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MAS expands the scope of its proposed Guidelines on Individual Accountability and Conduct

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25 June 2019

Ensuring compliance with the MAS’s proposed Guidelines on Individual Accountability and Conduct will be a non-trivial exercise. While non-prescriptive in nature, FIs will need to conduct a proper and systematic analysis of their operations in Singapore and the risks attendant to their business in Singapore to ensure that responsibility for each material aspect is accounted for. The MAS’s recently issued response to its earlier consultation paper describes more fully what its expectations in this regard are.

More than a year ago, the Monetary Authority of Singapore (MAS) issued a Consultation Paper on Proposed Guidelines on Individual Accountability and Conduct (First Consultation Paper). It recently issued its Response to Feedback Received – Proposed Guidelines on Individual Accountability and Conduct (Response). It makes clear that FIs will need to take steps to consider and determine who the relevant persons responsible for their operations in Singapore are. On the same day, it also issued a Consultation Paper on extending the scope of application of the Guidelines (Second Consultation Paper) to a wider range of actors.

Expanding the scope of application of the Guidelines

Following on from the feedback received, the MAS is consulting on extending the application of the proposed Guidelines on Individual Accountability and Conduct (Guidelines) to a wider group: it is now proposed to cover all financial institutions (FIs) that are regulated by the MAS. The First Consultation Paper had proposed that the Guidelines apply to banks, insurers, and capital markets intermediaries and infrastructures only.

The extended list will include, among others, the following:

  • A registered fund management company exempted from holding a capital markets services licence;
  • A person approved to act as a trustee of an authorized collective investment scheme;
  • An operator of a designated payment system; and
  • A licensee and regulated entity under the Payment Services Act (which is expected to come into effect towards the end of 2019).

Various exempt entities as set out in the Second Consultation Paper will not be required to comply with the Guidelines as they are generally smaller in size. In addition, FIs that are required to comply with the Guidelines but which are small (for example, those having less than 20 local and overseas-based representatives servicing the Singapore market) will not be expected to adopt the specific guidance described in the Guidelines.

There have been no other major changes to the proposed Guidelines. The Response does, however, add a great deal of colour to what the MAS’s expectations for implementation are. The more noteworthy points are discussed below.

Application of the Guidelines to local bank and insurance groups

The Guidelines will apply on a group basis for locally-incorporated banks and insurers. In the Response, the MAS has explained as follows.

Under the Guidelines, FIs will need to identify senior management and their responsibilities. For group operations, the specification of a senior manager’s responsibilities should include his responsibilities in respect of the operations of the Singapore parent company and the operations of the group.

Subsidiaries of the Singapore parent company, whether in Singapore or elsewhere, that are significant to the group’s business should be identified. A FI should use a range of metrics that are relevant to its business and operations to determine which subsidiaries are significant. The chief executive officer (or equivalent officer) of the subsidiary will be a senior manager for the purposes of the Guidelines.

For subsidiaries of the FI that are in Singapore, the Guidelines will apply to them directly at the entity level as well.

Application of the Guidelines to foreign FIs with operations in Singapore

The Guidelines will also apply to foreign FIs with operations in Singapore either via a branch or a subsidiary. As the Guidelines apply to a foreign FI's operations in Singapore, these operations will not typically be covered under similar requirements that foreign FIs may be subject to in other jurisdictions. The MAS has clarified that foreign FIs may apply and adapt the frameworks, policies, and procedures that have been instituted at the regional or head office levels to their Singapore operations for the purpose of complying with the Guidelines.

Senior Managers

The MAS has amended the definition of “senior managers” to make clear that a senior manager of an FI’s operations in Singapore need not be an employee of the FI but may be a person based overseas under a regional or global management arrangement. The Response emphasises that the focus of the Guidelines is not the location or the employer of the individual concerned but the actual substantive responsibility of that individual: FIs are to identify the most senior person who is in substance responsible for the management of the FI’s on-going day-to-day operations in Singapore.

In determining its own list of senior managers, FIs should not simply tick off the ones listed in the Guidelines but should start first by determining the material functions relevant to the operation and business of the FI in Singapore. As part of this analysis, the Response notes that FIs need to include trades or transactions where part of the trade or transaction takes place in Singapore. This includes trades or transactions that are executed by or booked into the FI in Singapore, even if any other leg such as the origination, structuring, and/or arrangement of the trades or transactions took place overseas, and vice versa. From that list of material functions, FIs should then ascertain who is the most senior person responsible for the management of those functions.

Employees in material risk functions

A similar process will apply to determining who are the employees in material risk functions. As described in the Response, the starting point should be an analysis of what risks are material to the business of the FI in Singapore. This should encompass financial and non-financial risks and the data points involved in this determination should not be simply quantitative indicators (such as credit, market or liquidity risk exposures beyond a certain risk limit) but also qualitative indicators (such as development and distribution of new products and on-boarding or retention of clients that present higher risk). Such risks should also include risks arising from cross-border transactions that will have a significant impact on or comprise a significant part of the FI’s Singapore business or Singapore customer base.

The persons involved in dealing with the risks that have been identified would include:

  • Persons who are in the front line that have the authority or mandate to conduct or approve the conduct of any trade that gives rise to those risks;
  • Those in backroom functions (such as risk management, control or support functions) whose mandates over the management of risks, internal controls or other support activities which could give rise to such risks;
  • The groups of individuals whose activities collectively could give rise to these risks; and
  • The individuals who supervise these persons.

Further steps

The MAS has not indicated when the Guidelines will be issued. It has, however, acknowledged that FIs will need time to implement the Guidelines and has said that they will be given one year from the date the Guidelines are issued to implement them.

In our update on the Consultation Paper, we had set out a set of steps for FIs to implement in preparing to comply with the Guidelines. As indicated by the Response, preparation for the implementation of the Guidelines will be a non-trivial exercise. In the event that an FI might need to demonstrate compliance with the Guidelines, it would be useful to document the process of information gathering, analysis and determination as proposed in the Response. While the MAS has noted that foreign FIs may apply and adapt the frameworks, policies, and procedures that have been instituted at the regional or head office levels to their Singapore operations, foreign FIs should still consider documenting the process by which they determined that such framework, policies and procedures are relevant to their Singapore operations.