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Continued from
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Amendment
of the priority ranking of deposit liabilities
Presently, both non-bank and inter-bank deposit liabilities of a
bank rank ahead of other unsecured liabilities in the event of a
winding up of a bank. In recognition that non-bank depositors are
likely to be less well informed than banks and in greater need of
protection, the Bill reorders the priority ranking under section 62
and places all non-bank deposit liabilities of a bank ahead of
inter-bank liabilities, with the latter ranking pari passu with
other unsecured creditors. This is consistent with the objective of
protecting non-bank depositors and encouraging banks to exercise
prudence and market discipline in respect of exposures to their bank
counterparties.
ENHANCING MAS' ROLE IN BANK RESOLUTION
While MAS seeks to promote and preserve stability in the
financial system through high standards of licensing, regulation and
supervision, like many reputable regulators, it does not aim to
prevent the failures of all financial institutions. Such a
"zero-failure" regime is neither feasible nor desirable as it leads
to considerable moral hazard for the regulator and places an
excessive regulatory burden on financial institutions. When dealing
with a bank in distress or insolvency, a private sector resolution
option is often preferred by regulators, but in the event that this
is not possible, international experience has shown that it is
important for the regulator to be able to take action quickly to
minimise losses to depositors and other creditors, and to maintain
stability in the financial system. The Bill will accord MAS a wider
role in the resolution process and a broader range of resolution
options.
14. Specifically, the new section 54A provides MAS the right to be
heard in insolvency proceedings of a bank and the power to approve
the appointed liquidator. Part VIIA introduced by the Bill also
empowers MAS, with the approval of the Minister in charge of MAS, to
direct the sale of the business of a bank and in the case of a bank
incorporated in Singapore, to require the issuance of new shares, to
restructure the share capital or to sell existing shares to other
investors. Before it can exercise these powers, MAS has to consider
the interests of depositors of both the transferor and transferee,
as well as the stability of the financial system in Singapore. The
affected parties will be given a right to be heard prior to the
Minister's approval of such a transfer, except where it is not
practicable or desirable to do so, for instance, where an
expeditious transfer is crucial in maintaining financial system
stability.
FACILITATING RISK-BASED SUPERVISION AND ALLOWING OPERATIONAL
FLEXIBILITY OF BANKS
Consistent with the risk-based supervisory approach adopted by MAS,
the Bill will allow the calibration of prudential requirements
according to an individual bank's financial strength, risk profile
and risk management capabilities. Let me provide a few examples.
The revised section 29 allows MAS to raise the large exposure limits
for individual banks where there are strong justifications. Under
section 40, a higher asset maintenance requirement may be imposed on
banks that pose greater supervisory concerns. The amended section
38 will allow banks the operational flexibility to draw down their
liquidity reserves to deal with liquidity stress situations. In
addition, in view of the industry's need to move nimbly in a
fast-paced environment, the new section 76A will allow MAS to grant
exemptions from requirements in the Act in specific cases where the
prudential objectives are not compromised.
EXPANDING THE REGULATORY SCOPE FOR CREDIT CARD ISSUANCE
Under the current regime, only banks and non-bank financial
institutions are subject to MAS' rules on the issuance of credit
cards. New Part VIII extends MAS' regulatory scope to all issuers
targeting the Singapore market and not just banks and financial
institutions. Entities that have not been approved to issue credit
cards in Singapore will be prohibited from soliciting for or
accepting card applications in Singapore, and this applies equally
to third parties acting on their behalf. MAS will be empowered to
inspect the operations of approved card issuers for compliance with
MAS' rules pertaining to credit card operations.
The proposed regime also clarifies that single party merchant credit
is exempted from regulation. Such an arrangement, where the card is
used only for transactions with the issuer, is essentially a
deferred payment scheme offered by merchants to their customers. In
addition, a new exemption for cards granting credit in small amounts
not exceeding S$500 will be introduced. This allows flexibility in
payments for small-ticket items without raising substantial concerns
about Singaporeans spending beyond their means.
OTHER AMENDMENTS
Let me now turn to the other significant amendments that
update the banking regulatory framework:
(a) Section 22, which
requires a bank to maintain a reserve fund, will be repealed in
light of enhancements to MAS' regulatory framework over the years,
and banks will be allowed to release their reserves over a
five-year period.
(b) Section 5, which restricts the use of the word "bank" to
protect consumers from being misled as to the status of the entity
they are dealing with, will be amended to accommodate legitimate
uses, such as representative offices of foreign banks;
international financial institutions like the World Bank, Asian
Development Bank; or where it is used in a non-financial sense,
such as "Blood Bank", "Infobank".
(c) The amendment to section 4B will provide flexibility for MAS
to exclude or include any financial product from or in the
definition of deposit. This is necessary to facilitate MAS'
response to innovative products that either legally satisfy the
definition of "deposit" but do not meet the economic
characteristics of a deposit, or conversely meet the economic
characteristics of a deposit but do not satisfy the legal
definition of "deposit". An example of the latter is a murabaha
investment - an Islamic variant of a time deposit. Products that
are prescribed as deposits will be accorded priority ranking in
the event of a bank winding-up and protection under the deposit
insurance scheme.
(d) The amendments to section 26 will permit MAS to disclose only
non-customer information provided by banks to MAS under limited
circumstances such as for the purpose of sharing aggregate
information at international fora and contributing to research
projects. This is to balance MAS' responsibility for surveillance
and supervision of the financial sector with its commitment to
preserve the confidentiality of individual banks' information.
(e) To underscore the importance of accurate reporting of
information to MAS, section 66 will be amended to extend the
obligation - currently imposed on directors and executive officers
to any person who furnishes information to MAS to exercise due
care in ensuring that it is not false or misleading.
(f) New section 54B will explicitly provide MAS with the powers to
direct the removal of directors from the board of a
Singapore-incorporated bank, if these persons fail to perform
their duties and functions, to protect public interest and
depositors. This is in line with international standards and the
practices in reputable jurisdictions.
CONCLUSION
Mr Speaker Sir, a sound and vibrant financial sector is an integral
part of ensuring the success and resilience of the Singapore
economy. These amendments to the Banking Act are part of an
on-going process to enhance the robustness and responsiveness of our
banking regulatory framework, in tandem with the growth in scope and
sophistication of the activities of the banks in Singapore.
Mr Speaker Sir, I beg to move.
Source: www.mas.gov.sg
Media Release 22 Jan 2007
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The Banking (Amendment) Bill passed
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