Following a series of public consultations conducted by the Monetary Authority of Singapore (MAS), the Banking (Amendment) Act 2020 (Amendment Act) came into operation on 14 February 2020, amending the Banking Act (BA) to reflect changes in the banking landscape.  The amendments include, among other things, the removal of the Domestic Banking Unit (DBU) and Asian Currency Unit (ACU) divide, consolidation of the regulatory framework of merchant banks, expansion of the grounds for revoking bank licences, and strengthening oversight of banks’ outsourcing arrangements.

Removal of the DBU-ACU divide

The DBU and ACU accounting units have been used since 1968 to distinguish domestic and foreign operations of banks and merchant banks.  This division is no longer relevant due to regulatory framework enhancements and the broadening of MAS’s developmental incentives which are no longer based on a domestic and foreign distinction.

As keeping the DBU-ACU division creates little benefit and imposes a compliance burden on banks, the Amendment Act replaces DBU and ACU requirements and:

1. ranks uninsured non-bank deposits in insolvency by currency denomination;
2. applies asset maintenance ratios on Singapore dollar non-bank deposits;
3. removes general limits on equity investments, immovable property and large exposures imposed on Singapore branches of foreign incorporated banks, as MAS will continue to rely on the banks’ home supervisors to oversee risks at the bank entity level.

Consolidation of the merchant bank regulatory framework

Merchant banks are a class of financial institutions introduced in the 1970s under the MAS Act and are considered a separate class from banks.  Merchant banks generally provide capital market services and are not allowed to accept deposits or raise funds in Singapore dollars from the public.  Over time, merchant banks were permitted to operate an ACU for foreign currency activities, which is now the bulk of their operations.  This meant that merchant banks had activities regulated by the BA but also subject to approval under the MAS Act.

To streamline and consolidate the merchant bank regulatory framework, the Amendment Act includes:

1. the licensing regime for merchant banks;
2. merchant banks’ permitted scope of activities which includes guidance on Singapore dollar depositing and borrowing;
3. applicable prudential requirements;
4. MAS’s regulatory and supervisory powers over merchant banks.

Expansion of grounds for revoking bank licences

As the banking landscape evolves, new risks necessitate changes in the regulatory framework to protect depositors, enhance MAS’s enforcement powers and uphold trust and confidence in Singapore’s financial system.  Currently, MAS has the power to revoke bank licences under certain circumstances such as the bank carrying on business in a manner likely to be detrimental to the interests of bank depositors, contravening the BA provisions, or where a foreign bank with a Singapore branch had its licence withdrawn in its home jurisdiction.

The Amendment Act expands on the above grounds for revocation to include:

1. contravention of MAS Act provisions, including aspects relating to money laundering and terrorism financing;
2. in respect to a foreign bank incorporated in Singapore, withdrawal of the parent bank’s licence;
3. assessment by MAS that it is in the public interest to revoke the licence.

Strengthen oversight of outsourcing arrangements

In outsourcing arrangements, the Amendment Act imposes legally binding requirements on the bank or merchant bank to maintain risk-proportionate management standards as if the services were performed by the bank itself.

For instance, certain terms are required to be included in outsourcing agreements such as:

1. the right of MAS to audit the service provider;
2. the obligation to protect customer information; and
3. the bank’s right to terminate the outsourcing agreement under specified circumstances.

The Amendment Act enhances and streamlines the regulatory frameworks for banks and merchant banks under the BA and maintains relevance in modern-day conditions.  Although the Amendment Act is now effective, MAS intends to consult on further detailed regulations under this new regime.

For More Information

OrionW regularly advises clients on banking and financial technology matters.  If you require assistance or if you have questions about the Banking (Amendment) Act, please contact us at fintech@orionw.com.

Disclaimer: This article is for general information only and does not constitute legal advice.

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