Monetary Authority of Singapore (Amendment) Bill

Order for Second Reading read.

4.20 pm

The Minister for Education (Higher Education and Skills) (Mr Ong Ye Kung): Mdm Speaker, on behalf of the Minister-in-charge of MAS, I beg to move, "That the Bill be now read a Second time".

The basic aim of MAS' regulatory regime is to ensure that the financial system is sound and resilient, especially in relation to external shocks. Our methods have been broadly effective, as Singapore has withstood tumultuous episodes, such as the Asian Financial Crisis of 1997 and Global Financial Crisis of 2008. The IMF, in its last Financial Sector Assessment Programme of Singapore in 2013, concluded that Singapore's regulatory and supervisory regimes for its financial system are amongst the best globally.

Notwithstanding, we need to update our laws and regulations that deal with resolution, so as to ensure effective handling of a financial institution (FI) that gets into serious trouble and especially to avoid contagion or a loss of confidence in the system. Our entire supervisory system is geared to reduce the risk of an FI in Singapore failing, but it is not possible to rule out such an eventuality, especially as our financial system is closely integrated with the global financial system.

In 2013, MAS introduced a resolution regime for FIs in Singapore, with the provision of resolution powers in the MAS Act, the Banking Act and the Insurance Act. These included powers to restructure the share capital of an FI, and to transfer the shares or business of an FI to a bridge entity.

International standards and good practices have since evolved. The Financial Stability Board (FSB) updated the Key Attributes of Effective Resolution Regimes for Financial Institutions in 2014 and has since issued further guidance on its implementation. MAS has been an active participant in shaping an international consensus on these guidelines. Today's MAS (Amendment) Bill 2017 introduces additional powers and tools to enhance Singapore's resolution regime and bring it up to date with these international developments.

The Bill also introduces legislative amendments to address other MAS operational matters.

Mdm Speaker, I will now go through the main amendments proposed in the Bill.

In 2015 and 2016, MAS consulted the industry and the public on the proposed enhancements to the resolution regime for FIs. MAS has taken in the feedback in finalising the enhancements.

The Bill introduces explicit powers for MAS to require FIs to prepare recovery plans and submit such information to MAS for resolution planning.

This is necessary because robust and credible recovery and resolution plans can reduce the risks that a distressed FI poses to the stability of the financial system. They help to ensure the continuity of critical functions and services to the economy and allow distressed FIs to regain their financial strength, restructure or exit from the market in an orderly manner.

MAS will apply recovery and resolution planning requirements to FIs that are systemically important or that maintain critical functions in Singapore.

The Bill also introduces legal provisions for MAS to temporarily block counterparties' rights to terminate contracts with an FI in resolution. These provisions are necessary to ensure orderly resolution of the FI. Nevertheless, certain counterparties, such as central banks, payment systems, approved or recognised clearing houses and depositories, will not be subject to these powers.

The Bill introduces a statutory bail-in regime to enable MAS to write down or convert an FI's debt into equity. The bail-in tool can help recapitalise distressed FIs and reduce the risk to depositors and reliance on public funds to "bail out" distressed FIs.

For now, the bail-in tool will be applied to locally-incorporated banks and bank holding companies. The scope of bail-in will be limited to unsecured subordinated debt and loans, contingent convertible instruments and other existing instruments that already have bail-in clauses.

The statutory bail-in regime will be complemented by regulations to provide greater certainty that instruments governed by foreign laws can be bailed-in by the MAS.

A coordinated approach towards resolving FIs that operate in multiple jurisdictions is important for safeguarding financial stability across home and host jurisdictions. The Bill introduces a statutory framework for MAS to recognise resolution actions taken by a foreign resolution authority on FIs in Singapore.

But such recognition will be subject to conditions, such as that it must not prejudice domestic financial stability, result in inequitable treatment of Singapore creditors and shareholders, run contrary to Singapore's national or public interest, or have material fiscal implications.

In general, liquidation is more disruptive than a resolution because the former means the FI basically ceases to operate. The aim of resolving an FI is to minimise the impact from the FI's failure on financial stability and ensure, as far as possible, that the FI's critical services and function can continue to be provided. In the event of a resolution, the Bill introduces a compensation framework for creditors who are more adversely affected in a resolution than they would have been in a liquidation.

The framework will apply only when MAS exercises powers to effect a compulsory transfer of business or shares to, say, a bridge entity, or effects a compulsory restructuring of share capital or a bail-in, or when MAS recognises similar foreign resolution actions.

To determine the amount of compensation payable, valuations will be performed by a valuer appointed by the Minister-in-charge of MAS. The compensation amount will be payable out of a Resolution Fund, which I will elaborate on next.

Timely access to funding is key to the successful and orderly resolution of a distressed FI. It is also in the interests of the private sector to ensure this and to limit any contagion effect. MAS' preferred approach is a private sector solution that does not require the injection of public funds. But it would be unwise to assume that private funds would always be readily available at the time of resolution. The Bill, therefore, proposes to put in place Resolution Funding Arrangements to support the implementation of resolution measures.

MAS, as the central bank, will first provide a temporary loan to the Resolution Fund for its immediate operating needs. Withdrawals from the Resolution Fund will subsequently be recovered from the industry via ex-post levies. MAS will be consulting the industry on the methodology for determining such levies.

The proposed Resolution Funding Arrangements do not have any implications on Singapore's reserves, since the funds used will be fully recovered from the industry.

Mdm Speaker, let me now turn to the other amendments to the MAS Act.

The current principal objects of the MAS are (a) to maintain price stability conducive to sustainable growth of the economy; (b) to foster a sound and reputable financial centre and to promote financial stability; (c) to ensure prudent and effective management of the official foreign reserves of Singapore; and (d) to grow Singapore as an internationally competitive financial centre.

