On 7 May 2021, the Monetary Authority of Singapore (“MAS”) released a consultation paper setting out its proposed revisions to the Guidelines on Corporate Governance for Designated Financial Holding Companies, Banks, Direct Insurers, Reinsurers and Captive Insurers which are Incorporated in Singapore (“CG Guidelines”). The consultation closes on 18 June 2021.
The CG Guidelines comprise the principles and provisions of the Code of Corporate Governance (“CG Code”), which apply to all financial institutions (“FIs”) within scope, and additional guidelines (“AGs”) for locally-incorporated FIs. The current CG Guidelines were last revised in April 2013 and contain the 2012 version of the CG Code. In August 2018, the CG Code was revised to reinforce board competencies and place greater emphasis on disclosures of the relationship between remuneration and value creation. There was also increased focus on the consideration of the interests of stakeholder groups other than shareholders.
MAS proposes to revise the CG Guidelines to incorporate the 2018 version of the CG Code (“2018 CG Code”). MAS is also proposing revisions to the AGs, taking into account international standards and industry good practices. In addition, MAS intends to shift some provisions and AGs currently within the CG Guidelines to the Banking (Corporate Governance) Regulations 2005 and the Insurance (Corporate Governance) Regulations 2013 (collectively, “CG Regulations”).
This article highlights some of the key proposals set out in the consultation paper.
The Listing Manual of Singapore Exchange Securities Trading Limited (“Listing Manual”) requires listed companies to comply with the principles of the 2018 CG Code and the provisions that underpin the principles. Variations from the provisions are acceptable to the extent that companies explicitly state and explain how their practices are consistent with the aim and philosophy of the principle in question.
In a similar vein, MAS will expect locally-incorporated banks, Tier 1 insurers, and designated financial holding companies that own banks or Tier 1 insurers to fully observe the principles of the CG Code contained within the CG Guidelines. Deviations from Principles 11 and 12 under the sub-section “Shareholder Rights and Engagement” of the CG Code are acceptable if they are not relevant in the context of the ownership structure of non-listed FIs.
MAS does not expect full observance of the principles for Tier 2 insurers, captive insurers and designated financial holding companies which own Tier 2 insurers. However, any variation should be explained in their annual reports (for listed FIs) or company websites (for non-listed FIs). All FIs within the scope of the CG Guidelines should also continue to observe or explain variations from the provisions and AGs in their annual reports (for listed FIs) or company websites (for non-listed FIs).
Benchmarking to international standards and good practices
MAS regularly reviews its regulatory and supervisory framework to ensure that it keeps pace with international standards and good practices. Following its review, MAS proposes additions to the AGs in the following areas:
- Role and responsibilities of the board of directors: An elaboration on the roles and responsibilities expected of the board of directors, as set out in the Basel Committee on Banking Supervision Core Principles for Effective Banking Supervision and the International Association of Insurance Supervisors Core Principles.
- Remuneration practices: Setting out key expectations under the Financial Stability Board Principles and Standards for Sound Compensation Practices and its Supplementary Guidance as AGs in the CG Guidelines, instead of appending them in an Annex to the CG Guidelines.
- Unresolved concerns of independent directors: Requiring that unresolved concerns of the independent directors, particularly those on the running of the company or a proposed corporate action, be documented in the minutes of meetings of the board. MAS proposes to include this expectation as a new AG. Such a requirement is already set out in the UK Code of Corporate Governance.
Appointment of non-directors to the Board Risk Committee
The Board Risk Committee (“BRC”) of an FI has statutory responsibilities under the CG Regulations for overseeing the establishment and operation of an independent risk management system for the FI, as well as ensuring the adequacy of the risk management function of the FI. To achieve this, FIs are expected to appoint directors with skills and expertise relevant to their business strategy and objectives. However, some FIs have highlighted that the limited pool of suitably qualified director candidates for certain specialised risk areas (e.g. in technology risks or specific target markets) has led them engage subject matter experts on specialised risk types to advise their BRCs.
MAS seeks comments on the following proposals:
- to introduce a new AG to clarify that an expert, who is not a director, may be appointed as a member of the BRC;
- such appointment should be notified to MAS at least 30 days prior to the date of appointment;
- the non-director should commit to appropriate undertakings for proper accountability.
Provisions and AGs proposed for inclusion into the CG Regulations
MAS has also conducted a review to identify the provisions shifted from the CG Code to the Listing Manual for mandatory compliance in 2018, as well as other AGs within the current CG Guidelines, which constitute expectations that are fundamental to good corporate governance and should therefore be included in the CG Regulations for mandatory compliance by the relevant FIs. The matters which MAS proposes to include in the CG Regulations include:
- the key responsibilities of the board of directors;
- a requirement that the board committees’ written terms of reference should clearly set out the authority and duties of the committees;
- provisions designed to strengthen oversight of an FI’s internal controls, strengthen the independence of directors on the board, and increase transparency on the profile of directors on the board; and
- extending the existing remuneration requirements in the CG Regulations on executive officers to material risk takers, and strengthening the Board Remuneration Committee’s ability to ensure that remuneration policies do not create incentives for excessive risk-taking behaviour.