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MAS proposes guidelines for FIs on accountability and standard of conduct
MORE than 10 years on from the Global Financial Crisis, major financial institutions (FIs) have been transformed from being the under-capitalised, over-leveraged and inadequately supervised bodies that they were in 2007.
But in recent years, regulators worldwide have pushed for a culture of personal accountability at the top of financial firms.
So while Singapore has not witnessed the excesses in other places, the Monetary Authority of Singapore (MAS) nevertheless unveiled on Thursday its proposed guidelines to strengthen individual accountability of senior managers and raise the standards of conduct in FIs.
These guidelines are a key part of MAS' efforts to foster a culture of ethical behaviour and responsible risk-taking in the financial industry. They are targeted to be issued in the fourth quarter of this year.
"Globally, there has been an increased focus on the manner in which FIs conduct their business and interact with their customers and other stakeholders. Incidents of misconduct and egregious risk-taking in the financial industry has undermined public trust and confidence in FIs, with poor culture being one of the root causes," MAS said in a consultation paper. It is now inviting comments from FIs and interested parties on the content of the paper.
The guidelines include requiring financial institutions to identify senior managers who are responsible for core management functions and to clearly specify their individual accountabilities. FIs should ensure that senior managers are fit for their roles and hold them individually responsible for the actions of their staff and the conduct of business.
Employees in material risk functions that can significantly affect the safety and soundness of the FI, or cause harm to a significant segment of its customers or other stakeholders should also be identified and subject to an appropriate incentive structure and risk governance, MAS is proposing.
A proper framework that promotes and sustains the desired conduct among all employees should be in place; appropriate incentive systems and effective feedback channels such as whistle-blowing mechanisms should also be available.
Ong Chong Tee, the deputy managing director of Financial Supervision at MAS, said: "Clear accountability and proper conduct are important elements of good governance and sound business practice."
The proposed guidelines are not designed to be prescriptive. They are instead principle-based. It is ultimately the responsibility of each FI to hold its senior managers accountable for their actions and ensure proper conduct among their employees.
FIs will be given the flexibility to decide how they want to achieve the desired outcomes of proper accountability and conduct, and the MAS will monitor implementation through regular supervisory engagements.
"This has been an important aspect of our pre-emptive and anticipatory supervision, as timely identification and diagnosis of weak culture and poor ethics can mitigate the impact and risks of downstream control deficiencies and misconduct," it said.
When there are lapses in risk management, conduct or breaches, MAS can exercise a wide range of actions. These range from issuing warnings and imposing supervisory conditions to directing a FI to remove a director or referring the case to the Attorney-General's Chambers for criminal prosecution.
Various jurisdictions have introduced regulatory frameworks to strengthen individual accountability and conduct in the financial industry. These include the United Kingdom's Senior Managers and Certification Regime and Conduct Rules, Hong Kong's Managers-in-Charge Regime, and Australia's Banking Executive Accountability Regime.
MAS' latest proposal supplements existing legislation and guidelines that address many elements of these jurisdictions' accountability and conduct regimes.
Warren Lim, chief executive officer of Finexis, welcomed the move.
"It is a good initiative for MAS to give greater clarity, yet allowing the FI some autonomy to decide what level of risk to take. The penalties are also clear. To me, it's still all in the best interest of the customers.
"And because it is so clearly laid out, including also the coverage of who is impacted - whether the banks, insurers or FIs - it levels the playing field," he told The Business Times.