The Bill introduces a new provision that explicitly states that when carrying out its functions and duties, MAS' development objective of growing Singapore into an internationally competitive financial centre is subordinate to its supervisory objective of fostering financial stability. This makes explicit in the Act a principle that has, in fact, been observed by MAS all along. It is in line with one of the recommendations from the IMF's Financial Sector Assessment Programme in 2013.

Since the merger of MAS and the Board of Commissioners of Currency Singapore (BCCS) in 2002, backing for the currency in circulation through a separate Currency Fund has not been necessary. This is because the currency in circulation is effectively backed by the full financial strength and assets of MAS, which is much larger than the Currency Fund. As at 31 March 2017, MAS' assets, close to S$400 billion, were more than seven times larger than the assets of the Currency Fund of about S$55 billion.

The proposed amendment will merge the Currency Fund with the other funds of MAS and streamline MAS' operations. The Government's support for the currency in circulation, as set out in the Currency Act, remains unchanged.

The Bill introduces two amendments to provide more operational flexibility relating to MAS' financial arrangements with the Government.

The first amendment allows MAS to revise the level of its paid-up capital, but subject to the approval of the Government and the MAS Board. MAS' paid-up capital can be increased if MAS evaluates that there is a need to strengthen its balance sheet. It can then seek the Government for a capital injection. Conversely, if MAS' capital is significantly higher than its needs, the excess paid-up capital can be returned to the Government, providing the Government with greater flexibility to manage its assets.

The second amendment sets the condition under which MAS can return profits to the Government. MAS' profits are channelled into a general reserve fund. Currently, MAS can only return profits to the Government if its general reserve fund is at least half of its paid-up capital. This was put in place to facilitate MAS building up its capital. It is no longer necessary today, as MAS now has a sizeable paid-up capital of S$25 billion. Under the amended Act, MAS will be able to return profits to the Government so long as its general reserve fund is positive.

In determining both the appropriate level of MAS' paid-up capital and the amount of profits to be returned on an annual basis, the MAS Board will ensure that MAS' capital and reserves remain adequate for MAS to carry out its principal objects and functions.

The Financial Sector Development Fund (FSDF) was established in 1999 under the MAS Act, following the demutualisation and merger of the Stock Exchange of Singapore, the Singapore International Monetary Exchange and the Securities Clearing and Computer Services to form today's Singapore Exchange (SGX). Proceeds from the listing of SGX were then paid into FSDF. The fund is used to support the development of the financial services sector in Singapore, such as training of professionals in the sector and funding of platforms to spur innovation and productivity.

Since 1999, MAS has been submitting to the President a summary of FSDF's financial statements, together with MAS' financial statements and annual reports. However, the submission of FSDF's statements is not required under the Constitution. Article 22B of the Constitution requires statutory bodies, such as MAS, to submit their financial statements to the President because these bodies hold reserves that are protected under the Constitution. This does not apply to FSDF, which is a statutory fund that is separate from the funds of MAS and does not hold any protected reserves.

The Bill sets out that FSDF's audited financial statements and annual report shall be submitted to the Minister-in-charge of MAS. MAS is operationally responsible for FSDF and, since FY2014, AGO has already been providing a standalone audit report on FSDF's financial statements for enhanced accountability.

The amendments will also allow the Managing Director to delegate his power – in relation to signing documents which require the MAS common seal and witnessing the affixing of the seal – to an MAS officer who holds the appointment of Deputy Managing Director or its equivalent. Such documents include powers of attorney and those relating to the issuance of sukuks. This is to enhance operational efficiency.

Mdm Speaker, this Bill introduces important enhancements to the resolution regime for FIs in Singapore, which will help MAS to resolve distressed institutions in an orderly manner. The Bill also introduces other timely updates to MAS' mission statement and amendments to achieve greater operational efficiencies within MAS. Mdm Speaker, I beg to move.

Question proposed.

4.34 pm

Er Dr Lee Bee Wah (Nee Soon): Mdm Speaker, the amendments proposed in the MAS Bill are timely as banks must be governed with the highest standards. In this age of wild volatility, we must ensure that our FIs can withstand the shocks. Certainly, we do not have to look much further into the past to recognise the need for prudence. Back in 2008, Lehman Brothers investment bank, which was supposed to be a solid institution, filed for bankruptcy, dragging their clients and, subsequently, the rest of the markets with them. We were fortunate to be able to cushion the fall-out.

Today, more Singaporeans are turning to financial investments to grow their savings and retirement fund, and the move by MAS would certainly go a long way to give them comfort. It will also strengthen our standing as a strong financial hub in this region.

I welcome the move to require pertinent FIs to have in place Recovery and Resolution Planning (RRP). I believe MAS would carefully scrutinise this RRP to ensure that they are as foolproof as possible and take in different scenarios. However, whatever the framework for the RRP may be, I hope MAS would ensure that these plans are regularly updated to reflect new challenges in the financial market. How often are RRPs to be reviewed by the banks? Will there be a special unit in MAS to keep abreast of the best RRP practices in the global financial market? What is the cost to the banks to have this RRP in place in terms of manpower and other logistics?

I will take this opportunity to bring up foreign FIs that are not incorporated in Singapore and/or not listed in MAS' FIs directory. Many such firms are recruiting investors right here in Singapore. For example, Malaysian financial firm JJPTR that had left many investors high and dry, was actively recruiting Singaporean investors through a local chatline and bank account.

Despite MAS' Alert List, many dodgy firms have managed to cheat Singaporeans out of hundreds of millions of dollars. Hence, I would like to ask if there is anything MAS can do to regulate them or, at least, increase the awareness of its Alert List.

