MAS to ensure Capital Strength for Singapore Banks

On 28 June 2011, MAS announced that it will require Singapore-incorporated banks to meet capital adequacy requirements that are higher than the Basel III global capital standards. MAS will require Singapore-incorporated banks to meet a minimum Common Equity Tier 1 (“CET1”) capital adequacy ratio (“CAR”) of 6.5%, Tier 1 CAR of 8% and Total CAR of 10% from 1 January 2015. These standards are higher than the Basel III minimum requirements of 4.5%, 6% and 8% for CET1 CAR, Tier 1 CAR and Total CAR, respectively.

MAS will also require Singapore-incorporated banks to meet the Basel III minimum capital adequacy requirements from 1 January 2013, two years ahead of the Basel Committee on Banking Supervision’s 2015 timeline.

The Basel III capital standards also seek to improve the consistency, transparency and quality of the capital base and strengthen the risk coverage of bank capital rules. MAS plans to adopt these standards and will consult on the text of its rules later this year.

Further details are available here.

MAS issues Tenets of Effective Regulation

On 8 June 2010, The MAS issued a monograph “Tenets of Effective Regulation”. The guide lays out out how MAS designs and formulates regulation, and explains its regulatory approach. The six Tenets are:

Tenet 1: Outcome Focused
Tenet 2: Shared Responsibility
Tenet 3: Risk Appropriate
Tenet 4: Responsive to Change and Cycles
Tenet 5: Impact Sensitive
Tenet 6: Clear and Consistent

Teo Swee Lian, Deputy Managing Director, MAS, said, “Success in achieving effective regulation requires more than MAS setting demanding standards of itself. Industry has a critical role to play by taking shared responsibility for and ownership of the regulatory objectives, as well as instituting high standards of governance and controls for itself.  Articulating this set of Tenets is a further step towards fostering shared understanding and ownership of our regulatory approach and objectives.”

The monograph on "Tenets of Effective Regulation" is available on MAS’ website.

MAS issues consultation paper on Code of Collective Investment Schemes

On May 17, the MAS issued a consultation paper on the Code of Collective Investment Schemes. The paper focuses on investment guidelines and on ensuring that the regulatory regime for CIS keeps pace with product innovation and industry developments, as well as regulatory developments in major fund jurisdictions.

The proposed amendments include:

1. Introducing a list of permissible investments and accompanying criteria to enhance clarity in the application of the liquidity and diversification limits
2. Strengthening safeguards on the use of financial derivatives through prescription of counterparty limits and acceptable forms of collateral used to mitigate counterparty risks. 
3. Introducing additional guidelines on the use of the commitment approach and Value-at-Risk (VaR) method.
4. Enhancing existing guidelines on funds’ securities lending activities through comprehensive requirements on the counterparty, custodian and the use of collateral.
5. Establishing new investment guidelines for funds seeking to track indices, introducing principles for the naming of funds and requirements to standardise the methods used for calculating performance fees. 
6. Modifying existing operational requirements, including allowing the sending of accounts and annual reports to unitholders by electronic means.

Comments are due to MAS by 25 June 2010.

For further information please use the following link CIS Consultation Paper

MAS releases consultation paper on changes to hedge fund manager regime in Singapore

In 2009, the Monetary Authority of Singapore or MAS consulted with industry about potential changes to the system of registering hedge fund managers and advisors in Singapore.  Singapore had a registration system where a firm dealt with less than 30 funds and both its clients and the investors in those funds were accredited investors, essentially high net worth or institutional.

This contrasted with the Hong Kong system which really did not distinguish between a large fund manager and a smaller startup.  Both firms needed licensing from the Hong Kong SFC prior to commencing business.

The 2009 consultations lead to a concern that the MAS may make substantial changes to the existing system that would result in a large number of closures of managers in Singapore.  However up until yesterday nothing had ever been formally published by the MAS and frankly all that was available to market participants was speculation and some educated guesswork.

Yesterday the MAS published its consultation paper and an appendix.

The proposed changes would result in a three tier system consisting of a continuation of the notification system for managers managing or advising less than SGD250m (approx USD182m) where they only have professionals in their funds, a licensing system for firms above that amount who deal with professionals and a third category for firms who wish to deal with retail, ie non high net worth, non institutional investors.

Depending on which of the three categories firms fall into they will have specific additional compliance requirements under the new proposed rules.

Later today a representative from the MAS is speaking at a seminar in Singapore organised by Clifford Chance.  It will be interesting to see whether anything more is discussed about the new proposals.

The consultation paper also deals with some other prospective changes to the regulatory environment in Singapore relating to leveraged forex and an exemption that is currently in force that will be removed.

Timing wise the roll out of the changes, if they are effected, is likely to take a little while as legislative changes will need to be passed.  Our best guess at present is that this is a 2011 roll out but we are sure to learn more over the next few weeks.

Singapore about to issue public consultation on asset management

During 2009 there was a lot of talk about changes to the Singapore exempt asset management designation that had seen the creation of a vibrant community of some 500 hedge fund management and advisory firms in Singapore.

