On 26 April 2018, the Monetary Authority of Singapore (MAS) issued a Consultation Paper setting out its Proposed Guidelines on Individual Accountability and Conduct (Proposed Guidelines). This comes in the wake of Hong Kong’s Manager-in-Charge Regime (MIC Regime) and the UK’s Senior Managers and Certification Regime and Conduct Rules (SMR), all of which are aimed at strengthening individual accountability of senior managers and raising standards of conduct within Financial Institutions (FIs).
Once finalised, the Proposed Guidelines will apply to all FIs in Singapore, including banks, insurers, financial advisors, capital markets intermediaries and finance companies.
Overview of the Proposed Guidelines
The Proposed Guidelines take an outcome based approach: FIs are given flexibility to determine how to implement the Proposed Guidelines provided that the specified outcomes are met. The five outcomes are as follows:
- Senior managers who have responsibility for the management and conduct of functions that are core to the FI’s operations are clearly identified.
- 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.
- 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.
- 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.
- The FI has a framework that promotes and sustains the desired conduct among all employees
From the above outcomes, it is clear that the identification of the following two groups of employees is crucial:
Senior Managers - These are broadly defined in the Proposed Guidelines as being “individuals who are employed in an executive capacity by, and are principally responsible for the day-to-day management of, the FI”. A non-exhaustive list of roles which fall within the ambit of being senior managers are set out in Appendix B of the Proposed Guidelines; these include the Chief Executive Officer, Chief Financial Officer, Chief Risk Officer, Chief Information Officer, and the Heads of various Business Functions (including human resources, compliance, financial crime prevention and internal audit).
The positions listed in Appendix B are merely representative of the roles that are likely to fall within the scope of being senior managers, and it is ultimately the duties and responsibilities performed by the relevant employee which will be determinative.
The MAS recognises that senior managers need not be physically located in Singapore, but may be based overseas where local employees do not have the relevant mandate or decision-making authority.
Senior managers (save for certain key functions) need not be notified to or approved by the MAS; the burden is on the FI to identify the appropriate senior manager taking into account the core management functions set out in the Proposed Guidelines.
Employees in material risk functions - These are defined in the Proposed Guidelines as “employees whose decisions or activities could materially impact an FI’s risk profile”, which includes employees in executive, business and risk management, control or support functions who, while not senior managers, are vested with material decision-making authority or mandates which may lead to significant impact on the FI’s safety and soundness, or cause harm to a significant segment of the FI’s customers or other stakeholders.
How to comply?
Unlike the MIC Regime and SMR, the MAS has stated that Proposed Guidelines are not intended to be prescriptive in nature, with the aim that each FI should consider implementation based on its “nature, size, and complexity of its operations”.
Notwithstanding the intended flexibility, FIs are, nevertheless, expected (at the very least) to do the following:
identify senior managers (who can be based overseas), including documenting each senior manager’s scope of authority, areas of responsibility and reporting line
implement robust standards and processes to ensure that senior managers are fit and proper prior to appointment and on an ongoing basis
obtain acknowledgement by each senior manager of his or her specified roles and responsibilities and reporting lines
implement incentive, escalation and consequence management frameworks that promote individual accountability on the part of senior managers
have a succession plan that is regularly reviewed and updated
identify employees in material risk functions and ensure that such employees are fit and proper (prior to appointment and on an ongoing basis)
put in place a system that subjects employees in material risks functions to standards of proper conduct, continued training on competencies and conduct and an incentive system that is aligned with effective risk management and desired conduct outcomes
implement a framework that sets out the standards of conduct expected of all employees and ensure that such expectations are effectively communicated
have policies, systems and processes to monitor, report and escalate conduct issues, an incentive structure which considers risk and control objectives, and a consequence management system including transparent investigation and disciplinary procedures, and
institute formal feedback channels, including implementing an effective whistleblowing mechanism.
The MAS, being the latest regulator to implement an individual accountability regime, is able to draw on the experiences from regulators in other jurisdictions, such as Hong Kong and the United Kingdom. In this regard, the MAS appears to have steered a course between those two regimes: it is broader in scope than the MIC Regime, extending beyond senior managers to employees in material risk functions and beyond individual accountability to conduct more generally, but, unlike the UK, the MAS proposed regime is not legally binding, and does not require submission of detailed information to the MAS (instead, compliance will be assessed via the MAS’s ongoing supervisory process).
On the same note, FIs in Singapore will be able to draw on their overseas counterparts’ experiences relating to implementation of the UK and Hong Kong regimes. However, it is worth pointing out that there are specific nuances in the regimes in different jurisdictions which firms will need to take into account in extending individual accountability to their Singapore operations.
In addition to the identification of senior managers and employees in material risk functions, from an HR perspective, a key component of the Proposed Guidelines is the need to ensure that the FI’s disciplinary processes and incentive structure are aligned with promoting standards of proper conduct and individual accountability. This is likely to lead to amendments being required in the FI’s employment documents and HR processes.
Similar to the UK, the introduction of an individual accountability regime in Singapore is expected to positively enhance an FI’s overall governance, conduct and culture, and will likely remain a key cornerstone of the MAS’ compliance framework. FIs should, therefore, be fully apprised of the requirements of the Proposed Guidelines and start considering the most effective manner of implementation of the Proposed Guidelines, bearing in mind that implementation is likely to be a complex and challenging process.
As the Proposed Guidelines have wide-ranging implications for FIs (and their senior management), FIs are encouraged to provide their responses to the MAS before the consultation exercise closes on 25 May 2018.
In parallel, FIs are also well advised to start identifying their senior managers and the steps that will be required for compliance with the Proposed Guidelines, which are expected to be finalised before the end of the year.
Our teams in Hong Kong and the UK have had significant experience advising and preparing clients in these countries for the MIC Regime and SMR respectively, and the experience gained will be valuable for FIs in Singapore. Please feel free to contact us if you wish to discuss the Proposed Guidelines in greater detail and/or require our assistance in making submissions to the MAS.