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Financial Institutions in Singapore to Ensure a Culture of Responsibility and Accountability Applies from the Top Down

 

17 May 2018

The MAS is proposing to require financial institutions to clearly identify and delineate the responsibilities of senior management and of employees in material risk functions. The proposed “Guidelines on Individual Accountability and Conduct” identifies five outcomes that should be met in order to ensure that senior management and employees are held accountable for their responsibilities and incentivised to ensure that they and their staff meet these expectations.

In line with measures that have been implemented in the UK (Senior Managers and Certification Regime), Hong Kong (Manager-in-Charge Regime) and Australia (Banking Executive Accountability Regime), the Monetary Authority of Singapore (MAS) intends to enhance individual accountability of senior managers, enhance the oversight of employees in material risk functions and reinforce standards of proper conduct among employees of financial institutions. Towards this end, it is proposing to issue a new set of “Guidelines on Individual Accountability and Conduct” (proposed Guidelines) on which it is currently consulting until 25 May 2018.
  
As with the regimes in the other jurisdictions, the proposed Guidelines are aimed at ensuring a corporate culture of responsible governance and leadership.
 
Persons to whom the Guidelines will apply

The proposed Guidelines will apply to banks, insurers, capital markets intermediaries and infrastructures (FIs) and on a group-wide basis. For locally-incorporated banks and insurers that are headquartered in Singapore, this refers to the group including the holding company in Singapore, as well as local and overseas subsidiaries and branches, where applicable. For locally-incorporated subsidiaries of foreign banks and insurers, this refers to the local operations in Singapore and downstream subsidiaries and branches in Singapore and overseas, where applicable. We would expect further clarification on group application once the final Guidelines have been issued.
 
Identifying senior management responsibilities 

Under the proposed Guidelines, FIs will need to identify and define clearly who in senior management are responsible for the FI’s core management functions. The persons to be identified should be the person (or persons) with actual decision making power within the relevant group and the person (or persons) thus identified need not be located in Singapore. A list of core management functions has been provided. These include the usual C-suite officers but also extend to persons such as the head of business function, head of human resources and chief regulatory officer, as well as the head of compliance, head of internal audit, chief information officer, chief information security officer and the chief data officer (among others).

Descriptions of the various roles have been set out. The proposed Guidelines do not require specific individuals to be appointed to each role, but FIs will need to map the descriptions against existing roles. FIs will need to ensure that the various senior managers in the group meeting those descriptions (whether one or several of them) are identified and their scope of authority and responsibility made clear.
 
Identifying employees in material risk functions 
  
In addition to senior management, FIs will also need to identify clearly employees in material risk functions. These are employees whose decisions or activities could materially impact an FI’s risk profile. The Guidelines do not provide a list of what constitutes material risk functions and FIs will need to carry out a principles-based assessment of what the material risks to the business are and then consider which persons are responsible for those aspects of the business that would have an impact on these risks. Among other things, FIs will be required to ensure that such employees are subjected to more stringent oversight and higher conduct standards than other employees.
 
No formal submissions; MAS to assess compliance though its supervisory assessments 
  
The information on senior management and on employees in material risk functions do not have to be formally submitted to the MAS (in contrast to the UK and the Hong Kong regimes). However, when conducting its supervisory assessment of the FI, the MAS will consider whether FIs have met these requirements.
  
The MAS has indicated that its supervisory assessment will be based on outcomes. The proposed Guidelines set out the following five outcomes that FIs will be expected to work towards (the Outcomes):

  • Outcome 1: Senior managers who have responsibility for the management and conduct of functions that are core to the FI’s operations are clearly identified.
  • Outcome 2: Senior managers are fit and proper for their roles, and held responsible for the actions of their staff and the conduct of the business under their purview.
  • Outcome 3: The FI’s governance framework is supportive of and conducive to senior managers’ performance of their roles and responsibilities. The FI’s overall management structure and reporting relationships are clear and transparent.
  • Outcome 4: Employees in material risk functions are fit and proper for their roles, and subject to effective risk governance as well as the appropriate standards of conduct and incentive structure.
  • Outcome 5: The FI has a framework that promotes and sustains the desired conduct among all employees.
FIs are free to decide how best to meet these outcomes in a way that is relevant to the nature, size and complexity of their operations.
 
No new liabilities created 
  
It should be noted that, consistent with the Hong Kong regime, the proposed Guidelines will not create a new set of liabilities for FIs, and the obligations and liabilities currently existing under the regulatory framework will continue to apply. The proposed Guidelines are intended to supplement the existing regulatory framework. The MAS may, however, take supervisory action against an FI that does not meet the outcomes set out in the Guidelines.
 
A whistleblowing channel and other steps proposed in the consultation paper
 
 In addition to identifying and making clear areas of responsibility, the consultation paper proposes various steps that FIs should take to meet the Outcomes. In addition to the usual recommendations of providing training and having proper oversight, these include the following:
  • The performance measurement framework for senior managers should include an assessment of how effectively they perform their specified roles and responsibilities, including the actions of their staff and the conduct of business under their purview. The framework should include appropriate incentives and consequences.
  • Employees that carry out material risk functions should be accorded the necessary stature and authority where they perform risk management and control functions.
  • Employees, whether or not they carry out material risk functions, should be provided with an appropriate incentive structure that should be effective in encouraging behaviour that is consistent with the desired outcomes and which considers risk and control objectives.
  • There should be a formalised whistleblowing channel, including procedures to ensure adequate protection of employees who raise concerns over the FI’s policies, practice and activities.

While implementation of some of the measures (such as training) are easier to establish and are already current in many FIs, others may be more challenging given the soft culture aspect of the Outcomes. FIs will also need to consider how existing applicable regulatory requirements in Singapore and in other jurisdictions will meet the Outcomes in the proposed Guidelines, and where additional steps will need to be taken in order to comply with the proposed Guidelines (in their final form).   

 

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