Banks will need to include bail-in recognition provisions in certain regulatory capital instruments not governed by Singapore law. New approval and notification requirements also applied to banks as from 30 November 2018. These include a new requirement to inform the MAS of any development that is likely to materially affect adversely the bank, any entity in its bank group or any entity in its financial holding company group.
Two recent changes to the law have been made that have an impact on banks in particular:
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The new resolution framework for financial institutions was implemented by the Monetary Authority of Singapore (MAS) with effect from 29 October 2018; and
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The Banking (Amendment) Act 2016 (Banking Amendment Act) which came into force on 30 November 2018 imposed several new approval and notification requirements on banks (among other things).
The new financial institution resolution framework
Various provisions of the Monetary Authority of Singapore (Amendment) Act 2017 (MAS Amendment Act) came into force on 29 October 2018, together with the Monetary Authority of Singapore (Resolution of Financial Institutions) Regulations 2018 and the Monetary Authority of Singapore (Control of Financial Institutions) Regulations 2018.
Among the provisions of the MAS (Amendment) Act 2017 that came into force on 29 October 2018 were those implementing the new financial institution resolution framework on bail-in rights and a temporary stay on termination rights. It should be noted, however, that while the provisions of the MAS (Amendment) Act empowering the MAS to temporarily suspend termination rights for contracts of a pertinent financial institution have come into force, the MAS has decided to delay its proposed implementation of a requirement for pertinent financial institutions to include provisions in their contracts recognizing the temporary stay on termination rights. It intends to consult further with industry players on the scope and application of this requirement.
The power of the MAS to order bail-in as part of the resolution of a financial institution has also come into force. The power is exercisable only in relation to a bank incorporated in Singapore and a holding company incorporated in Singapore that has at least one subsidiary that is a bank incorporated in Singapore. Such entities will need to include a provision in certain specified instruments stating that the parties to the agreement agree to be bound by a bail-in certificate issued by the MAS. The requirement applies to instruments issued after 29 November 2018 which are not governed by Singapore law.
The instruments that require the inclusion of a bail-in recognition provision are essentially those issued for the purposes of regulatory capital and are specified to be as follows:
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Any equity instrument or other instrument that confers or represents a legal or beneficial ownership in the financial institution, except an ordinary share;
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Any unsecured liability or other unsecured debt instrument that is subordinated to unsecured creditors’ claims of the financial institution that are not so subordinated; and
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Any instrument that provides for a right for the instrument to be written down, cancelled, modified, changed in form or converted into shares or another instrument of ownership, when a specified event occurs.
Derivatives contracts are specifically excluded.
New matters for which approval will be required under the Banking Amendment Act
Under the Banking Amendment Act, new requirements for obtaining approval from the MAS have been imposed:
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A person that opens a representative office for banking business must register with and obtain the approval of the MAS before doing so.
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Banks must obtain the approval of the MAS for places where they intend to conduct businesses other than banking business (in addition to the former requirement in relation to banking business).
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A bank needs to seek approval for acquiring a major stake in any entity, not just companies (as was previously the case).
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A bank incorporated in Singapore must seek the approval of the MAS before appointing any director, the chairman of the board of directors, the chief executive officer, and the deputy chief executive officer. A bank incorporated outside Singapore must seek the approval of the MAS for the appointment of the chief executive officer and the deputy chief executive officer of its bank in Singapore.
New matters for which notification to the MAS is required under the Banking Amendment Act
New requirements for notifying the MAS have been imposed:
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A bank incorporated in Singapore or a financial holding company must notify the MAS when it becomes aware that a person became its substantial shareholder or controller without first seeking the Minister’s approval, or that a substantial shareholder or controller of the bank or company is not a fit and proper person to be such substantial shareholder or controller.
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A bank must inform the MAS of any development that is likely to materially affect adversely the bank. A bank incorporated in Singapore must additionally also inform the MAS of any development that is likely to materially affect adversely any entity in its bank group or its financial holding company group.
New powers for the MAS under the Banking Amendment Act
The powers of the MAS have been extended to include the power to do any of the following:
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Impose certain prudential requirements on banks, in order to implement the international banking regulatory framework known as Basel III;
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Require a bank (or class of banks) to disclose to the public information relating to its operations and activities and the manner it complies with the banking regulatory regime (among other matters);
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Conduct supervisory inspections of local subsidiaries of banks incorporated in Singapore whether the inspection is carried out in Singapore or overseas;
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Require a bank to incorporate its banking business in Singapore in order to enhance depositor protection;
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Collect information from persons carrying on the business of issuing credit cards and charge cards;
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Declare a part of a day as a bank holiday, and to prohibit specific activities, rather than all activities, by a bank during a bank holiday;
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Make regulations to require banks to implement risk management systems and controls; and
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Direct a bank to take certain actions in relation to transactions which are detrimental to the interests of depositors of banks.
Other miscellaneous matters under the Banking Amendment Act
The following additional matters are noteworthy:
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Provisions as to the duties of auditors of banks have been made more stringent, including enabling the MAS to require a bank to remove an auditor whose performance is not satisfactory and to make it a criminal offence for an auditor to not carry out any duty imposed on it by the MAS. The amendment also grants immunity to an auditor for disclosing information on the bank to the MAS.
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Bank directors are currently liable for their banks’ losses arising from the granting of unsecured credit or exposures to the banks’ director groups. These provisions will be repealed and liability will no longer arise.
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Licensed credit card or charge card issuers must get the approval of the MAS to open a new place to conduct business.
