Written by Amelia Liew
On 11th September 2021, Individual Accountability and Conduct Guidelines introduced by the Monetary Authority of Singapore (“MAS”) have finally come into effect in Singapore. The purpose of the guideline is to strengthen the standards of conduct and protect the public confidence in the financial industry in which a total of 5 outcomes must be achieved by the financial institutions (“FIs”) operating in Singapore.
The 5 outcomes set out in the guidelineare as follows:-
(1) Senior managers responsible for managing and conducting the FIs’ core functions must be clearly identified;
(2) Senior Managers are fit and proper for their roles, and held responsible for the actions of their employees and the conduct of the business under their purview;
(3) The FIs’ governance framework supports senior managers’ performance of their roles and responsibilities with a clear and transparent management structure and reporting relationships;
(4) Material risk personnel are fit and proper for their roles, and subject to effective risk governance, and appropriate incentives structures and standards of conduct; and
(5) The FIs have a framework that promotes and sustains among all employees the desired conduct.
In order to implement the guideline, the FIs should identify the areas that are needed to change to achieve the outcomes, with adaptions and enhancements to be made based on the nature, size and complexity of their businesses. According to the guideline, there is no exemption for smaller institutions. Those with fewer than 50 employees must also achieve the 5 outcomes but are free to dispense with the specific guidance described in the guideline. Also, FIs with more than 50 employees may have the flexibility to not adopt the specific guidance if the guidance is irrelevant to their businesses. Therefore, the FIs must demonstrate how they have achieved the outcomes through other means by documenting it in the event that they have decided to dispense with the specific guidance.
Also, there are no exemptions for the FIs which may already be subject to similar regime overseas – for example, the UK’s Senior Managers and Certification Regime (“SM&CR”), as such guideline apply specifically to an FI’s operations in Singapore. Nevertheless, FIs may apply and adapt the frameworks, policies and procedures that have been instituted at the Regional or Head Office levels to their Singapore operations, for the purpose of complying with guideline in Singapore.
Senior managers are those who are responsible for the day-to-day management of the FIs. Under the guideline, there must be clarity in the responsibilities of each senior manager for functions that are core to the FIs to hold them accountable for matters under their purview. FIs may refer to the non-exhaustive list in Annex B to the Guidelines that provides various examples of senior managers’ titles. Where nobody within the institution holds a particular title within the Annex B, but the role is relevant to core functions of FIs, the FIs should assess who is performing the role in practice and consider appointing him/her as a senior manager of that function.
Outcome 2 and Outcome 3
These two outcomes are combined in the guideline as they share some similarities.
The FIs must ensure that the processes are in place to conduct adequate due diligence on the fitness and propriety of senior manager candidates before their appointment and on an annual basis after their appointments. The FIs also need to ensure the specific roles and responsibilities of the senior managers and the overall management structure, including reporting relationships among senior managers and management committees, must be properly recorded. Even though no submissions of such are required by the MAS, there must be proper documentation that the senior manager’s specified roles and responsibilities are approved by the Board and the senior managers are informed of their areas of responsibility and acknowledge them. It may be unavoidable that the responsibilities of the senior managers may overlap. However, this should not result in a dilution of responsibilities or accountability for that function
Moreover, FIs should implement appropriate incentive and consequence management frameworks that hold senior managers accountable for their performance, including the actions of their employees and the conduct of the business under their purview. The extent to which senior managers will be held accountable for the actions of their employees includes factors such as senior manager’s level of knowledge of the misconduct and adequate steps to address the issues. Therefore, it is recommended to have an investigation procedure in place when the misconduct is reported before referring the case to MAS where necessary. In addition to that, a proper succession plan that is regularly reviewed and updated should be set up.
Material Risk Personnel (“MRP”) are individuals who are not senior managers but who have the authority to make decisions or conduct activities that can significantly impact the FIs’ safety and soundness, or cause harm to a significant segment of its customers or other stakeholders. Therefore, the institution must subject MRPs to higher conduct standards and more stringent oversight compared to the regular employees. To evaluate the materiality of the impact, the FIs may consider quantitative indicators such as approval limits for trades and qualitative indicators such as authority to on-board high-risk clients.
To meet this outcome, the FIs must record the identification of the MRPs in a register, assess the fitness and propriety of MRPs prior to and after their appointment, develop risk governance policies and standards of conduct and set an appropriate incentive structure for correct conduct for the MRPs that encourages behaviour which is consistent with the desired conduct outcome. It should be noted that, the guideline does not require the FIs to have minimum number of MRPs.
Even though there are various laws and regulations that have already set out the requirements and expectations on the appropriate conduct of the employees of the FIs, the guideline is to ensure a framework is in place which could address standard of conduct expected of all employees, communication on the same by codes of conduct, training and sharing of lessons learned, enforcement of the same y having a monitoring, reporting and escalation structure and appropriate incentive structures and engagement with key stakeholders to ensure the transparent and timely communication of relevant material information in relation to the same
In view of the similar regulatory regimes that are being implemented in the other major jurisdictions such as the United Kingdom, Hong Kong and Australia, the to raise the standard of FIs by embedding a strong culture of responsibility and ethical behaviour in the financial industry of Singapore
Given that Guideline has now been published, FIs should take all necessary steps to ensure compliance, having regard to the requirements under the existing legislation and outcomes-based approach implemented by the MAS. We can partner with you on your implementation of the guideline based on your institution’s specifications, including advising on what you need to do in order to comply with the guideline and assisting in developing your implementation plan. For more information, please feel free to contact us today.