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Regulatory framework
What are the principal governmental and regulatory policies that govern the banking sector?
Strong local banks will continue to remain at the core of the Singapore banking sector and the government’s policy of maintaining the local banks’ market share at no less than 50 per cent of the total resident deposits remains unchanged. Local banks will also continue to be subject to more stringent capital adequacy requirements than those required under Basel III to reflect their systemic importance to the Singapore economy and financial system.
However, the Singapore government has also progressively liberalised the sector to allow greater competition from foreign banks in wholesale banking and retail banking to spur dynamism and innovation. The progressive liberalisation of the banking sector has led to the grant of qualifying full bank (QFB) licences to 10 foreign banks, which allow them to engage in retail banking. Existing QFBs, which are important to the local market, are also required to incorporate their retail operations.
Further, as part of the move towards banking liberalisation – in particular, the delivery of financial services to underserved segments – the Monetary Authority of Singapore (MAS) awarded two digital full banking licences and two digital wholesale banking licences in December 2020. These new digital banks are expected to commence operations in 2022. MAS also kept open the possibility of granting additional digital banking licences in the future.
What are the defining characteristics of a bank to be caught by the banking laws and regulations? Is non-bank fintech regulated differently?
The defining characteristic of a bank is that it is a company that carries on banking business in Singapore. In this regard, ‘banking business’ refers to the conduct of all of the following activities:
Another defining characteristic of a bank is that it is one of a few types of financial institutions permitted to accept deposits from the public.
Whether non-bank fintech companies are regulated as banks would depend on whether they carry on banking business in Singapore. If so, they would be regulated in the same way as other traditional banks. For example, while MAS recently handed out two digital full banking licences to applicants that were from non-bank corporate groups, these applicants will still be subject to largely the same regulatory requirements as existing full banks.
Do the rules vary depending on the size or complexity of the banking institution?
If a bank that is licensed in Singapore is designated by MAS to be a domestic systemically important bank (D-SIB), they will be subject to additional supervisory measures, such as higher capital requirements, recovery and resolution planning requirements, liquidity coverage ratio requirements, and enhanced disclosures. These would depend on the bank’s operating model and structure, as well as the type of D-SIB that the bank is (for example, a locally incorporated bank, a foreign bank branch in Singapore or a foreign bank group comprising a locally incorporated bank).
MAS looks at four main indicators to assess a bank’s systemic importance – size, interconnectedness, substitutability and complexity. Broadly speaking:
Summarise the primary statutes and regulations that govern the banking industry.
Banks in Singapore are primarily governed by the Banking Act 1970 (BA) and various pieces of subsidiary legislation promulgated under the BA. Banks that provide capital markets and financial advisory services will also be governed under the Securities and Futures Act 2001, the Financial Advisers Act 2001 and subsidiary legislation promulgated under these acts. The resolution regime that banks in Singapore are subject to is set out in the BA as well as in the Monetary Authority of Singapore Act 1970. Aside from the above, banks in Singapore are also subject to other applicable regulatory instruments issued by MAS including directives, notices, guidelines, codes, practice notes and circulars.
Which regulatory authorities are primarily responsible for overseeing banks?
MAS is the primary regulator with oversight of banks in Singapore.
Describe the extent to which deposits are insured by the government. Describe the extent to which the government has taken an ownership interest in the banking sector and intends to maintain, increase or decrease that interest.
Deposits made by non-bank depositors are insured under the deposit insurance scheme (the DI Scheme) up to an aggregate of S$75,000 per depositor per bank in the event that a full bank or finance company fails. All licensed full banks and finance companies are required to be DI Scheme members, unless otherwise exempted. The DI Scheme is administered by the Singapore Deposit Insurance Corporation Limited in accordance with the Deposit Insurance and Policy Owners’ Protection Schemes Act 2011.
The Singapore government’s ownership interests in the banking sector are largely held through its sovereign wealth fund (GIC Private Limited) and private investment company (Temasek Holdings (Private) Limited).
Which legal and regulatory limitations apply to transactions between a bank and its affiliates? What constitutes an ‘affiliate’ for this purpose? Briefly describe the range of permissible and prohibited activities for financial institutions and whether there have been any changes to how those activities are classified.
The key limitations that apply to transactions between banks and their related parties or affiliates are:
The range of activities that banks are generally prohibited or restricted from conducting are the following.
What are the principal regulatory challenges facing the banking industry?
The growth of shadow banks continues to be a prominent regulatory challenge facing the banking industry. The increased capital and liquidity requirements under Basel III coupled with technological innovations may drive the conduct of shadow banking by non-financial players that provide services that mirror traditional banking services provided by banks (eg, payment systems and peer-to-peer lending systems). This will increase the competition for clients between banks and such non-financial players, and heighten the risks associated with consumer protection in relation to the provision of innovative products and services. In line with these concerns, efforts have been made by MAS to enhance the competitiveness of the banking industry. For example, MAS awarded four digital banking licences in December 2020. These new digital banks bring with them unique value propositions, such as the innovative use of technology to serve customer needs and access underserved segments of the financial industry. MAS has also relaxed certain aspects of the anti-commingling framework for banks (eg, allowing banks to engage in certain prescribed non-financial businesses, such as the operation of digital online e-commerce platforms, and providing advice on the social impact or environmental impact of a person’s investments or activities, provided that the restrictions and requirements imposed by MAS in relation to such non-financial businesses are satisfied).
