MAS launched a consultation in Feb 2017 for proposed amendments to the Banking Regulations with a view to enhance the risk management controls and corporate governance of banks. Of the proposed amendments, the new Regulation 34 on risk management is of particular importance for banks. Here is why:

What is proposed under Regulation 34?

The Regulation 34 reinforces risk management practices and controls of banks. It clearly outlines the requirement for a bank to ensure going forward that it has:

  • A compliance function or clear compliance arrangement, with formalised roles and responsibility, and which subjects the bank’s business activities to adequate compliance checks; the internal audit of the bank to include assessment of the bank’s status of compliance
  • Written policies on all operational areas, financial practices, accounting, internal controls and auditing; further, to have written records of the steps taken by the bank to monitor compliance with such policies and procedures
  • Identified, evaluated, monitored, controlled and reported the risks associated with the bank’s activities; ensure that it has addressed such risks by implementing prudent risk limits in its operating procedures and risk management systems, set written limits of discretionary powers of each officer and/or committee, and adequately segregate duties of officers to mitigate potential conflict of interest
  • Ensured completeness and correctness of all regulatory reports submitted to the MAS.

Non-compliance with any of the above, could result in enforcement action, fines or penalties from the MAS. In other words, the inclusion of above mentioned specific requirements in the Banking Act would now allow MAS the legal powers to take regulatory actions on non-compliant banks.

Existing Framework

Banks operating in Singapore are currently expected to take reference from MAS’ Guidelines on Risk Management Practices which specify the Authority’s broad expectations. The Guidelines are however not legally enforceable or binding on banks.

Banks are also expected to apply other applicable industry standards to ensure effective risk management commensurate to their business activities.

What this means?

With the proposed amendments, MAS has sounded out the banking industry of the likely direction going forward. The regime will move the requirements from a ‘good to have’ to a ‘must have’ status and there are provisions to penalise banks that do not meet the regulatory statutes. There is a clear emphasis on the bank’s ability to demonstrate its compliance through formalised structures and documentation to evidence the existence and application of a framework.

As the minimum standards for sound risk management controls get formalised in due course, banks should review their compliance with the regulatory and legal expectation. The proposed regulations should be seen as complementing as well as legalising the existing Guidelines.

We can help

If you are not sure whether your existing risk management framework is commensurate with the nature, scale and complexity of your business, or if you are in compliance with the emerging regulatory developments, contact us for a health check and further advice. We at Bovill are watching this space with a keen interest and would be happy to help.

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