high-risk accounts with escalation to senior management for decisions on entering or maintaining relationships; - (e) enhanced due diligence on politically exposed persons with senior management escalation; - (f) clear rules on records to be kept on CDD and individual transactions with at least a five year retention period. - Supervisory assessment areas during inspections include: - (a) whether customer acceptance policies define acceptable/unacceptable customers and consider country of origin, political position and source of wealth (paragraphs 4, 6.2, 6.3 and 6.4 of MAS Notice 626); - (b) adequacy of CDD for clients including beneficial owners (paragraph 4.15) and prohibition of transactions where identity is not provided (paragraph 4.4); regular reviews of existing records per paragraphs 4.20–4.24; delineation of accountability and approval authorities; - (c) guidelines and procedures for investigating, reporting and acting on suspicious transactions and effectiveness of management reports and systems (paragraph 4.22); - (d) enhanced due diligence and senior management approval for high-risk customers, enquiries on source of funds and source of wealth (paragraph 6); - (e) policies to identify PEPs with senior management approval for relationships (paragraph 6); - (f) document retention policy stipulating minimum period of retention for financial transaction documents is five years in line with CDSA; CDD documents to be kept for five years after account closure or longer if ongoing investigation or litigation. EC6 — Correspondent banking due diligence - Supervisors determine whether banks have policies and procedures for correspondent banking and assess integration into overall risk management, including: - (a) whether banks gather adequate information on respondent banks to understand their business, customer base and supervision; conduct due diligence and assess perceived risk, including purpose of the account, third-party access, adequacy of AML/CFT controls, and whether respondent bank’s AML regime is equivalent to FATF standards (paragraph 8.3 of MAS Notice 626); - (b) ensuring banks do not establish or continue correspondent relationships with banks that lack adequate controls, are not effectively supervised, or are shell banks; be alert to payable-through accounts (paragraphs 8.4 and 8.6 of MAS Notice 626). EC7 — Controls and systems to prevent, identify and report abuses - MAS conducts regular inspections and reviews internal and external audit reports to determine adequacy of controls and systems to prevent, identify and report possible abuses including money laundering, terrorism financing and fraud. - Supervisors require self-assessment questionnaires from banks to evaluate AML/CFT controls, processes and compliance; these are sent on average, once every two years and more frequently if necessary. - Supervisors assess compliance with relevant laws and regulations, including MAS Notice 626. EC8 — Supervisory enforcement powers and sanctions - Sections 27A and 27B of the MAS Act empower MAS to issue directions or regulations for prevention of money laundering or financing of terrorism and to implement UN Security Council measures. - Financial institutions that fail to comply with these regulations are liable on conviction to a fine not exceeding $1 million, and may be liable for a further fine of $100,000 for every day which the offense continues after conviction. *Source: _cr13342 - Section 25 of the BA requires every bank to exhibit at each of its branches its latest* ### Section 41A of the MAS Act empowers MAS to compound any offense under the MAS ### Section 41A of the MAS Act empowers MAS to compound any offense under the MAS ### MAS enforcement and compounding powers - Section 41A of the MAS Act empowers MAS to compound any offense under the MAS Act by collecting from the offender a sum of money up to half of the maximum fine prescribed for that offense. - The same section allows MAS to make regulations to prescribe the offenses which may be compounded. - Under section 7 of the BA, MAS may impose additional conditions, or vary or revoke any existing conditions of the license of the bank. - Under section 20 of the BA, in extreme circumstances (e.g., where the bank is carrying on its business in a manner deemed detrimental to its depositors’ interests), MAS may revoke the license of the bank. ### Supervisory expectations and EC9 findings (internal controls, compliance, staffing, training) - The supervisor determines that banks have: - (a) requirements for internal audit and/or external experts to independently evaluate the relevant risk management policies, processes and controls. The supervisor has access to their reports; - (b) established policies and processes to designate compliance officers at the banks’ management level, and appoint a relevant dedicated officer to whom potential abuses of the banks’ financial services (including suspicious transactions) are reported; - (c) adequate screening policies and processes to ensure high ethical and professional standards when hiring staff; or when entering into an agency or outsourcing relationship; and - (d) ongoing training programs for their staff, including on CDD and methods to monitor and detect criminal and suspicious activities. - Description and findings re EC9: - During inspections and off-site reviews, supervisors determine if a bank’s internal audit assesses the effectiveness of the bank’s AML/CFT measures, as well as systems and controls, in preventing, identifying and reporting non-compliance with the relevant laws and regulations. Supervisors also review whether audit findings are escalated to the appropriate level of management and followed up by internal audit to ensure that rectifications are made. - Under MAS Notice 609 on Auditors’ Reports and Additional Information to be Submitted with Annual Accounts, banks are required to furnish to MAS a copy of external auditors’ long form report. The report shall include any findings and recommendations on the bank’s internal controls and non-compliance with the relevant laws and regulations, as well as any comments on other areas of weaknesses. Supervisors