COVID-19: MAS Measures for Financial Institutions to Focus on Supporting Customers

As the outbreak of the coronavirus (COVID-19) continues, the Monetary Authority of Singapore has introduced a number of initiatives to assist Singapore financial institutions in supporting their customers. This LawFlash provides an overview of the MAS relief initiatives.

The Monetary Authority of Singapore (MAS) relief for financial institutions (FIs) includes the following measures, discussed in greater detail below:

• Adjusting capital and liquidity requirements to help sustain lending activities
• Allowing FIs to take into account the Singapore government’s fiscal assistance and banks’ relief measures in setting more realistic accounting loan loss allowances
• Deferring the implementation of the final set of Basel III reforms, margin requirements for non-centrally cleared derivatives, and other new regulations and policies
• Providing more latitude on submission timelines for regulatory reports and defer non-urgent industry projects
• Suspending regular onsite inspections and supervisory visits 

Capital and Liquidity Requirement Adjustments for Banks

MAS is encouraging Singapore banks to use their capital buffers to support lending to businesses and individuals, given that the banks have built up healthy capital buffers over the years that should have sufficient capital to weather the current economic slump and continue to supply credit to the Singapore economy.

MAS stressed that sustaining lending activities should take priority over discretionary distributions. While MAS does not see a need to restrict banks’ dividend policies, MAS warned that the release of capital buffers should not be used to finance share buybacks during this period.

To help enhance banks’ capacity to lend, MAS will allow banks to recognize as capital more of their regulatory loss allowance reserves. The relief will apply until 30 September 2021, and may be extended.

Banks may also use their liquidity buffers as necessary to meet liquidity demands. MAS will adjust the Net Stable Funding Ratio requirement for banks. As a result, the amount of stable funding that banks must maintain for loans to individuals and businesses that are maturing in less than six months will decrease from 50% to 25%. This relief will apply until 30 September 2021, and may be extended.

Accounting Loan Loss Allowances

MAS has engaged FIs and accounting professionals on how accounting standard FRS 109 should be applied to loan loss allowances under the current challenging circumstances resulting from COVID-19. FRS 109 requires the incorporation of forward-looking information, including macroeconomic factors, to estimate accounting loan loss allowances. Given uncertainties on how COVID-19 will evolve and its impact on the global economy, there are significant challenges around the exercise of judgement in the use of such forward-looking factors.

MAS’s guidance is that when FIs assess COVID-19’s impact on future economic conditions in estimating accounting loan loss allowances, they should also consider the extraordinary measures taken by the Singapore government to bolster economic resilience.

In addition, MAS does not expect FIs to maintain higher accounting loan loss allowances solely because COVID-19 relief measures are applied to these loans. Instead, FIs should assess a borrower’s risk of default comprehensively, taking into account the mitigating effects of the relief measures, and the borrower’s ability to make full repayment based on the revised loan terms as well as its creditworthiness in the long term.

Deferred Implementation of Regulatory Reforms

Basel III

MAS will defer for one year the implementation of the final set of Basel III reforms for banks in Singapore. While the reforms are necessary to strengthen the banking system over the long term, they will require banks to make considerable operational adjustments which may be onerous under current conditions. This deferment is in line with the recent announcement by the Basel Committee on Banking Supervision (BCBS) to delay the internationally-agreed-upon start date for the revised standards.

MAS will defer to 1 January 2023 the implementation of revised standards for the following:

• Credit risk, operational risk, leverage ratio, output floor, and related disclosure requirements (with the accompanying transitional arrangements for the output floor extended to 1 January 2028)
• Market risk and credit valuation adjustments for supervisory reporting purposes (for purposes of compliance with capital adequacy and disclosure requirements, these standards will be implemented from 1 January 2023 or later)

MAS will defer by one year the implementation of the final two phases of the margin requirements for non-centrally cleared derivatives. This will reduce the strain on banks’ resources to put in place legal agreements and system changes to implement the exchange of initial margins. The new timelines:

• 1 September 2021 for a bank or merchant bank whose group’s aggregate non-centrally cleared derivatives exposure is more than 80 billion Singapore dollars; and
• 1 September 2022 for a bank or merchant bank whose group’s aggregate non-centrally cleared derivatives exposure is more than 13 billion Singapore dollars and up to 80 billion Singapore dollars.

