MAS seeks further comments on scope of application of Guidelines on Individual Accountability and Conduct to financial institutions

30 July 2019

Following its first public consultation in April 2018 on proposed Guidelines on Individual Accountability and Conduct (“IAC Guidelines”), the Monetary Authority of Singapore (“MAS”) has issued a second consultation paper seeking feedback on the scope of application of the IAC Guidelines and the revised list of financial institutions (“FIs”) that will be subject to the IAC Guidelines. The consultation closed on 22 July 2019. In summary, MAS proposes to extend application of IAC Guidelines to all FIs regulated by MAS. Certain entities will not be subject to IAC Guidelines given limited scope of activities, minimal presence in Singapore, or regulation by a foreign regulator. Smaller FIs, such as those with a headcount of less than 20, will not be expected to adopt specific guidance in IAC Guidelines.

MAS has also issued its Response to the feedback received on the first public consultation. In its Response, MAS states that it will implement the IAC Guidelines with a transitional period of one year after the IAC Guidelines are published.

Background

From 26 April 2018 to 25 May 2018, MAS conducted a public consultation on the IAC Guidelines. The IAC Guidelines seek to strengthen accountability and standards of conduct across the financial industry. Specifically, IAC Guidelines aim to promote the individual accountability of senior managers, strengthen oversight of material risk personnel (“MRPs”) and reinforce standards of proper conduct among all employees.

The IAC Guidelines set out five outcomes (“Outcomes”) that an FI is expected to work towards:

  • 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. Core functions include but are not limited to the Core Management Functions (“CMFs”) listed in the first consultation paper. 
  • 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: An 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: MRPs 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 desired conduct among all employees.

Expanded scope of application of IAC Guidelines

In the first consultation paper, MAS proposed to apply the IAC Guidelines to the following FIs:

  • banks, merchant banks or finance companies; 
  • Singapore insurers or foreign insurers operating in Singapore under the foreign insurer scheme established under section 35B of the Insurance Act; 
  • approved exchanges or approved clearing houses;
  • approved holding companies;
  • holders of a capital markets services licence or financial advisers; and
  • trust companies.

In the second consultation paper, having received feedback to expand the application of the IAC Guidelines to a wider scope of FIs, MAS proposes to extend the IAC Guidelines to all FIs regulated by MAS, subject to certain exceptions. These FIs include:

  •  person licensed to carry on the business of issuing credit cards or charge cards in Singapore;
  •  registered insurance broker;
  • designated financial holding company under the Financial Holding Companies Act 2013;
  • registered fund management company exempted from holding a capital markets services licence;
  • person approved to act as a trustee of an authorised collective investment scheme constituted as a unit trust;
  • recognised market operator that is incorporated in Singapore;
  • recognised clearing house that is incorporated in Singapore;
  • the Central Depository System;
  • licensed trade repository;
  • authorised benchmark administrator or exempt benchmark administrator;
  • authorised benchmark submitter or designated benchmark submitter;
  • operator of designated payment systems under the Payment Systems (Oversight) Act (“PSA”);
  • holder of an approved stored value facility under the PSA;
  • licensee and regulated entity under the Payment Services Act 2019;
  • licensee under the Money-changing and Remittance Businesses Act; and
  • licensed credit bureau.

Certain entities will not be subject to the IAC Guidelines given their limited scope of activities, minimal presence in Singapore, or regulation by a foreign regulator. Examples of such entities are exempt financial advisers and exempt corporate finance advisers, and a foreign incorporated recognised market operator which operates in a market overseas.

MAS has also clarified that it will not ordinarily expect smaller FIs, such as those with a headcount of less than 20, to adopt the specific guidance described under the five Outcomes.

MAS Response

The following are highlights from the MAS Response.

Implementation approach

  •  Proportionality and MAS’ supervisory and enforcement approach: MAS explained that under the Outcomes-based approach of the IAC Guidelines, FIs have the flexibility to establish policies and procedures to achieve the five Outcomes as appropriate to the nature, size and complexity of their operations. MAS will adopt a proportionate approach in engaging FIs on their implementation of the IAC Guidelines and FIs should be ready to demonstrate to MAS how the Outcomes are achieved. In this regard, FIs should not take a mechanistic or check-list approach towards implementing the IAC Guidelines. 
  • Professional indemnity insurance: MAS has stated in its Response that FIs should avoid arrangements that undermine the accountability of senior managers, such as insurance or other agreements that have the effect of indemnifying senior managers or other employees against financial penalties for misconduct or other offences. 
  • Group application for local bank and insurance groups: MAS had proposed to apply the IAC Guidelines on a group basis for locally-incorporated banks and insurers. In its Response, MAS explained that, for locally-incorporated banks and insurers (“parent bank or insurer”), the specification of senior managers’ responsibilities should include those in respect of both the operations of the parent bank or insurer and, where relevant, those of the group. Material aspects of the group’s operations would include significant downstream subsidiaries or other entities (“downstream entities”), whether located in Singapore or overseas. In identifying significant downstream entities, the parent bank or insurer may consider a range of metrics, e.g. contribution to the group in terms of assets, profit, gross premium, or assets under management. The CEO or equivalent of each significant downstream entity should be designated as a senior manager. For the downstream local FIs, the IAC Guidelines continue to apply at the entity level.