With the passing of this Bill, investors should not develop a false sense of security and assume that they may then invest in any financial product in Singapore without consequences. It is often alarming to hear the reasons behind an investment. Sometimes, residents come to my Meet-the-People Session and ask for help. And people say, "I invest because my financial consultant told me this product is popular now; because my children told me to invest in it; because my friends are also investing in it." But do they know what they are in for?

I urge all investors to equip yourselves with basic financial awareness about the various financial products in the market before you even consider jumping on the bandwagon. There are courses covered by SkillsFuture credits that will help to further your financial knowhow.

Always conduct thorough research on the background of the product that you wish to invest in. Talk to people who can give you an independent view, not the one who is selling a product to you. Bear in mind that no investment product with promises of high returns is risk-free. Yes, MAS has introduced some requirements for an investor to be properly appraised and assessed before they are allowed to buy this or that product. At the end of the day, it is for the bank employees at the frontline who has to be honest when asking clients to fill up these forms and not think of their own KPIs to get another client on board. I hope MAS can have closer oversight of this pre-qualification of customers. Mdm Speaker, Mandarin, please.

(In Mandarin): [Please refer to Vernacular Speech.] The amendment requires FIs to have in place Recovery and Resolution Planning to give investors more peace of mind. It also stipulates that investors must possess a certain level of knowledge before they can invest. However, there may be bank employees who would ask the investors to make false declarations of their knowledge level in order to reach their sales target. I hope the authorities can look at this risk squarely.

Despite MAS' Alert List, every now and then, we hear about stories of Singaporeans losing all their money from their investment. If these companies are based overseas, how can the Bill protect the investors? I would like to take this opportunity to ask MAS whether it should exercise more control over these errant companies or, at least, increase education and publicity in this area.

(In English): Mdm, I support the Bill.

4.40 pm

Mr Leon Perera (Non-Constituency Member): Mdm Speaker, the MAS (Amendment) Bill seeks to strengthen MAS' powers to resolve distressed FIs, taking reference from the Financial Stability Board's (FSB) key attributes of effective resolution regimes. I do not object to the Bill or any of these provisions. In particular, the new provision that subordinates MAS' developmental objectives to its supervision objectives, a recommendation emerging from the 2013 IMF financial sector assessment programme, is welcome.

However, I would like to pose a few questions and suggestions. Firstly, giving the central bank the authority to remove an FI's management and appoint an administrator was suggested by FSB but has not been taken up by MAS. This was expressed in section 3.2 of FSB's key attributes for effective resolution regimes document. I would like to ask why this was not included in the legislation as this would give MAS more resolution powers, including the power to compel a recalcitrant or a problematic FI to implement MAS' directives in a way that is in line with what MAS needs in order to avoid financial contagion in Singapore. Of course, such an outcome is never something anyone would wish to see happen. But having this power as a weapon of last resort may also help nudge FIs to avoid the kind of decisions that may provoke that outcome.

Often, when an FI fails, it is the management that is at fault. And it may not always be possible to implement corrective actions through the existing management, as it were.

Next, on depositors and insurance policyholders. Part of the Bill relates to creditors and their rights. But it is not entirely clear to me if depositors and policyholders are included in this category. The proposed legislation appears not to make any special reference and special provision for depositors. Instead, seeing compensation for them as coming from the existing deposit insurance scheme. No less than FSB suggested that, and I quote, "The treatment of creditors and ranking in insolvency should be transparent" to depositors, so, this should be made clear.

Next, on transparency. I would like to ask if MAS will make public the banks that are required to comply with the new provisions of the Bill. The new RRP requirements, for example, apply to domestic systemically important banks (D-SIBs) as well as "other banks that are assessed to have systemic impact or that maintain critical functions". Will the wider public be informed about the identity of these other banks? The public may have a legitimate interest in knowing this.

Next, this Bill confers greater powers of intervention on MAS. I would like to ask the Minister to comment about how the resources and expertise of the MAS and its officers to exercise these powers are going to be developed.

And, lastly, a technical query. Is the expectation for banks to maintain IT systems which can produce data in a timely manner basically met if a bank complies with the Basel Committee's Principles for Effective Risk Data Aggregation and Risk Reporting (BCBS 239)? This approach is currently applicable to all D-SIBs. The answer to this question was not entirely clear from MAS' response in the feedback paper released in May.

4.45 pm

Mr Patrick Tay Teck Guan (West Coast): Mdm Speaker, I declare my interest as co-Chair of the Financial Sector Tripartite Committee together with MAS.

I rise in support of the proposed amendments to the Monetary Authority of Singapore Act. In our not too distant past, we weathered a global financial crisis where we witnessed the near collapse of large FIs. Highly interconnected financial systems meant that countries not in the epicentre of the crisis were also impacted and losses cascaded across and beyond the financial system. In 2009, Singapore saw a record number of lay-offs − 23,430 to be exact − due to the effects of the Global Financial Crisis.

In recent years, the changing world of banking has posed additional challenges to FIs as they rationalise and consolidate their businesses globally to ensure continued growth and profitability. There is also increasing prevalence of cybersecurity threats which may lead to larger scale attacks on our FIs. In such a climate, there is a need for a more robust regulatory approach which allows the Government to intervene early to nip fall-out in the bud. It is laudable that concerted effort has been taken to enhance the framework for the resolution of distressed FIs so that timely intervention can be taken.

These enhanced recovery and resolution measures go beyond the mere restoration of an FI. The aim is to reduce the risks posed by the FI to the stability of Singapore's financial system and ensure the continuity of functions critical to the economy, thereby, protecting the livelihoods of each and every Singaporean.

As we put this enhanced recovery and resolution framework in place, I would like to highlight two key areas in which we can do more.