Yesterday Bloomberg reported that a consultation paper would be issued within the next two weeks.  The Bloomberg article is here.

This is welcome news as the Monetary Authority (who are the regulator in this instance) have already implemented a number of changes in the way that they process new entrants into the Singapore exempt regime and the consultation, and ultimately any changes, would be expected to level the playing field and provide a more certain regulatory outlook for all firms wanting to do run a business from Singapore.

Singapore has many strengths as a hub for asset management including its substantial private banking and wealth management industry, the presence of major sovereign wealth funds and a safe and pleasant working environment all wrapped up in a business friendly tax environment.

We look forward to a review of the proposed changes and, given the history of Singapore, we are confident that they will be pragmatic and attractive while maintaining adequate protections for those investors that need it.

MAS issues Corporate Governance Consultation Paper

On 18 March 2010 MAS issued a consultation paper that sets out proposed enhancements to the MAS Corporate Governance (CG) Framework which comprises the Regulations and Guidelines for locally-incorporated banks, financial holding companies and direct insurers.

The proposals focus on the importance of the role of the Board (and specifically independent directors) and the need for directors to be equipped with the appropriate skills and have the commitment to oversee the operations of the financial institutions. Key proposals in the consultation paper include, but are not limited to: 

(i) Continuous Development
Assessment of the current skills of the Board on an annual basis and establishment of a continuous development programme for its directors.

(ii) Director Independence
 A director will be considered non-independent after he/she has served on the Board for a continuous period of nine years.

 (iii) Composition of Board and Board Committees
To raise the number of independent directors on the Board, and major committees from one third to a majority.

 (iv) Governance over Risk Management
The Board must establish a dedicated risk management committee and financial institutions must seek MAS’ approval for the appointment of the Chief Risk Officer.

Detailed proposals relating to the Regulations and Guidelines of the CG Framework are contained in the consultation paper.

Comments are due to MAS by 19 April 2010.

To view the press release from MAS please use the following link Corporate Governance Consultation Paper Press Release

MAS issues statement on Minibond distributions

On 3 February 2010, MAS issued a statement on Minibond Distributions. In their statement MAS welcomed the announcement by the three partners of PricewaterhouseCoopers LLP appointed as receivers for the Minibond notes, and HSBC Institutional Trust Services (Singapore) Limited, the trustee for the notes, that distribution of the recovery values of the Minibond notes to investors will be made on 12 February 2010.

All investors holding the Minibond notes will receive the recovery value for the notes they hold (which is based on the series of notes that were purchased). The total amount received by each investor will depend on the recovery value, as well as the outcome of the dispute resolution process.  This is in line with the approach for financial institutions that distributed the notes to review complaints on a case-by-case basis, and to make settlement offers according to the facts and circumstances of each investor and transaction.

MAS reported that taking into account the recovery values of the notes and the settlement offers that have been accepted, 80% of retail investors will receive 50% or more of their investment back. 

For further information please see MAS Minibond distribution release

MAS Issues Second Part of Response to Feedback on Proposals to Strengthen the Regulation of the Sale and Marketing of Unlisted Investment Products

On 28 January MAS issued the second part of its response to public feedback on its Proposals to Strengthen the Regulation of the Sale and Marketing of Unlisted Investment Products which was issued in March 2009.

The second part of MAS’ response focuses on

• introducing a definition of  "complex investment products", risk rating of retail investment products, mandatory advice for the sale of complex investment products, and “health warnings” for complex investment products;
• remuneration structures for the sale of investment products;
• appointing an approved trustee for unlisted debentures; and
• strengthening MAS' powers to investigate and take regulatory actions 

Full details of the second part of the response can be found on the MAS website or with the following link Second Part of Response

In their response, MAS has largely not proceeded with the original proposals. They have instead issued another consultation paper. The main exception to this is the appointment of an approved trustee for unlisted debentures. In its response MAS says ”Accordingly, we will proceed with the requirement for issuers of unlisted debentures, where the offers require a prospectus to be issued, to appoint a trustee. MAS considers that the same requirement should also apply to all listed debentures as there is a similar need for a trustee to take actions on behalf of the individual retail debt holders involved. In addition, where the debentures are issued by SPVs or are secured on collateral, we will require the appointed trustee to be based in Singapore” MAS has however, given some relief from the ‘approved trustee’ requirement.

MAS have also reviewed its powers and will be consulting further, especially with regard to the civil liability provisions of the SFA

MAS Speech on Corporate Governance

On 19 November 2009 Mr. Heng Swee Keat, Managing Director, Monetary Authority of Singapore delivered the key note address at the 2009 Asian Investors' Corporate Governance Conference in Singapore. His speech focused on corporate governance as an ongoing concern; corporate governance and the financial crisis and the Code of Corporate Governance (‘the Code’).