These deferments are consistent with the recent joint announcement by the BCBS and International Organisation of Securities Commissions. MAS will also extend by one year to 1 October 2021 the final phase of the reporting requirements for over-the-counter derivatives trades.

Licensing and Conduct Requirements

MAS will defer the implementation of certain licensing and conduct requirements, which were introduced under the Securities and Futures (Amendment) Act 2017, by extending the transitional period for these requirements by one year to 8 October 2021. These requirements include the following:

• Entities dealing in and advising on Over-the-Counter Derivatives (OTCDs): MAS requires an individual acting as a representative in respect of dealing in or advising on OTCDs to be appointed as a representative. MAS also requires an entity dealing in or advising on OTCDs to comply with conduct requirements such as meeting risk mitigation standards, providing customers with contract notes to confirm the OTCD transactions, and having a reasonable basis when recommending OTCD products to customers.
• Customers’ moneys and assets: These enhanced requirements include periodic computation of moneys and assets in customers’ trust and custody accounts.
• Other conduct requirements for banks: These include the provision of account statements to customers and the keeping of certain records.

Deferment of New Policies

MAS will defer the following new policies where consultations have closed: 

• Consultation Paper on Requirements on Controls Against Market Abuse: MAS had consulted on enhanced requirements for licensed and exempt FIs in Singapore that undertake the regulated activity of dealing in capital markets products. The new requirements were aimed at improving controls and facilitating investigations into cases of market abuse.
• Guidelines on Individual Accountability and Conduct / Information Paper on Culture and Conduct Practices of Financial Institutions: MAS had consulted on a set of proposed guidelines to strengthen accountability and standards of conduct across the financial industry in 2018/2019. MAS had also informed banks, insurers, and capital market intermediaries in 2019 of its plans to publish an information paper on FI culture and conduct practices.
• Complaints Handling and Resolution Regulations: MAS had issued a consultation paper on the revised biannual report and implementation timeline for the Complaints Handling and Resolution (CHR) regulations in 2019. The CHR regulations apply to financial advisers who serve retail clients, and were scheduled to be published in the first quarter of 2020.
• Requirements on Execution of Customers’ Orders: MAS had issued a consultation paper to formalize expectations for licensed and exempt FIs in Singapore to establish policies and procedures to execute customers’ orders on the best available terms to support fair outcomes for customers.

FIs will be provided sufficient time for transition to the new dates when announced.

MAS will also provide a longer response time for FIs and other interested parties to provide feedback to ongoing public consultations of new policies during this period.  In addition, MAS will defer until further notice the public consultations on outsourcing requirements for banks and environmental risk management guidelines.

Extending Reporting Timelines and Deferring Industry Projects

MAS will provide more latitude on submission timelines for regulatory reports, and will work with FIs to review submission timelines while taking into account the need for timely information by MAS to facilitate its supervisory reviews.

MAS will also defer non-urgent industry projects such as the launch of a new electronic system for banks and insurers to submit applications for the approval of key appointment executives. The new system was scheduled for launch in the second quarter of 2020. The existing application process will continue to be used until further notice.

MAS will seek feedback from banks and merchant banks on potential challenges they may face in transitioning to a more comprehensive reporting regime under the revised MAS Notices 610 and 1003, respectively. MAS recognized the substantial investment in effort and resources already made by the industry and the good progress to date, and will assess the need to defer the targeted implementation timeline from January 2021 to a later date.

Suspension of Onsite Inspections and Supervisory Visits

MAS will suspend all regular onsite inspections and supervisory visits to FIs until further notice. Inspections and supervisory visits already in progress will be done through teleconferencing. MAS recognizes that FIs’ implementation of measures such as split operations and telecommuting to ensure business continuity have placed additional operational burdens on them. MAS will therefore focus its supervisory reviews on how FIs are managing the impact of COVID-19 on their business and operations.

MAS has begun to conduct onsite visits to FIs’ customer-facing locations to verify and enforce the implementation of safe-distancing measures in line with guidelines from the Ministry of Health. 

Sound Risk Management

MAS stated that it expects FIs to

• maintain key financial services to customers and sustain the flow of credit to the economy;
• ensure operational resilience and sound risk management amidst the challenges posed by COVID-19; and
• remain vigilant to heightened risks such as cybersecurity threats, fraudulent transactions and scams, money laundering, and terrorism financing.

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