First, while the focus is on the restoration of the distressed FI, we also need to ensure that our workers who are affected by these recovery and resolution measures are taken care of.

Second, just as we prepare ourselves for a crisis situation with SGSecure, albeit in the context of terror attacks, we need to also build and develop preparedness among our stakeholders and community to face challenges to the stability of our FIs and financial system. I will address each of these points in turn.

First, the Recovery and Resolution Plan of a distressed FI may involve the re-deployment, transfer or shedding of manpower. The proposed amendments in the MAS (Amendment) Bill also clarify and enhance MAS' resolution powers to make subsequent adjustments after a compulsory transfer of business, including reversals of transfers of assets and liabilities and onward transfers. In these transfers, workers may be affected. We need to ensure that in the carrying out of these transfers, our workers are treated fairly.

In 2016, the financial and insurance services sector saw 2,310 redundancies with 2,090 being Professionals, Managers, Executives and Technicians (PMETs). In my work with the Labour Movement, I have seen and heard firsthand the fears and uncertainties of workers in distressed organisations in other sectors. Some organisations, in a bid to restructure, would transfer employees from organisation to organisation, causing distress to workers from being shunted around. I have also come across accounts of workers in the financial sector who have been laid off, especially mature PMEs who have had difficulty in landing their next job after being made redundant. When these transfers are made to restore distressed FIs, we must also give due consideration to our workers' interests and ensure that workers are given access to resources to assist them through such challenging times.

The Financial Sector Tripartite Committee was set up last year to bring together the tripartite partners to foster a financial workforce that can meet the changing needs and demands of the financial industry through the implementation of various initiatives and programmes. One such initiative, launched in 2016, is the Financial Industry Career Advisory Centre (FiCAC) which provides career guidance on jobs in the financial industry. In the past year, the FSTC and FiCAC have been working with FIs which were managing excess manpower to assist their staff in career transitioning. We will continue to do more and I urge FIs to fully utilise FiCAC as we serve to partner with the FIs to support them in keeping their workforce ready, relevant and resilient. And not just ready, relevant and resilient but be able to move up, move across, move within as well as move into new jobs with digitalisation and disruption at the doorstep.

I also urge FIs to keep an open mind when looking at manpower resourcing and to give opportunities for PMEs, including mature PMEs, who are keen to move into the new jobs within the sector a chance and recognise their adjacent skills.

Second, while we bolster the Government's ability to respond to challenges to our FIs and system, we ought to also prepare our stakeholders and community for challenges to the stability of our financial system so that we are ready to meet these challenges when they come.

Within the sector we must continue to enhance our efforts to continually upskill our workers and develop abilities to remain agile and adaptable in times of change. FSTC, through FiCAC, has partnered NTUC and e2i to offer Change Ready Programmes to FIs to better prepare their working professionals to be resilient and future-ready. I urge more of our FIs to participate in such programmes.

Within, as well as beyond the sector, we need to build stronger ties among our stakeholders and community through communication and collaboration and strengthen our nation's economic defence collectively. While Singapore has not had a bank failure, no one can guarantee that such a situation would never arise. All parties need to be prepared and know what to expect and how to respond when an FI is in distress.

To sum up, I believe that strengthened efforts in these two areas, coupled with the implementation of the enhanced framework in the proposed Bill, will better prepare Singapore for any upheavals in our financial system.

4.51 pm

Mr Saktiandi Supaat (Bishan-Toa Payoh): Mdm Speaker, I rise to voice my support for the MAS (Amendment) Bill. The inter-linkages between banks and the whiplash from one default can have wide ramifications on the whole financial market. So, in today's market, it is imperative for our FIs to have a robust Recovery and Resolution Plan (RRP). It is good that we are able to draw lessons from other countries.

The release of previously classified documents revealed how The Bank of England responded to the Global Credit crisis and showed how ill-prepared it was then for the financial collapse. It began when the Northern Rock Bank was facing a run on the bank, with depositors withdrawing deposits in large numbers in 2007. I saw this firsthand as I was in the UK for a period of time in 2007 to 2009. In the end, the bank turned to the government for emergency borrowing facility, which was crucial to allay fears. A year later in 2008, the Bank of England this time had to pump billions of pounds of taxpayers' money into three UK banks − RBS, Lloyds and HBOS − in one of the UK's biggest nationalisations. This prevented the collapse of their financial system.

We are fortunate to be able to draw lessons from these cases. MAS is now drawing up the framework so that everyone has an action plan in place and, hopefully, should the whistle blows everyone knows what to do. The move corresponds with Singapore's efforts to be in line with international RRP practices, including that of Hong Kong.

The Bill before the House requires FIs to prepare and maintain recovery plans and submit them to MAS for resolution planning. One of the scenarios I believe – correct me if I am wrong – would be that MAS is prepared to allow an FI to fail, if that is the only viable solution. But, the trajectory from this must be managed in a manner with limited fall-out on the financial markets. What is important is to carry out regular tests on these plans and I would like to ask the Minister whether MAS would conduct exercises to assess their effectiveness. We can create scenarios from lessons drawn from other countries and tweak them to local conditions.

Next, do we know if our FIs are sufficiently staffed with people equipped with the right skillsets to act in a timely manner in a crisis? Similarly, MAS would also need to be prepared for such contingencies and put a system in place to respond to such an event. Can the Minister share with the House what would be a trigger scenario to require an FI to activate the RRP?