Mr Heng gave a timeline of the development of the Code in Singapore with MAS and the SGX now having responsibility for listed companies under the Code. He also highlighted that during a review in 2007 there were significant gaps found in audit committees, their training and effectiveness in particular, resulting in the release of audit committee guidelines in 2008. To complete this section of his speech, Mr Heng proudly remarked that Singapore is ranked first in corporate governance standards in Asia according to The World Economic Forum's Global Competitiveness Report 2009.

Mr Heng then commented on risk management, in particular risk appetite, and remuneration, noting that they have been the most significant aspects of corporate governance that have contributed to the current financial crisis.  He said that remuneration had been so closely tied to short term gains and under such circumstance it is inevitable that there would be high risk taking. He highlights that some jurisdictions considering the empowerment of shareholders in the remuneration of executives to aid in reducing the high risk levels. Mr Heng reports that MAS is undertaking its own review of Corporate Governance frameworks for locally incorporated banks and insurers with focus on risk management and remuneration alignment.

However Mr Heng believes there is no time for Singaporean companies to become complacent even though there are generally good corporate governance practices. He announced that there will be a Corporate Governance Council (‘the Council’) formed, made up of public and private sector members, which will be charged with promoting “a high standard of corporate governance in companies listed in Singapore so as to maintain and enhance investors' confidence”. The Council’s responsibilities will include, but not be limited to, professional development and guidance for Board members and review of the Code. Further details would be released in early 2010.

Mr Heng concluded his speech by encouraging advocacy bodies, such as the Securities Investors Association of Singapore, to continue to demand good corporate governance and emphasize ethical and responsible corporate cultures. 

For the full text of Mr Heng’s speech please refer to MAS Corporate Governance Speech

IMF Speech to the MAS

On 13 November 2009, Dominique Strauss-Kahn, Managing Director, International Monetary Fund delivered a speech to the MAS. His speech focused on the role of Asia in the post crisis world economy.

Of particular note in his speech Mr Strauss-Kahn, highlighted that Asia as a whole has been able to maintain sustained growth over the last decade due to sound macroeconomic management and structural reforms. It is this strength that he feels will make Asia a leader for the world as it recovers from the crisis.  

He speaks of Singapore specifically when discussing rebalancing of individual country economies, regional economies and the global economy, noting that “Its economy is extremely open - gross capital flows are roughly the same as GDP, while exports and imports together account for about four times GDP. This openness, combined with pragmatic macroeconomic management, structural reforms, and a business-friendly environment, has been a cornerstone of Singapore's economic success, raising real income per capita five-fold in a generation.”

Mr Strauss-Kahn also examines the need for investment in infrastructure, education and technology to help in the expansion of the Asian regional economy.

Finally Mr Strauss-Kahn highlights the need for regulatory change and governance in the wake of the financial crisis. Like many others, he praises the regulatory regimes already in place in many countries throughout the region, however, he does caution that the regulators must not become complacent and must ensure that their frameworks and guidelines continue to improve and reflect the new norms being developed throughout the world.

As for the IMFs role in Asia, Mr Strauss-Kahn believes the role will deepen, especially as relationships with regional groups, such as ASEAN and EMEAP strengthen.

For the full text of Mr Strauss-Kahn’s speech please see IMF speech to MAS

REITs now required to hold AGM

On November 11, 2009, The MAS announced that it had revised the Property Funds Appendix within the Code of Collective Investment Schemes (CIS). The MAS have now included a requirement for all REITs to hold AGMs at least once every calendar year and not more than 15 months apart. AGMs are required to be held within 4 months of financial year end. This new requirement comes into effect from 1 January 2010 and is the result of the consultation process held in May 2009.

It is hoped that this revision will enhance the focus on corporate governance, more interaction with unitholders and therefore overall more flexibility for equity raising activities.

For further information please see AGM requirement for REITS

Singapore Asset Management Survey Released

The Singapore MAS has released the asset management survey for the year ended 31 December 2008.  The survey shows that assets under management or advice in Singapore (banks, traditional and alternative) totalled some US$601 billion.  This is a drop of 26% from the previous year in 08 dollar terms where it was previously US$815 billion.

The numbers do not include CPF (Government mandated pension) monies.

The report states that 80% of the funds were sourced from outside of Singapore.  This shows clearly that the current international moves regarding tax disclosure, tax harmonisation and foreign fund registration are important issues for Singaporean based business.

52% of the AUM was then invested in Asia Pacific instruments or securities.

The number of hedge funds in Singapore was reported as 350 with a USD AUM of 42.8 billion.  This is a drop of 22% from the previous year when the AUM was reported as US$55 billion.  The number of funds increased by 50 from 300 at December 2007 to 350 in December 2008.

The report stated that total investments in collective investment schemes was US$23 billion.  While it is not clear from the report what they mean by this term, if one assumes that they mean registered collective investment schemes for sale in Singapore and one adds to this the amount in the alternative space then the breakdown of the industry in terms of AUM is possibly:

Hedge Funds and Advisors - 42.8 billion

Other Asset Management Schemes (excluding national pension scheme) - 23 billion

Private banking assets under management - 535 billion.