As more financial services are delivered over the internet, the frequency, scale and complexity of cyberattacks on financial institutions have also increased. Cybersecurity is a very real and ongoing regulatory challenge, especially in light of the regulatory obligations to protect the privacy of customers’ information and personal data. In light of this, in January 2021, MAS issued a revised set of Technology Management Guidelines to keep pace with emerging technologies and shifts in the cyber threat landscape. The revised guidelines focus on the technology and cyber risks arising from the growing use of cloud technologies, application programming interfaces and rapid software development by financial institutions in general.
The covid-19 pandemic and the public health measures implemented by the government to mitigate human-to-human transmissions resulted in businesses adopting work-from-home arrangements on a scale and at a speed that has been described as unprecedented. Given that large-scale ongoing remote working is a relatively recent development, MAS and the Association of Banks in Singapore (ABS) have cautioned that the changes to policies and operational processes necessitated by remote working could lead to new risks and risk management challenges that may only emerge over time.
In addition, the forms that remote working will take and the resultant risks will also continue to evolve over time. MAS thus highlighted the importance for financial institutions to consider and monitor remote working risks closely, so as to take pre-emptive steps to mitigate them. In this regard, MAS and ABS jointly published an information paper in March 2021 to:
Both MAS and ABS have also indicated that they will continue to work together to understand emerging remote working trends and any corresponding risks, as well as to identify best practices to maintain high standards of risk management for Singapore’s financial sector.
In the course of serving customers, financial institutions have the responsibility to ensure that they do not inadvertently help to disguise or legitimise ill-gotten gains, particularly where technological advances offer more effective, efficient and inclusive financial services, but also more challenging and complex financial crime risks. In building its anti-money laundering and countering the financing of terrorism (AML/CFT) programmes, MAS encourages financial institutions to emphasise AML/CFT as an organisational priority by implementing proper oversight from board and senior management, strong risk awareness measures, and proper AML/CFT controls. MAS has also been proactively engaging banks on their AML/CFT control measures through ongoing dialogue and thematic inspections conducted on banks in Singapore. Where material lapses in a bank’s AML/CFT control processes were detected, MAS has also taken formal enforcement actions against errant banks.
Are banks subject to consumer protection rules?
Banks providing common financial products and services – such as bank deposits, loans, unit trusts and securities – must ensure that their sales practices do not breach the provisions for fair trading under the Consumer Protection (Fair Trading) Act 2003 (CPFTA). A breach will give consumers a right under the CPFTA to take civil action against a supplier of such products and services. The CPFTA is administered by the Competition and Consumer Commission of Singapore.
Separately, in view of a recent spate of online message phishing scams targeting bank customers, MAS and ABS have put in place a set of additional measures to bolster the security of digital banking. These measures have been substantially implemented by banks in Singapore, thus providing a significant added layer of security to protect customers’ funds. Banks in Singapore, in consultation with MAS, will also be working together to evaluate long-term measures to be implemented. MAS has also indicated that it would be intensifying its scrutiny of major financial institutions’ fraud surveillance mechanisms to ensure that they are adequately equipped to deal with the growing threat of online scams. In addition, the Payments Council, chaired by MAS, will also be publishing a consultation paper on a proposed framework to provide clarity on how losses arising from scams are to be shared among consumers and financial institutions. Generally speaking, the proportion of losses that each party bears will depend on whether and how the party has fallen short of its responsibilities.
In what ways do you anticipate the legal and regulatory policy changing over the next few years?
MAS’ policies on financial sector supervision are unlikely to change fundamentally and will remain focused on pre-empting systemic risks to the financial system, promoting the safety and soundness of Singapore financial institutions, and ensuring resilient and well-functioning financial markets. That said, the following are some ways in which legal and regulatory policy will or is likely to change in the future.
In October 2021, MAS published its response to feedback received on proposed regulations to enhance the resolution regime for financial institutions in Singapore. Banks incorporated in Singapore (and their subsidiaries) will be required to include an enforceable provision in their foreign law-governed financial contracts, which contain early termination rights (the Contractual Recognition Requirement) such that all parties would agree that their exercise of termination rights will be subject to MAS’ temporary stay powers in the event of a resolution of the bank. This would provide greater legal certainty and serve to support an orderly resolution of a distressed bank. The Contractual Recognition Requirement will apply to:
The three-year transitional period to implement the Contractual Recognition Requirement is expected to provide banks with sufficient lead time to make the necessary preparations to comply with the new regulations. In addition, MAS also indicated that it will engage the International Swaps and Derivatives Association (ISDA) to explore the possibilities of putting in place an ISDA jurisdictional module for Singapore in due course.
In July 2021, MAS published a consultation paper on proposed amendments to MAS’ investigative and other powers under the various acts. In relation to banks, MAS proposes to introduce the following new powers, among others, under the BA.
The new powers that will be granted to MAS over banks in Singapore are still in the consultation stage.
Law stated date
Give the date on which the information above is accurate.
5 February 2021.
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Monetary Authority of Singapore Act 1970 (Singapore)
Consumer Protection (Fair Trading) Act (Chapter 52A) 2003 (Singapore)
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