In any crisis situation, time is of the essence. The Bill allows MAS to issue a notice to a pertinent FI to prepare, in the form and manner and containing the information specified in the notice, a plan to restore the financial strength and viability of the FI in the event it suffers financial pressure. Is there a timeframe for the FI to present its plan to MAS following the issue of a notice? In the case of a trigger scenario, given the linkages in the financial markets, including derivatives-related exposures which are cascading and liquidity related, we need to consider the effects on the banking system's systemic stability. We also need to take into consideration how the measures taken would affect Singapore's overall financial sector reputation.

An FI that contravenes an order under subsection (1) is subject, upon conviction, to a fine not exceeding $250,000 and, in the case of a continuing offence, to a further fine not exceeding $25,000 for every day or part of a day during which the offence continues after conviction. May I ask if the Minister would consider imposing a heftier penalty as a deterrence signal? Besides, an FI may not feel the pinch, especially for foreign banks.

Given the global nature and openness of our financial markets, financial crises in the future could be globally linked and we are also subject to the vagaries of external financial developments that would need multiple foreign resolutions happening at the same time. Where a foreign resolution is applicable to an FI in Singapore, can the Minister explain how will we manage a request for recognition of such a foreign resolution? The borderless manner in which news travels would undoubtedly create a lot of anxiety and confusion with capital outflows a possibility. And what can be the consequences if the request is refused by us in Singapore?

In the case of the Deposit Insurance and Policy Owners' Protection Schemes Act amendments in clause 39, the Deposit Insurance Fund or DI Fund may be used to support a resolution measure under the MAS Act that is taken on a DI Scheme member. Amendments to the Insurance Act under clause 43 in the event of the winding up of a licensed insurer, states that the resolution regime under the MAS Act will apply to licensed insurers through an enlargement of the term "pertinent financial institution" and other modifications to the MAS Act.

I hope that under clause 43, actions taken by the trustee of a resolution fund would take special consideration with regard to the insurance policyholders, especially individuals, many of whom would have depended on these policies with the company to see them through their twilight years. So, what will be the best recourse for the individual policyholders under the circumstances beyond the value covered under the amended deposit insurance and policy owners' protection schemes act?

This Bill deals with the FIs. May I ask what if an institution that is not in the FI framework buckles financially, perhaps, a big hedge fund? How will this whole framework apply to them in this instance?

To conclude, I hope our MAS and other bodies are already collaborating with our universities to provide training for future accountants and bankers to prime them to these topics and prepare them for their roles in the future. After the passage of this Bill, I also hope MAS would do a public education exercise so that everyone, especially the man-in-the-street, can understand in simplified language how our Government is taking steps to protect FI depositors and insurance policyholders as we strengthen our financial framework. This can also prevent anyone from trying to exploit or make political capital out of the ignorance of the public should this unfortunate scenario come to pass.

4.58 pm

Mr Azmoon Ahmad (Nominated Member): Mdm Speaker, MAS is Singapore's central bank and one of the many functions it performs is to oversee all FIs in Singapore − be it banks or the stock exchange − operate responsibly and with accountability with respect to the accepted international financial and regulatory framework. MAS also promotes a strong corporate governance framework and ensures that Singapore financial industry remains vibrant, dynamic and competitive in order to promote Singapore as a regional and international financial centre.

The proposed amendments are very encouraging as they are aimed at enhancing the robustness and stability of our financial market. Herewith, I would like to point at some which I believe are in the right step and direction. However, it must be noted that some may be misinterpreted and taken negatively, especially if we aspire our financial market to be recognised as free and open.

Turning to clause 12 which, if I can interpret it well, is Recovery and Resolution Planning for FIs. This clause gives MAS powers to direct FIs that are facing financial pressure to come up with a recovery plan and direct that institution to take certain measures for its orderly resolution. While I see the need for MAS to be "on top of things", this can also be misinterpreted as a significant intrusion into FIs' autonomy to carry out their own affairs and could represent some form of governmental intervention into how they manage their affairs, in the event that such institutions face financial turmoil.

As an international financial centre, the grey line between open and free, against managed financial framework, may make up a significant difference in decision-making for any international investor and FI. On the positive side, this allows the Government to ensure that the economy is stable and to manage the effects the resolution of these distressed FIs will have on the markets.

Balancing the needs of our financial industry to be open and vibrant against a stable and dependable one is tricky. Nevertheless, I support the move.

Turning to clause 27, Bail-in instruments. The amendment to the Bill will empower MAS to bail-in instruments of ownership and liabilities of the affected FI.

The approach of a free market and the belief that the market will correct itself in times of financial market turmoil has proven to be very costly from past experiences. Previously, affected shareholders and creditors of distressed FIs will suffer huge financial losses when distressed FIs have to wind up. The almost unlimited exposure of shareholders and creditors when closure and winding up of an FI happens, has a devastating effect, if not a spiral-down consequence. The impact of a totally free and open market, when it turns south, is, indeed, a national worry.

Thus, the amendments which provide MAS the call to bail-in these institutions, affording shareholders and creditors a greater amount of protection, are welcomed.

On the flip side, will this lead to a direction where our FIs are seen on a path that is less than robust? Are we not leading our FIs to be less resilient? Will this amendment also lead to our shareholders and creditors being less sensitive in making decisions and choices since the amendment may provide the protection? Will this lead to an erosion of our financial industry in the eyes of the international financial community? While it may, I believe the pros outweigh the cons − a positive change to the Bill which I support. I applaud the suggestion to this amendment. With that Mdm Speaker, I support the Bill.

5.02 pm

Mr Louis Ng Kok Kwang (Nee Soon): Madam, I trust it is common ground among us that FIs have to be responsible for themselves and towards their stakeholders and in the larger scheme of things, our society. Performing bail-outs of FIs will not be a viable move for any responsible government.