Individual accountability of senior managers

MAS had proposed that FIs should identify senior managers who are responsible for functions that are core to the FI’s operations, including but not limited to those performing the CMFs listed in the first consultation paper, and clearly specify their individual responsibilities.

  • Definition of senior managers: Whilst senior managers under the IAC Guidelines refer to the individuals who are principally responsible for managing the FI’s day-to-day operations in Singapore, MAS has clarified that they may not necessarily be employees of the FI in Singapore. Senior managers who are based overseas can be responsible for the day-to-day operations of the FI in Singapore under a regional or global management arrangement. Further, depending on the FI’s scale, complexity and governance arrangements, a senior manager need not necessarily be a member of the executive or management committee. Ultimately, it is for each FI to identify its senior managers who are in substance responsible for running the FI’s on-going operations in Singapore. 
  • Multiple CMFs and shared responsibilities: MAS has clarified that a senior manager can be responsible for more than one CMF provided his responsibilities for each of these CMFs are clearly specified and there is no conflict of interest inherent in or arising from simultaneously performing these CMFs. FIs may also adopt shared responsibility structures where appropriate and justified. In such cases, two or more senior managers may share responsibility for a function within the FI provided this does not result in a dilution of responsibilities or accountability for that function. 
  • Managing outsourced core functions: MAS has explained that the IAC Guidelines build on the responsibilities of the Board and senior management as articulated in the MAS Guidelines on Outsourcing. Consistent with the Guidelines on Outsourcing, where functions which are core to the FI’s operations have been outsourced, whether wholly or partially, the designated senior managers should continue to be held responsible for the management of these core functions.

Oversight of MRPs

MAS had proposed that FIs should identify individuals with authority to make decisions or conduct activities that can significantly impact the FI’s safety and soundness, or cause harm to a significant segment of the FI’s customers or other stakeholders. 

  • Identifying MRPs: MAS has clarified that it is the individuals, rather than functional units, that form the basis for identifying personnel in material risk functions (“MRFs”). Individuals performing MRFs refer to personnel whose decisions or activities could materially impact an FI’s risk profile. Such individuals will be referred to as MRPs and MAS will adopt this revised terminology in the IAC Guidelines. In identifying MRPs, FIs should establish criteria that consider the financial and non-financial risks which the FI is or may be exposed to, and the materiality of the impact that an individual’s decisions or activities could have on this risk profile. 
  • MRPs to be fit and proper: In assessing the fitness and propriety of MRPs, FIs may apply the MAS Guidelines on Fit and Proper Criteria and such other factors that the FI determines to be relevant, considering the nature and risk implications of the particular mandates or authority vested with the MRP. FIs should review their senior managers for fitness and propriety on an annual basis at the minimum, or as and when matters arise which affect an MRP’s fitness and propriety.

Framework for proper conduct among employees

MAS had proposed that FIs should put in place a framework to address, among other things, standards of conduct expected of all employees, such as standards on honesty, due care and diligence, and fair dealing. 

  • Framework: The FI’s conduct framework should be integrated with HR processes over the employee life cycle. Codes of conduct, which are a common tool for articulating the behavioural expectations of employees, should clearly and comprehensively set out the standards that all employees are held to. 
  • Whistleblowing programme: FIs should have a formal whistleblowing policy that sets out the availability of whistleblowing channels, process for raising concerns via these channels, and procedures that the FI will take in response to complaints made through these channels. Employees should be made aware of the whistleblowing policy, which should offer employees anonymity and protection from negative consequences for whistleblowing. 
  • Notifying MAS of material adverse developments: In its Response, MAS has provided additional guidance on the matters that would be considered as “material adverse developments”. MAS should be notified of material adverse developments as soon as possible.

Reference materials

The following materials are available on the MAS website www.mas.gov.sg:

 

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