review the long form reports and monitor the rectification of the deficiencies through follow-up with the bank’s internal and external auditors. - Supervisors determine if a bank has appointed one or more senior persons, or an appropriate unit (typically the compliance function), to advise management and staff on the issuance and enforcement of in-house instructions to prevent money laundering, including personnel training, suspicious transactions reporting and generally all questions pertaining to the prevention of money laundering. Supervisors assess the independence, expertise and adequacy of resources of money laundering prevention functions, typically compliance, in discharging their responsibilities. - During off-site reviews and inspections, supervisors assess that a bank has in place screening procedures to ensure high standards when hiring employees (as required under paragraph 12.11 of MAS Notice 626). Supervisors also determine compliance with: - MAS’ Guidelines on Fit and Proper Criteria and Guidelines on Risk Management Practices—Internal Controls (Internal Controls Guidelines) requiring screening for experience, professional capabilities, honesty and integrity, including background employment checks to assess character, integrity and track record. - MAS’ Guidelines on Outsourcing requiring due diligence on service providers, including evaluation of experience, competence, business reputation, security and internal controls. - MAS ascertains whether a bank has taken appropriate steps to ensure employees are regularly and adequately trained on AML/CFT (as required under paragraph 12.12 of MAS Notice 626), including attention to frequency of refresher courses, monitoring of staff attendance and escalation processes for absentees. Supervisors review AML/CFT training programs for frequency, scope and quality. ### EC10 — reporting channels and management information systems - The supervisor determines that banks have and follow clear policies and processes for staff to report any problems related to the abuse of the banks’ financial services to either local management or the relevant dedicated officer or to both. - The supervisor also determines that banks have and utilize adequate management information systems to provide the banks’ Boards, management and the dedicated officers with timely and appropriate information on such activities. - Description and findings re EC10: - Under MAS Notice 626, a bank shall develop appropriate compliance management arrangements, including at least, the appointment of a management level officer as the AML/CFT compliance officer. The bank shall also ensure that the AML/CFT compliance officer, as well as any other persons appointed to assist him, has timely access to all customer records and other relevant information which they require to discharge their functions (paragraph 12). - The bank is required to establish internally a single reference point to whom all staff are instructed to promptly refer all suspicious transactions, for possible referral to the Suspicious Transaction Reporting Office (paragraph 11). - During inspections, supervisors review banks’ policies, AML/CFT framework and records of STRs to determine whether banks are compliant with the above requirements and evaluate the adequacy and effectiveness of banks’ operational risk management on the prevention of money laundering and terrorist financing. - Supervisors ascertain whether a bank’s management information system provides timely, accurate and adequate information to enable it to identify suspicious transactions, and assess adequacy of reports to senior management on AML/CFT compliance metrics (e.g., number of STRs reported, significant weaknesses in AML/CFT controls, significant changes in regulations). ### EC11 — legal protection for reporting staff - Laws provide that a member of a bank’s staff who reports suspicious activity in good faith either internally or directly to the relevant authority cannot be held liable. - Description and findings re EC11: - Section 39 of the CDSA provides that a person shall report knowledge or suspicion of any criminal activity to a Suspicious Transaction Reporting Officer as soon as practicable after it comes to the person’s attention. Where a person discloses in good faith to the officer, the disclosure shall not be treated as a breach of any restriction upon the disclosure imposed by law, contract or rules of professional conduct and he shall not be liable for any loss arising out of the disclosure or any act or omission in consequence of the disclosure. ### EC12 — cooperation with domestic and foreign authorities - The supervisor, directly or indirectly, cooperates with the relevant domestic and foreign financial sector supervisory authorities or shares with them information related to suspected or actual criminal activities where this information is for supervisory purposes. - Description and findings re EC12: - MAS is Singapore’s central bank and financial services regulator with supervisory responsibility over banks, insurance companies and capital markets services licensees. - Singapore utilizes a multi-agency AML/CFT strategy led by a high-level Steering Committee established in 1999 comprising the Permanent Secretary of the MHA, Permanent Secretary of the MOF and Managing Director of MAS. The Steering Committee is supported by the Inter-Agency Committee (IAC) comprised of 15 agencies and departments. The IAC also liaises with the Inter-Ministry Committee on Terrorism (established in 2001). The IAC meets several times a year and corresponds frequently to coordinate and improve Singapore’s AML/CFT regime, share information related to suspected or actual criminal activities and coordinate policy decisions. - The Mutual Assistance in Criminal Matters Act (Chapter 190A) (MACMA) allows Singapore to provide mutual legal assistance to other jurisdictions for criminal investigations or proceedings covered under the Act. The Attorney General’s Chambers (AGC) processes requests for mutual legal assistance. Section 22(2) of MACMA provides for AGC to obtain an order from the High Court for requests relating to protected