In this regard, I stand in support of the Bill, which ushers in the adoption of Recovery and Resolution Planning which is already in place in the US, the EU, as well as in Japan and Hong Kong. I support the ability of MAS to require a recovery plan from pertinent FIs and to instruct implementation of the recovery plan.

Can the Minister clarify, when a recovery plan has been instructed to be implemented, which parties and persons, other than the relevant employees of the pertinent FIs, would be aware of the instruction to implement? Is there any timeline for FIs to develop and submit recovery plans and, if there are, how is the enforcement of the strict adherence to such timelines done?

Further, in the event that the recovery plans do not result in the desired outcomes, are measures in place to ensure that the subsequent negative impact will not impair Singapore's financial system?

Next, I support as well the introduction of a bail-in regime where a distressed FI is rescued not by the taxpayers. On this note, I hope to seek some clarifications. Can the Minister elaborate on the persons who may be appointed to perform an independent assessment stated in section 73(3) where instruments may be cancelled or modified under the bail-in regime? Would the Division 4A FIs be consulted on the said appointment and would the Division 4A FIs or the Authority be negotiating on the remuneration and expenses of these persons?

In relation to the establishment of a Resolution Fund, I have several queries to make. What criteria will the Minister be relying on to appoint a trustee of the Resolution Fund? How will the Authority determine the loan quantum to constitute the fund? For how many years after the dissolution of a Resolution Fund must the trustee keep proper accounts and records of transactions?

Also, could an indication of urgency, for example, "as soon as practicable" be inserted into section 103(2), where any sum recovered from FIs under resolution must be paid into the Resolution Fund? And why is the trustee given the discretion for deciding which medium to use for publishing a general notice in relation to the levy at section 104?

Next, as stated in the Explanatory Notes of the Bill, section 5 of the Act allows only for an increase in the Authority's paid-up capital with the approval of the Government.

The amendment is not only about allowing for a reduction of paid-up capital. First, it results in requiring both the Government and the Board to agree. Second, the paid-up capital can be reduced and transferred to anywhere. In this regard, I would like to raise three queries.

First, why is there now a need to allow for the paid-up capital to be reduced? Second, why is the Government's ability to approve and decide unilaterally replaced with the need for the Government to agree with the Board? Third, may I confirm that the proposed section 5(4) allows paid-up capital from MAS to be transferred to any entity?

Madam, again, I congratulate the Minister for putting in place RRPs in the Act. This affirms the mindset change that we wish to see in FIs and also assures stakeholders that FIs in Singapore have plans in place when disasters strike. I, therefore, stand in support of the Bill.

Mdm Speaker: Minister Ong.

5.06 pm

Mr Ong Ye Kung: Mdm Speaker, I thank all Members who have spoken on the Bill and voiced their support for the Bill. On behalf of the Deputy Prime Minister and Minister-in-charge of MAS, let me now address their questions.

Er Dr Lee Bee Wah asked if the Recovery and Resolution Plans (RRPs) are regularly updated and reviewed by the FIs and MAS. Mr Saktiandi Supaat and Mr Louis Ng asked about the timeline for FIs to submit their RRPs, upon being notified by MAS, and how MAS would enforce its timeline. Mr Saktiandi also asked if MAS would be conducting exercises to assess the effectiveness of the RRPs.

As mentioned in my Second Reading speech, we are amending the Act because of evolving international practices and consensus, following episodes, such as the Global Financial Crisis. Recovery plans are submitted by FIs and reviewed by MAS on a regular basis, as part of MAS' supervisory oversight over systemically important institutions. In fact, all our domestic systemically important banks (D-SIBs) already have recovery plans submitted and in place.

In response to Mr Leon Perera on which are the banks that are subjected to RRPs, in fact, they are currently the D-SIBs. The list of D-SIBs which are subjected to RRPs are public and published on the MAS website already. The preparation for the RRPs is also an ongoing and iterative process, as MAS continues to engage these banks on their plans. MAS will stress-test the banks from time to time. The banks are also expected to establish their own internal frameworks to regularly test the feasibility and effectiveness of their RRPs. It is equivalent to conducting exercises. The test results will help improve the robustness of the plans over time.

Mr Azmoon Ahmad noted that while there may be a need for MAS to be on top of things on RRPs, this can also be misinterpreted as a significant intrusion into FIs' autonomy to carry out their own affairs. We agree that this is a balance that has to be struck. But previous crises and episodes have shown that the disorderly failure of a systemically important FI can cause significant disruption to the financial system and also the economy and cause hardship for people.

In some cases, the Government had to tap on Government funds to bail out the FIs. So, there is a significant social cost to the public if this is not managed well. Hence, a certain level of Government intervention to avoid such social cost is inevitable and that is also the prevailing international consensus.

Mr Saktiandi asked what will trigger the activation of the FIs' recovery plan and if our FIs are adequately staffed with people with the right skillsets. Mr Louis Ng asked which are the parties or persons, besides the employees of the FIs in question, who would be aware of the triggering and implementation of the FIs' recovery plan. Mr Saktiandi also asked about the issue of expertise. Mr Leon Perera asked if there is sufficient expertise in MAS and the banks. Er Dr Lee Bee Wah asked if there is a special unit that is looking after this. All pointing in the same direction on whether there is sufficient expertise.

FIs' recovery plans are approved by an appropriate governance forum of the FIs, such as their board of directors. The FIs also conduct training and crisis simulation exercises to enhance the crisis preparedness of their staff. They also establish quantitative and qualitative triggers, typically liquidity, capital, financial positions to identify when recovery measures may be taken. And they have in place proper escalation processes to facilitate prompt management actions, such as capital raising or asset disposal, under stress situations. While MAS will engage FIs on the adequacy and execution of their recovery plans, FIs are primarily responsible for implementing measures to restore their financial strength under stress situations.

