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Singapore’s Financial Supervision and Development
Global Financial Markets
GROUP 1: Guo Zong Ren | Zheng Yayuan | Ng Wenying | Long Hong ZhangLi Yiyun | Cai Xin | Anand Shankar Ravisankar
Outline
1 Introduction about MAS
2 Phases in history of Supervision
a. 1970s: The formative yearsb. 1981 – 1997: Strengthening the Financial systemc. Post 1997: New Millenniumd. Insurance Regulation
3 Current Supervisory Regime
a. MAS Mission and Objectivesb. MAS Principles and Functions
4 Balancing Supervision & Development
Introduction1
Lead-up to MAS
Supervision vs Innovation
Singapore gained independence in 1965 without proper financial regulatory system
Singapore was already a regional financial centre
Small and open economy Financial sector esp. impt intermediary for businesses
However there was no institution in charged of safeguarding the soundness of the financial system
Regulation and Financial Innovation are conflicting agendas and have always posed huge challenges for policy makers
How did MAS balance between Supervision and Innovation (Financial Development)?
Sound Financial Sector: Confidence in system Market would be active Economy able to mobilize savings for economic use
MAS
MAS’ Duel Role
Introduction1
MAS Two Axioms
Principles that MAS relies on throughout the 44 years of history
Consistency Flexibility
It is MAS’ priority to ensure that their actions are always
predictable and consistent so as to instill confidence and credibility with global financial institutions.
As the financial market is a fast-evolving sector, MAS is always keeping in mind the need to be
adaptable to new innovations and quick to adjust its policies in
response to changing global trends.
Phase ONE2The Formative Years (1970s)
Motivations
1 Newly independent nation without financial regulatory body
2 Establish Singapore as regional and international FC
3 Catch up with the newly developed Asian Dollar Market (ADM)
1 Develop the central tenets of its financial supervision policy
2 Learn fast by leveraging on the banking sector’s existing knowledge and expertise
3 Build up necessary infrastructure from scratch quickly
4 Prioritize development and soundness of Local Banks instead of foreign banks
Priorities
Phase ONE2The Formative Years (1970s)
Characteristic
1 Central tenets of policies 1. Gatekeeping 2. Ongoing supervision
2 Supervision focused on banks’ financial soundness and solvency
3 More micro-managing of banks’ management qualities, internal control, direction and even down to staff training
4 Maintained very accessible to and close with international banks- To attract reputable institutions who would contribute to the development of Spore
5 Training and educating staff and public on financial knowledge - Set up 2 training and educational bodies to support Singapore’s development
6 Any volatilities in market (e.g. Bretton Woods / Chit Funds) were closely managed
Overall: this phase is characterised by close rapport and close supervision of the financial industry necessitated by the need for MAS to grasp and understand best-practices fast
7 Interest rates determined through cartel arrangements, subsequently banks allowed to quote their rates freely
Phase ONE2The Formative Years (1970s) Monetary Policies
Motivations
1 Dependency on imports
2 Vulnerability to imported inflation
3 Traditional macroeconomic monetary policies not effective
1 A built-up Reserve
2 Accumulation of foreign reserve
3 Credibility of MAS
4 Prioritize development and soundness of Local Banks instead of foreign banks
Foundation for Exchange rate Policy
Phase one of MAS history also saw the transformation of Singapore’s Monetary Policies…
4 MAS focus on maintaining price stability (low & stable inflation)
Evolved from using a cartel to determine interest rates
Exchange rate policy
Monetary Policy
Phase TWO2Strengthening the Financial System (1981-1997)
Motivations
1 Series of financial shocks & crisis overseas- Latin American Crisis- Etc
2 Appointment of Dr Goh Keng Swee as MAS Chairman
3 Keep up with global developments
1 Ensure financial sector was resilient enough towards any shocks
2 Cultivate greater self-regulation and self-discipline within industry
3 Further build up credibility as FC and as regulator
4 Maintain higher prudential standards , more encompassing standards
Priorities
4 MAS need to better serve its myriad of functions
5 Establish new rules / review old rules to keep up with financial developments
Phase TWO2Strengthening the Financial System (1981-1997)
Characteristic
1 Tighter grip on the 2 central tenets
2 Cut down on reporting and adopt an oversight role to promote self-regulation
3 Stricter enforcement to keep self regulation in check
4 Maintain arms-length relationship with industry practitioners
5 Uphold role as regulator in a consistent fashion
6 Formation of 2 new advisory / legislative bodies- Securities Industry Council (SIC) - Stock Exchange of Singapore (SEC)
Overall: this phase is characterised by higher and stricter standards enforced at arms-length
7 More encompassing regulation; even credit card limit is regulated
8 Set up of GIC
Phase THREE2Supervision in the new millennium (Post-1997)
Motivations
1 Rapid globalisation & technological advancement
2 Permit openness without compromising high standards
3 Financial Innovation
1 Give industry room for innovation and liberalisation
2 Adapt approach towards new-age supervision Risk-based Supervision
3 Harmonize and integrate MAS functions / practices
4 Emphasis on systematic risk
