20 December 2018

Following amendments to the Banking Act, banks in Singapore are now subject to enhanced prudential safeguards, corporate governance and risk management controls. The changes align the regulatory and supervisory framework of the Monetary Authority of Singapore (“MAS”) with international best practice.

The following are the key changes which came into force on 30 November 2018.

Enhancing prudential safeguards

The two main measures introduced to strengthen prudential safeguards and enhance depositor protection are as follows:

  • MAS may require incorporation and transfer of business: MAS is empowered under the Banking Act to direct a bank incorporated outside Singapore to transfer all or part of its banking business in Singapore to a company incorporated in Singapore by the bank or its parent bank. MAS may so direct if it is of the opinion that it is necessary or expedient in the public interest, or that it is in the interest of the bank’s depositors or the financial system in Singapore. The requirement for Singapore incorporation is a useful prudential measure as a bank incorporated in Singapore will have to comply with Singapore’s capital standards and corporate governance requirements.
  • Leverage ratio requirement: MAS is empowered to require any bank incorporated in Singapore or any class of banks incorporated in Singapore, to maintain a minimum leverage ratio of a specified percentage. This is to ensure they maintain sufficient liquidity in line with international standards.

Strengthening corporate governance

The corporate governance of banks is enhanced in the following ways:

  • Removal of directors and executive officers: MAS is empowered to direct the removal of a director of a bank in Singapore which is incorporated in Singapore, or an executive officer of a bank in Singapore, if MAS is of the view that he is not a fit and proper person. The amendment aligns the grounds for removal of such persons with the criteria for approving their appointment. To enhance MAS’ oversight of these appointments, a bank, whether incorporated in Singapore or outside Singapore, must immediately inform MAS after it becomes aware that a key office holder (e.g. the chief executive officer) is, in accordance with the MAS Guidelines on Fit and Proper Criteria (“Fit and Proper Guidelines”), no longer a fit and proper person to hold that office or appointment. 
  • Disclosure of information by auditors to MAS not a breach of disclosure restrictions: Where a bank’s external auditor discloses information to MAS in good faith as part of its reporting obligations, the disclosure is not to be treated as a breach of any restriction on the disclosure imposed by any law, contract or rules of professional conduct, and the auditor is not liable for any loss arising from the disclosure. Further, if MAS is not satisfied with the performance of any duty by a bank’s external auditor, MAS may direct the bank to remove the auditor and appoint another auditor approved by MAS.
  • MAS may prohibit, restrict or direct bank to terminate transactions with related parties: MAS is empowered to prohibit, restrict or direct a bank to terminate any transaction that the bank enters into with its related parties if it appears to MAS to be detrimental to depositors’ interests.

Ensuring adequate risk management controls

Measures in the Banking Act to strengthen risk management controls include the following:

  • MAS may make regulations regarding the risk management of banks: MAS may make regulations for or with respect to the risk management of banks. This formalises MAS’ expectation for banks to implement risk management systems and controls that are commensurate with their business profiles and operations. 
  • Prior MAS approval to establish new places of business for non-banking activities: Banks are required to obtain MAS’ approval to establish new places of business where non-banking activities (such as money-changing and remittance) are conducted. The improves MAS’ oversight of banks’ activities, such as by ensuring that the bank implements adequate measures to prevent money laundering and terrorism financing before commencing business at new locations.

Other amendments

In order to enable MAS, as bank supervisor and regulator, to take timely and appropriate supervisory action, the Banking Act requires MAS to be immediately informed of certain occurrences including: 

  • Any development that may materially affect a bank adversely, and in the case of a Singapore incorporated bank, any development that may materially affect the bank or its related entities adversely. Examples of such developments are those that materially affect adversely the financial soundness or reputation of the bank. 
  • In the case of Singapore incorporated banks:
    • Failure by a person to obtain the prior approval of the Minister for Finance before becoming a substantial shareholder, a 12% controller, a 20% controller or an indirect controller of the bank (as defined in the Banking Act);
    • A person is, in accordance with the Fit and Proper Guidelines, not a fit and proper person to be a substantial shareholder, a 12% controller, a 20% controller or an indirect controller; or
    • The bank is not likely to be able to conduct its business prudently or to comply with the provisions of the Banking Act having regard to the likely influence of a substantial shareholder, a 12% controller, a 20% controller or an indirect controller.

MAS is empowered to conduct an inspection outside Singapore of the books of a subsidiary of a bank incorporated in Singapore. Further, a new provision enables the parent supervisory authority of a merchant bank incorporated outside Singapore or a foreign-owned merchant bank incorporated in Singapore to inspect the books of any branch or office of that merchant bank in Singapore, upon MAS’ approval. These changes facilitate the consolidated supervision of internationally active banks.

Reference materials 

The Banking (Amendment) Act 2016 can be accessed from the Singapore Statutes Online website sso.agc.gov.sg.


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