In other words, putting in place this entire regime, having a system, a platform, a process of engaging the FIs, we expect to build expertise over time, not just with the FIs, but also at MAS. This is bread and butter, and so, not really something you want to just delegate to one special unit, but the entire financial supervisory group within MAS. And within the FIs, that will be the people dealing with loans, people dealing with risks. This must be their bread-and-butter expertise which we expect to build up over time as the regime gets more robust.

Er Dr Lee Bee Wah asked about the cost of recovery and resolution planning to FIs. FIs will need to devote some resources to develop and maintain their RRPs. RRP requirements will be phased in and applied in a proportionate manner, based on the FIs' systemic importance to the financial system. MAS has not observed significant cost and operational impact on the FIs.

Mr Leon Perera asked if banks are expected to maintain systems for data risk aggregation under the BCBS 239. While the principles for BCBS 239 are imposed on D-SIBs currently, we do expect all banks to have in place strong risk data aggregation capabilities and also robust internal risk reporting frameworks.

Mr Saktiandi asked if the penalties for FIs that do not comply with directions from MAS are heavy enough. The penalties pegged now are actually already to the highest level of penalties in our supervisory framework for licensing breaches. Besides financial penalties, MAS also has powers to hold directors and senior management accountable if they fail to discharge their duties. But we should be mindful that penalties are not the key factor to ensure the cooperation of the FIs. Ultimately, as stakeholders of the entire system, we must all share the common goal that it is in the long-term benefit of the FIs, the economy, as well as the whole of Singapore, to have a robust and stable system. And that is what makes everyone work together.

Mr Louis Ng asked if in the event that an FI's recovery plan does not result in the desired outcome, are there measures in place to safeguard financial stability. Under those circumstances, MAS uses its resolution powers to resolve the FI in an orderly manner − which is what this Bill is about − and to limit the contagion effect on the rest of the system. This is the objective of the Bill today.

Let me now talk about the statutory bail-in. Mr Leon Perera asked if depositors and policy owners are protected under the creditor compensation framework. They are not covered under the scope of bail-in of this Bill. The bail-in regime that I have described in the Second Reading speech will be restricted to unsecured subordinated debt, as well as loans.

Mr Azmoon asked if the introduction of the bail-in regime would cause our FIs to be less robust and resilient and cause shareholders and creditors to become less sensitive in making their investment decisions. The introduction of the bail-in regime would actually increase the FI's resilience, as it allows the FI's losses to be absorbed and the FI to be re-capitalised. This is done through writing down an FI's debt or converting the FI's debt into equity. This actually also makes shareholders and creditors more conscientious in their investment decisions, compared to a situation where Government has to use public funds to bail out FIs. An example of this is the recent bail-in of Banco Popular Espanol SA in Spain where the bank's shareholders and junior creditors were written down and no public funds were affected.

Mr Louis Ng asked for elaboration on the persons who MAS may appoint to perform an independent assessment of the extent to which instruments of the FI in resolution should be bailed in. He also asked if the FI would be consulted on the appointment. When appointing an independent valuer, MAS will consider if the person has the experience, expertise and resources to conduct the valuation work effectively and expediently. For example, valuers could be appointed from amongst various professional firms, including audit and accounting firms. In a resolution, MAS would need to act quickly to stabilise the distressed FI and is not required to consult the FI on the appointment of the valuer. MAS will consider the reasonableness of the valuer's remuneration as part of the appointment.

Let me talk about cross-border recognition or resolution actions.

Mr Saktiandi asked how MAS would manage a request for recognition of a foreign resolution action and what the consequences would be if we refused such a request. In any cross-border resolution event, MAS' preference would always be to work with our foreign counterparts to achieve a coordinated solution. Hence, MAS has been participating in the crisis management group meetings of global systemically important banks where cross-border coordination strategies are discussed and prepared. MAS also has institution-specific cooperation agreements with foreign authorities for the purposes of information sharing and coordination during a crisis.

In the rare case where MAS does not recognise a foreign resolution action on an FI in Singapore, MAS may need to exercise its resolution powers to resolve the entity independently. But such circumstances are limited and will only arise where the action would prejudice domestic financial stability, result in inequitable treatment of Singapore's creditors and shareholders, run contrary to Singapore's national or public interests or have material fiscal implications. Similar grounds are also found in the resolution regimes of other key jurisdictions.

Mr Leon Perera also asked why not appoint a statutory manager in the event of having to do a resolution. This is already provided for in the MAS Act under section 30AAB where MAS can, in fact, appoint a statutory manager. But the practice around the world today is still that the central bank and the supervisory authority are still in-charge when the RRP has to be carried out. I think for a good reason because, day in, day out, this is their function − working with FIs, collaborating with them, working out their RRPs. At the same time, the central banks are also the ones involved in international forums and then, talking and coordinating with foreign regulatory bodies. That is why, today, it remains the international practice.

Mr Saktiandi asked who will provide the initial liquidity loan to the Resolution Fund. He also asked if the trustee of the Resolution Fund would be allowed to decide on the payouts from the Resolution Fund and whether the trustee should be accorded immunity for its actions. MAS will provide the initial liquidity loan to the Resolution Fund. This will facilitate timely implementation of the resolution measures. The loan will eventually be recovered from the industry via ex-post levies. Decisions on payouts from the Fund are recommended by MAS as the Resolution Authority and approved by the Minister. This arrangement ensures that the trustee of the Resolution Fund cannot act unilaterally. The trustee's role, therefore, is a limited one, mainly responsible for operationalising the payout of the funds. Providing immunity to the trustee would allow the trustee to carry out this operational function with greater assurance and timeliness without being burdened with the prospect of a lawsuit. The protection is accorded only if the trustee acts in good faith.

