27 April 2018
The Monetary Authority of Singapore Act (“MAS Act”) confers resolution powers on the Monetary Authority of Singapore (“MAS”) to deal with financial institutions in the event of their insolvency. These powers are broad and include the power under section 30AAS to order a transfer of all or part of the business of a financial institution. The MAS has indicated on various occasions that it is not its intent, in exercising resolution powers over financial institutions, to interfere with set-off and netting arrangements, and that an exercise of resolution powers should not defeat or otherwise affect the preservation of set-off and netting arrangements.
On 30 March 2018, the Monetary Authority of Singapore (Safeguards for Compulsory Transfer of Business, and Exemption from Moratorium Provisions) Regulations 2018 (“Regulations”) came into force and provide for safeguards should the MAS exercise its resolution powers:
- Safeguard against partial transfers: Regulation 5 provides that a partial transfer of the business of a transferor under section 30AAS of the MAS Act must not provide for the transfer of some, but not all, of the protected rights and liabilities between a particular person (“P”) and the transferor.
Rights and liabilities between P and the transferor are protected if (i) they are rights and liabilities that arise from one or more financial contracts between them, and (ii) they are rights and liabilities which either P or the transferor is entitled to set-off or net under a set-off arrangement, netting arrangement or title transfer arrangement.
“Financial contracts” is defined to mean securities contracts, derivatives contracts, securities lending and repurchase agreements and spot contracts.
The effect of this safeguard is that rights and liabilities relating to a financial contract which P and the transferor are entitled to set-off or net may only be transferred together as a whole to a transferee, or not at all. This prevents the selective choosing of specific transactions during a compulsory transfer of business by the MAS, provided these transactions fall within the definition of a “financial contract”, thereby protecting a compulsory transfer of business from disrupting close-out netting under a netting arrangement.
- Safeguard for secured liabilities: Regulation 8 provides a safeguard for liabilities that are secured against any property or rights by providing that a partial transfer of the business of the transferor under section 30AAS of the MAS Act must not provide for:
- the transfer of the liability without the benefit of the security;
- the transfer of the benefit of the security without the liability; or
- the transfer of the property or rights without the liability and benefit of the security.
This effectively means that security must be transferred together with secured liabilities.
- Other safeguards: Other safeguards relate to rights and liabilities of a transferor arising from clearing and settlement arrangements of market infrastructures and rights and liabilities of a transferor arising from transfer orders under designated systems and are aimed at preventing the disruption of such clearing and settlement arrangements or the operation of designated systems during a partial transfer of business.
The Monetary Authority of Singapore (Safeguards for Compulsory Transfer of Business, and Exemption from Moratorium Provisions) Regulations 2018 are available from the Singapore Statutes Online website sso.agc.gov.sg by clicking here.