MAS clarifies IAC Guidelines
12 July 2019
This June saw the release of the MAS long awaited response to its 2018 Consultation Paper on Individual Accountability and Conduct (IAC) Guidelines. Although the scope has been expanded, there is some comfort for small firms and the regulator has said it will take a proportionate approach. The guidelines will be implemented with a transitional period of a year so now is a good time to consider what they’ll mean for you.
This guidance will be Singapore’s version of the UK’s Senior Managers and Certification Regime and Conduct Rules, Hong Kong’s Managers-in-Charge Regime, and Australia’s Banking Executive Accountability Regime. In its response, MAS seek to address various public feedback and concerns including the scope and operational aspects of the guidelines.
This paper will impact most financial institutions (FIs) in Singapore, as in recent years, regulators worldwide have pushed for a culture of personal accountability at the top of all financial institutions since the global financial crisis 10 years ago.
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.
Below are key takeaways from the consultation:
Expansion of scope
The IAC Guidelines will be expanded to include all the FIs that MAS currently regulates, except for certain key exempted FIs. The scope of the IAC Guidelines will be extended from the previous eleven categories of FIs initially set out in the first consultation paper issued in April 2018. This demonstrate MAS’ desire to clarify its expectations around the conduct of entities it regulates.
The entities covered include:
For locally incorporated banks and insurers, the IAC Guidelines apply on a group basis.
Some comfort for smaller FIs
The MAS does highlight that the full detail of the guidelines will not apply to FIs with fewer than 20 people on their team. The rationale is that in such FIs, management oversight and control is more concentrated in the directors and the chief executive.
These individuals usually oversee the FIs functions, leading to simpler decision-making structures, making accountability clearer. However, the MAS has stated that it may still specifically require certain FIs to comply with the IAC Guidelines, after considering factors such as the nature and complexity of the FIs operations. In our opinion, at the very least FIs should consider having a document identifying senior managers and map roles, responsibilities and reporting lines.
The MAS clarified that it will take a proportionate approach with FIs during their implementation of the guidelines. In turn, the MAS expects FIs be able to demonstrate the same without a tick-box approach towards implementation.
With regards to professional indemnity insurance, the MAS responded that FIs should not make arrangement that undermine the accountability of Senior Management. These arrangements might include insurance or other agreements that have the effect of indemnifying Senior Managers against financial penalties for misconduct or other offences.
Who is an Individual in a Core Management Function?
The MAS has defined Individuals in Core Management Functions (CMFs) as those who are involved in the management of an FI’s day-to-day affairs. The MAS has amended the definition of ‘senior managers’ and makes clear that a senior manager of an FI’s operations in Singapore need not be an employee of the FI but may be a person based overseas under a regional or global management arrangement. The response emphasizes that the focus of the guidelines is not the location or the employer of the individual concerned but the actual responsibility of that individual. FIs should identify the most senior person who is responsible for the management of the institution’s on-going day-to-day operations in Singapore.
Identifying the individuals in a Material Risk Function
In determining who are the employees in Material Risk Functions, the starting point should be an analysis of what risks are material to the business of the FI in Singapore. These are individuals who have the authority to make decisions or conduct activities that can or may significantly impact the FI’s Fit and Propriety or harm to the FI’s customers. Before employing an individual in this role, FIs must ensure the person is:
- Fit and proper
- Subjected to proper standards of conduct
- Provided with continuous training
- Given appropriate remuneration
Promoting desired conduct in FIs
The FI must have a framework that promotes and sustains the desired conduct among all employees. The MAS recommends in a form of a Code of Conduct policy which includes whistleblowing procedures and mandatory reference check requirements to a broader segment of the FI beyond representatives.
The MAS will implement the IAC Guidelines with a transitional period of 1 year, that is. 1 year after the IAC Guidelines are published. They have said they will adopt a consultative approach to assessing FIs’ compliance with the IAC Guidelines in the initial phase of implementation.
How we can help
For advice on how the IAC Guidelines will affect your firm, or support on implementation, get in touch.