Mr Louis Ng enquired on the criteria for appointing a trustee and the quantum of the loan to constitute the Resolution Fund. He also enquired about the Fund's record-keeping requirements. The appointed trustee must have the capacity, experience and expertise to carry out its duties. To ensure the integrity and the accountability of the resolution funding process, MAS intends to require the trustee to keep proper accounts and records of transactions for a period after the dissolution of the Resolution Fund. MAS will consult on the appropriate record-keeping period.

As for the quantum of the loan, it all depends on the situation and also hinges on the amount of liquidity needed to resolve the FI in an orderly manner. MAS will perform estimations of the amount of liquidity needed as part of its ex-ante resolution planning. Factors considered in this assessment may include the size and potential losses of the FI and the amounts of unencumbered assets eligible as collateral for borrowing as well as the available private sources of funding during stress.

Mr Louis Ng asked if claims on the FIs under resolution could be required to be paid into the Resolution Fund as soon as practicable. This is, indeed, our intent. In the case of market infrastructure participants, Mr Louis Ng asked why the trustee of the Resolution Fund would be given the discretion to decide on the medium through which participants would be notified of the transaction levy. This is a reasonable part of the trustee's operational responsibility. MAS would remain engaged with the trustee throughout this process to oversee the expedient dissemination of information, as necessary.

Mr Saktiandi asked how policy owners' interests could be sufficiently safeguarded when an insurer becomes non-viable. Should an insurer become non-viable, apart from securing financial stability, MAS will also prioritise the protection of policy owners, including through ensuring continuity in their insurance coverage and, where possible, limiting the financial loss that they could suffer.

To this end, the Policy Owners' Protection Funds or the Resolution Fund can be tapped on so that policy owners can retain their insurance coverage. In the event that policy owners are made worse off by the resolution actions as compared to a liquidation scenario, they can also seek compensation from the Resolution Fund.

Mr Saktiandi also asked if there are any institutions, such as big hedge funds, that may fall outside the scope of the resolution regime. Under our supervisory regime, hedge fund managers are regulated by MAS. Such hedge fund managers would be covered by the resolution regime, too.

Mr Patrick Tay said that in any transfer of business, workers may be affected and we need to ensure that they are treated fairly. I would like to assure Mr Tay that in any transfer of business, MAS will consider the extent to which the employment contracts of workers who were not liable or accountable for the failure of the FI can be transferred to a bridge institution or transferee FI so as to allow for continuity in the employment and retention of expertise within the FI. The Employment Act safeguards relating to the preservation of the terms and conditions of service and years of service will apply to transferred employees covered under the Act. I would like to remind Members that we are putting in place a stronger resolution regime precisely because this is much less disruptive than the liquidation where everyone loses their job.

Mr Patrick Tay also highlighted the work of the Financial Sector Tripartite Committee (FSTC) and the Financial Industry Career Advisory Centre (FiCAC) in supporting professionals undergoing career transition. MAS is partnering with FSTC and FiCAC on these efforts, including to provide fuller career advisory services through a network of career coaches and industry mentors. MAS is also working with FIs to identify jobs that might be at risk in the future and to proactively reskill these workers through professional conversion programmes.

Mr Saktiandi hopes that MAS would raise awareness amongst our future accountants and bankers and also educate the public on how the Government is taking steps to protect depositors and policyholders. Er Dr Lee Bee Wah hopes that this Bill would not result in investors developing a false sense of security and assuming that they can safely invest in any financial product in Singapore. I also thank her for her advice to consumers on what they should look out for. We agree with Mr Saktiandi and also Er Dr Lee Bee Wah and will continue to raise public awareness. Earlier this year, when Parliament debated the amendments to the Securities and Futures Act, I emphasised that all investments carried risk and that, ultimately, investors must take responsibility for their own financial decisions. You would remember, during that debate, we enhanced the Act in quite a number of ways to better protect consumers.

Financial education efforts will also remain a key priority for MAS through the MoneySENSE initiative. The MAS Investor Alert List (IAL) is also a useful tool to alert consumers of unregulated activities that could be wrongly perceived to be under MAS' regulatory purview. Members may come across some of these videos that have come out and which educate the public. They are done in a very heartening way that our residents would be able to relate to and Hossan Leong, I think, has been a big hit in those videos. In Universities, ethics has also become a more important aspect of education for an increasingly, socially conscious generation.

Mr Louis Ng asked why there is now a need to allow for a reduction in MAS' paid-up capital. There is a need for flexibility in managing MAS' paid-up capital and not so much a reduction per se. This is because after many years, MAS' capital has built up substantially and it is no longer a case that the only way is up. Mr Louis Ng asked why both the Government and the MAS Board have to agree before any revisions are made to MAS' paid-up capital. Requiring the agreement of both the MAS Board and the Government strengthens the governance of these decisions and ensures the financial implications on both parties are adequately taken into account. In approving any revisions to its paid-up capital, the MAS Board must make sure that MAS' capital and reserves remain adequate for it to carry out its principal objects and functions. Mr Louis Ng asked if section 5(4) of the Act allows MAS' paid-up capital to be transferred to any entity. The answer is no. The Government is the sole owner of MAS' paid-up capital.

Mdm Speaker, this Bill introduces important enhancements to the resolution regime for FIs in Singapore which will further empower MAS to resolve distressed institutions in an orderly manner, minimising potential risks of financial stability and loss of public monies. The Bill also introduces updates to clarify MAS' mission and objectives as well as other timely amendments to achieve greater operational efficiencies within MAS. Mdm Speaker, I beg to move.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. – [Mr Ong Ye Kung].

Bill considered in Committee; reported without amendment; read a Third time and passed.