31 January 2018

On 3 January 2018, the Monetary Authority of Singapore (“MAS”) released a consultation paper seeking feedback on proposed revisions to the regulatory framework for large exposures of Singapore-incorporated banks. The consultation closes on 12 February 2018.

The proposed revisions take into account relevant aspects of the “Supervisory framework for measuring and controlling large exposures” (“Basel Framework”), published by the Basel Committee on Banking Supervision (“BCBS”) in April 2014. The Basel Framework seeks to limit the maximum loss that a bank faces in the event of a sudden counterparty failure, and complements the risk-based capital standard to safeguard a bank’s solvency. According to the BCBS timeline, the Basel Framework should be implemented by member jurisdictions by 1 January 2019.

MAS seeks comments on its proposals which include:

  • Tightening the large exposures limit from 25% of eligible total capital to 25% of Tier 1 capital.
  • Subjecting exposures to banks (except for intraday interbank exposures) to the large exposures limit.
  • Exempting exposures to a related corporation of the Singapore-incorporated bank that is a bank or its parent financial holding company, except exposures to the Singapore-incorporated bank’s subsidiaries which are banks with residual maturity exceeding one year.
  • A proposed limit of 15% of Tier 1 capital for a Singapore-headquartered global systemically important bank’s (“G-SIB”) exposures to another G-SIB, and the requirement to set internal limits for exposures to other systemically important financial institutions.
  • Requiring a bank to assess possible financially-dependent counterparties in all cases where the exposures to a counterparty exceeds 5% of Tier 1 capital.

Currently, the regulatory requirements on large exposures of a bank are set out in the Banking Act and MAS Notice 639 on Exposures to Single Counterparty Groups. Having considered the relevant aspects of the Basel Framework, MAS is proposing revisions which will replace the requirements currently set out in MAS Notice 639 for Singapore-incorporated banks. Banks which are incorporated outside of Singapore will continue to be subject to the requirements under the existing MAS Notice 639 until the divide between the Domestic Banking Unit and Asian Currency Unit is removed.

Implementation timeline

The proposals will apply only to Singapore-incorporated banks and are intended to be implemented from 1 January 2019.

Reference materials

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

 

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