Updates to the MAS’ Guidelines on Individual Accountability and Conduct

Background

As part of its efforts to foster sound culture and conduct in the financial sector, the Monetary Authority of Singapore (MAS) issued a consultation paper on 26 April 2018 seeking comments and feedback on its proposed Guidelines on Individual Accountability and Conduct (IAC Guidelines)[1].

The IAC Guidelines listed five outcomes that MAS expects financial institutions (FIs) to work towards:

• Outcome 1: Senior managers who have responsibility for the management and conduct of functions that are core to the FI’s operations are clearly identified.
• Outcome 2: Senior managers are fit and proper for their roles, and held responsible for the actions of their staff and the conduct of the business under their purview.
• Outcome 3: The FI’s governance framework is supportive of and conducive to senior managers’ performance of their roles and responsibilities. The FI’s overall management structure and reporting relationships are clear and transparent.
• Outcome 4: Employees in material risk functions are fit and proper for their roles, and subject to effective risk governance as well as the appropriate standards of conduct and incentive structure.
• Outcome 5: The FI has a framework that promotes and sustains the desired conduct among all employees.

Response to Feedback

On 6 June 2019, MAS released a paper detailing its responses to the feedback received, which helped to refine key elements of the guidelines and to clarify FIs’ expected roles and responsibilities in implementing the guidelines[2].

Among the feedback received concerned the scope of application of the IAC Guidelines, given that the underlying principles of accountability and proper conduct are applicable across the financial sector. This has resulted in MAS proposing to expand the application to a wider scope of regulated FIs, including registered fund management companies (RFMCs), money-changing and remittance licensees, and insurance brokers, amongst others.

At the same time, acknowledging the potential burden that the Guidelines would impose on smaller FIs (such as those with a headcount of less than 20), MAS proposes a proportionate application of the Guidelines, after taking into account factors such as the nature and complexity of the FI’s operations[3].

MAS also received feedback regarding the application of the IAC Guidelines on a group basis for locally-incorporated banks and insurers. A number of respondents had requested for clarity in identifying material subsidiaries and branches, and expressed concerns regarding extra-territorial implications of having to apply the Guidelines to downstream entities that are located overseas.

In answer to the queries, MAS has clarified that significant downstream entities in Singapore or overseas will be treated as material business functions and their respective CEOs designated as senior managers of the parent group. However, downstream entities based in foreign jurisdictions are not required to apply the IAC Guidelines at the entity level.

Conversely, the Guidelines are applicable to the branches of foreign-incorporated FIs in Singapore notwithstanding that they may already be subjected to similar requirements by the jurisdictions of their head or regional offices.

MAS also made clear that the definition of “Board” in the Guidelines refers to the Board of Directors of locally-incorporated FIs, or in the case of foreign-incorporated FIs, the governing body or committee responsible for oversight and supervision of the FI’s operations in Singapore.

Additionally, “senior managers” are defined as individuals who are principally responsible for managing the FI’s day-to-day operations in Singapore, regardless of their title, physical location, or reporting line.

Even in cases where an FI has outsourced its core operational duties to a service provider, the senior managers are still deemed responsible for those duties and for maintaining effective oversight and governance of the outsourcing arrangements.

The paper also contains further guidance on other related matters around the implementation of the IAC Guidelines, including the definition and criteria for identifying material risk personnel, the list of core management functions, the rationale for succession planning and handover procedures, the establishment of a conduct framework for employees, and the requirements for a whistleblowing policy.

Implementation Timeline

In response to FIs’ requests for sufficient time to review current policies and procedures and to make necessary changes for them to abide by the IAC Guidelines, MAS has indicated that a transitional period of 1 year will be granted after the effective date is announced.

MAS also stated that it will adopt a “consultative approach to assessing FIs’ compliance with the IAC Guidelines in the initial phase of implementation”.

Conclusion

Rather than imposing a prescriptive approach in implementing the IAC Guidelines, MAS has indicated that it expects individual FIs to take ownership of the implementation process based on individual FIs’ business strategies and operations.

Ultimately, FIs play fundamental roles in protecting the integrity of the financial system. By establishing prudent behaviour and ethical business standards through accountability and proper conduct, they safeguard the interests of their customers and other stakeholders, ensure their risk management objectives are met, as well as sustain fair, orderly and efficient markets.

At Argus Global (now Waystone Compliance), we are a team of consultants specializing in Regulatory Compliance for Financial Institutions in Singapore that are regulated by MAS. We can assist you through the process of acquiring the requisite licence to facilitate your business in Singapore as well as provide assistance on any ongoing compliance requirements of your business. We would be happy to answer your queries, whether related to this article or any other regulatory compliance hurdles you may be facing. Do reach out to us at [email protected].