26 July 2018

On 16 July 2018, the Monetary Authority of Singapore (“MAS”) issued a consultation paper on “Proposed Regulations to Enhance Resolution Regime for Financial Institutions in Singapore”, seeking feedback on proposed regulations to support amendments introduced by the Monetary Authority of Singapore (Amendment) Act 2017 (“Amendment Act”) which enhance the resolution regime for financial institutions (“FIs”) in Singapore. MAS proposes to amend the Monetary Authority of Singapore (Control and Resolution of Financial Institutions) Regulations 2013 (“Regulations”) and issue new regulations under the Deposit Insurance and Policy Owners’ Protection Schemes Act. The consultation closes on 16 August 2018.

Temporary stays on termination rights

Excluded entities

MAS proposes to amend the Regulations to exempt central banks, designated payment systems, approved clearing houses, recognised clearing houses and depositories from the operation of the temporary stay on termination rights.

Contractual recognition requirement for contracts governed by foreign law

MAS proposes a contractual recognition requirement to ensure that certain contracts governed by foreign laws contain enforceable provisions the effect of which is that all the parties to the contract agree that their exercise of termination rights may be subject to MAS’ temporary stay powers. Details of the types of entities this requirement applies to are set out in the proposed Regulations.

Statutory bail-in regime

MAS will amend Part III of the Regulations to prescribe Singapore-incorporated banks and bank holding companies as the FIs subject to the statutory bail-in regime.

The proposed revised Regulations will also:

  • set out the information to be specified in the bail-in certificate to be issued by the Minister for Finance (“Minister”) in the event the Minister approves a bail-in of eligible instruments;
  • require contractual recognition provisions for liabilities which fall within the scope of MAS’ statutory bail-in powers but which are governed by foreign laws; and 
  • require Singapore-incorporated banks and bank holding companies to disclose, on the front cover of any offering document related to an eligible instrument, the consequences of a bail-in to debt holders for liabilities within the scope of MAS’ statutory bail-in powers.

Creditor compensation framework

The Amendment Act provides for a compensation framework under which creditors and shareholders who do not receive under the resolution of an FI at least what they would have received had the FI been liquidated will be eligible for compensation of the difference.

The proposed Regulations prescribe the details of the creditor compensation framework, including:

  • the scope of FIs covered by the framework; 
  • the form, manner and timing for payment of compensation; 
  • the criteria for the appointment of a valuer who will determine the eligibility of and compensation amount for each creditor or shareholder, and the valuation principles which the valuer must follow; and 
  • the information that a valuer must specify in the valuation report.

Safeguards on covered bond programmes

Since the promulgation of the Monetary Authority of Singapore (Safeguards for Compulsory Transfer of Business, and Exemption from Moratorium Provisions) Regulations 2018 (“Safeguard Regulations”), which introduced safeguards in relation to MAS’ powers to compulsorily transfer the business of a pertinent FI under the existing Division 2 of Part IVB of the Monetary Authority of Singapore Act, MAS has identified covered bond programmes as an arrangement that could be affected by the exercise of powers to carry out a partial transfer of business. MAS proposes to introduce a safeguard to protect the integrity of covered bond programmes.

The Safeguard Regulations will be repealed and the provisions therein consolidated within the Regulations.

Resolution funding arrangements

MAS proposes to issue new regulations on the valuation principles for calculating an equivalent cost, where the Deposit Insurance Fund (“DI Fund”) is used to provide temporary liquidity support for the resolution of a Deposit Insurance Scheme Member (“DI Scheme Member”). The equivalent cost criterion aims to cap the amount drawn on the DI Fund for resolution at the amount that would have been paid out to the DI Scheme Member’s depositors had that DI Scheme Member failed.

Reference materials

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

 

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