The Financial Holding Companies Act 2013 (“FHC Act”), which introduces a regulatory framework for the Monetary Authority of Singapore (“MAS”) to regulate financial holding companies (“FHCs”) and their financial groups, has entered into force. The FHC Act empowers MAS to regulate FHCs of financial groups to strengthen the effectiveness of group prudential oversight and support the safety and soundness of the Singapore financial system. The Act provides greater clarity to the industry and other stakeholders on the rules and standards applicable to financial groups organised under FHCs in Singapore. The FHC Act is aimed at mitigating intra-group contagion risks, preventing the multiple use of capital within the group, and limiting concentration risks at the group level.
Under the FHC Act which came into force on 30 June 2022, MAS may designate a FHC that satisfies the prescribed criteria as a “designated financial holding company” (“DFHC”). The DFHC is then subject to various controls and requirements, including controls over shareholding, limits on exposures, and minimum asset and capital requirements.
What is a FHC and FHC group?
The FHC Act defines the terms “financial holding company” and “FHC group” as follows:
- Financial holding company: A holding company which has at least one subsidiary that is a bank incorporated in Singapore or a licensed insurer incorporated, formed or established in Singapore, and where such subsidiary or subsidiaries that are financial institutions account for 50% or more of the assets, capital, liabilities or revenue, of the FHC group of the holding company.
- FHC group: The FHC, its subsidiaries and any other company or entity treated as part of the FHC’s group of companies according to Accounting Standards.
The FHC Act limits DFHCs to specified permitted activities, e.g. being a holding company for its subsidiaries, acquiring or holding of shares in any company (subject to MAS approval requirements for major stakes), and carrying out activities to support the business conducted by any other company within the FHC group of the DFHC such as conducting general management, and capital and liquidity management. The approval of MAS is required for all other activities.
Changes in shareholding and control and major stakes
The FHC Act imposes certain restrictions and approval requirements for persons who become substantial shareholders of a DFHC or who cross the specified shareholding thresholds.
The FHC Act also requires prior MAS approval for acquisition of major stakes by DFHCs. This requirement does not apply to any major stake in any company that is acquired or held indirectly through a subsidiary of a DFHC if the subsidiary has obtained MAS’ approval to acquire or hold a major stake in the company.
Disclosure of interests and conflict by directors
Under the FHC Act, the directors of a DFHC need to declare as soon as practicable their direct or indirect interest in an exposure or proposed exposure of the DFHC or another company within the group of the DFHC. Further, a director of a DFHC who holds any office or possesses any property whereby, directly or indirectly, duties or interest might be created in conflict with his duties or interest as director is required to declare at a meeting of the directors of that DFHC the fact and the nature, character and extent of the conflict.
The FHC Act (1) restricts a DFHC from granting credit facilities except to any company within its FHC group or any company within the FHC group of the ultimate FHC of the DFHC, and (2) empowers MAS to limit certain exposures of a DFHC.
Minimum capital and liquid assets
The FHC Act requires a DFHC to have a minimum paid-up ordinary share capital and capital funds of not less than the highest amount of the paid-up capital which any of its subsidiaries that is a bank incorporated in Singapore or a licensed insurer incorporated, formed or established in Singapore is required to hold under the Banking Act 1970 or the Insurance Act 1966 respectively, subject to any other amount as may be required by MAS.
MAS has issued regulations providing for corporate governance requirements for DFHCs with bank subsidiary or licensed insurer subsidiary. The requirements pertain to matters such as board composition, and appointment of Nominating Committee, Remuneration Committee, Audit Committee and Risk Management Committee.
Regulations and Notices
The following regulations and order have been issued under the FHC Act:
- Financial Holding Companies (Corporate Governance of Designated Financial Holding Companies with Bank Subsidiary) Regulations 2022
- Financial Holding Companies (Corporate Governance of Designated Financial Holding Companies with Licensed Insurer Subsidiary) Regulations 2022
MAS has issued various Notices and Circular relating to FHCs including the following:
- Notice FHC-N106 Appointment of Director, Chairperson, Member of Nominating Committee, and Key Executive Person
- Notice FHC-N609 on Auditors’ Reports and Additional Information to be Submitted with Annual Accounts