information held by a financial institution. Assistance may include production or seizure of information, documents or evidence. - All reports on AML/CFT inspections are shared with the home supervisory authorities of foreign banks operating in Singapore, besides their head offices. Where requests for investigation into specific accounts are received from foreign supervisory authorities, these are forwarded to CAD for investigation, with the consent of the foreign supervisory authorities, as CAD is the financial investigation authority, while MAS is responsible for supervision. ### EC13 — in-house specialist resources and risk communication - Unless done by another authority, the supervisor has in-house resources with specialist expertise for addressing criminal activities. In this case, the supervisor regularly provides information on risks of money laundering and the financing of terrorism to the banks. - Description and findings re EC13: - CAD is the principal commercial and financial crime investigation and enforcement agency in Singapore, with investigative and intelligence resources within the Singapore Police Force. CAD has three investigative specialist divisions: Commercial Crime Division, Corporate Fraud Division and Securities and Maritime Fraud Division. The Financial Investigation Division is the main authority for enforcement of Singapore’s AML/CFT regime and houses the Suspicious Transaction Reporting Office. - CAD publishes and distributes to financial institutions annually a compilation of case highlights during each financial year. - MAS issues guidelines to provide guidance on compliance with AML/CFT regulations and has published numerous examples of suspicious transactions. MAS also announces updates to FATF statements on its website. ### Assessment and compliance status - Assessment of Principle 29: Compliant - Comments: - MAS has established a strict regime to prevent, identify and report possible abuses of financial services such as suspicious acts of money laundering, terrorism financing and incidents of fraud. - MAS assesses bank compliance through inspections and off-site reviews and will be amending its notices and guidelines in line with the latest FATF standards. - The Association of Banks in Singapore (ABS) has issued AML/CFT guidelines for industry best practices. The Private Banking Industry Group has established guidance to help identify potential money laundering involving tax-illicit funds. - Singapore is a member of both the FATF and of the APG and was last assessed in 2008 by a joint team of the FATF and the APG. Assessors found that AML/CFT preventative measures for the financial sector and the supervisory framework for banks generally met a high level of compliance with the standard, with sound implementation by banks and MAS. ### Recommended actions (selected extracts from Table 4) - Reference Principle 1 (Responsibilities, objectives and powers): - Consider ways to more clearly insulate the role of prudential supervision from the developmental mandate by articulating that the developmental mandate of MAS is clearly subordinate to prudential supervision and establish effective checks and balances to ensure prudential supervision is the priority in case of conflict. - Reference Principle 2 (Independence, accountability, resourcing and legal protection for supervisors): - Consider changing board appointment composition so that the majority of board members are independent of government, and establish effective checks and balances at the highest possible level to ensure MAS’ ability and willingness to act as a supervisory authority. - Reference Principle 11 (Corrective and sanctioning powers of supervisors): - MAS should continue to work closely with home supervisors of major foreign branches to ensure access to current information on parent company risks and financial health and encourage conversion of foreign branches with major retail operations to domestically incorporated subsidiaries. - Reference Principle 17 (Credit risk): - Ensure resources assigned to assess banks’ management of loan and investment portfolios, as set out in their CRAFT analyses, are commensurate with the level and potential systemic consequences of credit risk. - Increase attention to on-site inspections of credit risk; for major banks, establish an on-site multiyear supervisory cycle to review all sectors of banks' credit exposures per CRAFT analyses, with special attention to stressed repayment ability and loan restructurings that might mask weaknesses. ### Authorities’ response (paragraphs 29–32) - MAS welcomes the positive assessment and appreciates IMF dialogue and assessment. - MAS notes assessors’ observations on safeguards and recommendations to strengthen operational independence, and reiterates its position that MAS has operational autonomy and that prudential supervision objectives are not compromised by the developmental function. MAS will review recommendations and make changes where necessary. - MAS supervises foreign bank branches in the same manner as locally-incorporated banks, participates in supervisory colleges of major foreign banks in Singapore, and will continue to strengthen information sharing and cooperative arrangements with home supervisors. MAS is working with QFBs with significant retail presence to locally incorporate retail operations; new QFBs under future FTAs will also have to incorporate their retail operations. - MAS concurs with IMF’s observation that the Singapore economy is at the expansionary part of the credit cycle and conducts onsite credit inspections of major banks regularly, including thematic residential mortgage inspections in late 2012 and trade finance inspections in 2012 and 2013. MAS intends to increase the frequency or intensity of supervisory engagements in credit risk, taking into account macroeconomic conditions. - MAS will continue to strengthen its supervisory framework to further promote the safety and soundness of the banking sector in Singapore. *Source: _cr13342 - Section 41A of the MAS Act empowers MAS to compound any offense under the MAS* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13342.pdf_