30 October 2018
From 3 January 2018 to 12 February 2018, the Monetary Authority of Singapore (“MAS”) conducted a consultation exercise on proposed revisions to the large exposures framework for Singapore-incorporated banks. On 31 August 2018, MAS issued its Response to the feedback received from the earlier consultation.
MAS stated in its Response that it will implement revised large exposure requirements for Singapore-incorporated banks with effect from 30 September 2019.
These requirements are consistent with the “Supervisory framework for measuring and controlling large exposures” (“Basel Framework”) published by the Basel Committee on Banking Supervision (“BCBS”). 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.
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. MAS will revise the large exposures requirements for Singapore-incorporated banks. The revised large exposure requirements will not be applicable to banks which are incorporated outside Singapore and they will continue to be subject to the requirements under the existing MAS Notice 639 on Exposures to Single Counterparty Groups until the divide between the Domestic Banking Unit and Asian Currency Unit is removed.
Some key features of the revised large exposures requirements for Singapore-incorporated banks are as follows:
- The large exposures limit (“LEL”) will be tightened from 25% of eligible total capital to 25% of Tier 1 capital.
- MAS will subject all exposures to banks (except for intraday interbank exposures) to the LEL.
- Singapore incorporated-banks are to set internal limits for their exposures to systemically important financial institutions (“SIFIs”). While breaches of internal limits are not regulatory breaches, MAS expects banks to institute proper risk management systems and controls to manage their exposures to SIFIs in accordance with their internal framework and policies. Notwithstanding such internal limits, banks will be required to ensure that their exposures to SIFIs are in compliance with the LEL at all times.
- MAS will require aggregation on the basis of economic interdependence between counterparties. Banks will be required to conduct due diligence to identify connected counterparties on the basis of economic interdependence for any single counterparty whose exposures exceed 5% of Tier 1 capital, in line with the Basel Framework.
- MAS will not require exposures to a counterparty that is directly controlled by or directly economically interdependent on a central government or central bank to be aggregated with exposures to the same central government or central bank. Such counterparties can also be treated as separate entities for the purposes of compliance with the LEL, unless they are otherwise connected due to another control or economic interdependence relationship.
- MAS will remove the substantial exposures limit.