Priorities
4 Need for efficient way to manage supervisory resources
5 Ensure policies were more versatile and tailored to individual institutions
5 Avoid one-size-fit-all regulations
6 Encourage more innovation and competition
Phase THREE2Supervision in the new millennium (Post-1997)
Characteristic
1 Focus on minimising systematic risk rather than protect individual firms / products
2 Macro-surveillance that monitors stability in industry
3 Reinforced responsibilities of board and management of financial institutions
4 More frequent but shorter and focused inspections on banks
Overall: this phase is characterised by the risk-based supervision and a more robust regulatory framework
5 Use of risk assessment system CRAFT
6 Supervisory resources divert to systematically important institutions
7 MAS departments operate with more cross-interaction
8 Developed integrated regulatory framework that provides consistency- Financial Advisers Act
8 Developed 6 Tenets of regulation
9 Open and consultative relationship with industry practitioners
Insurance Regulation2Phases and Characteristics of Insurance Regulation
Phase 1
1 MAS took over supervision from MOF
2 Emphasized on growth
3 Consultative with industry practitioner
Phase 2
1 Amended Insurance Act to transfer to MAS the duties of Insurance Commissioner
2 Policyholder’s interest protects in insolvency
Phase 3
1 Insurance Intermediaries Act and Regulations
2 More routine and thematic inspection
3 New regulatory framework for A&H insurance
4 Standardized industry definitions and disclosures
5 Risk-based capital framework for insurers
Current RegimeSupervision in the new millennium (Post-1997)
New Regulatory Framework?
CRAFT – Risk assessment system?
3
Current Regime3Mission and Objectives
Mission
1 Promote sustained and non-inflationary economic growth
2 Promote a strong and progressive financial service sector
o Exchange rate policyo Management of official
foreign reserveo Regulating and supervising
financial sectoro Work with industry to
develop Singapore into IFC
MAS Structure
Current Regime3Mission and Objectives
Objectives
1 Stable Financial System
• Risk is required for the financial system • Institutions can incur huge losses if the risk is not
well managed. • MAS cannot completely prevent losses • Reduce the risk and impact of a failure by
requiring adequate internal control in Institutions
2 Safe and sound financial intermediaries
• May affect systemic stability / undermine confidence• Information asymmetry for normal investors calls for
intermediaries’ ability to identify / monitor / mitigate risk
• Combat money laundering and terrorism financing may pose legal and reputational risks to Singapore
3 Safe and efficient financial infrastructure- Exchanges / Clearinghouse / Settlement sys
• When such platform fail:o Amplify systemic riskso Seize financial flowso Undermine obligation fulfilmentso Transmit shocks btw institutions
• Efficient infrastructure:o Reduce frictiono Lower costso Max economic benefits of financial
intermediation
4 Fair, efficient and transparent organize markets
• Markets must have Proper trading practices• Fair access to market facilities and information• Fair structures:
o Processes that disseminates information in timely and organised manger
o Information made publicly available on real-time basis
Current Regime3Mission and Objectives
Objectives
5 Transparent and fair-dealing intermediaries and offerors
• MAS supervises them by:o Conducting testso Setting up requirementso Instilling fair business practices
• Requirements:o Make proper disclosure of material
informationo Help ensure market transparencyo Equip investors with required knowledge to
make informed decisions
6 Well-informed and empowered consumers
• Based on principle that consumers will bear responsibility for protecting their own interests
• MAS does not and cannot protect consumers from the risk they decide to undertake
• Ensure consumers are well-informed and empowered
• Seeks to address risks that stem from misleading disclosure, conflict of interest and mis-representation
• Work with public sector agencies in helping equip consumers with money mgmt, financial planning and investment skills
Current Regime3Principles and Functions
Principles
Risk-FocusedStakeholder-
ReliantDisclosure-Based Industry-Conscious
1 Emphasize Risk-focused supervision rather than one-size-fits-all regulation
2 Assess the adequacy of an institution’s risk mgmt. in the context of its risk and business profile
3 Allocate scarce supervisory resources according to impact and risks
4 Ensure institutions are supervised on an integrated (across industry) and consolidated basis (across geography)
5 Maintain high standards in financial supervision, including observing international standards, and best practices
6 Seek to reduce the risk and impact of failure rather than prevent the failure of any institutions
Current Regime3Principles and Functions
Principles
Risk-FocusedStakeholder-
ReliantDisclosure-Based Industry-Conscious
7 Place principal responsibility for risk oversight on the institution’s board and management
8 Leverage on relevant stakeholders, professionals, industry associations and other agencies
Current Regime3Principles and Functions
Principles
Risk-FocusedStakeholder-
ReliantDisclosure-Based Industry-Conscious
9 Rely on timely, accurate and adequate disclosure by institutions rather than merit-based regulations of products to protect consumers
10 Empower consumers to assess and assume for themselves the financial risks of their financial decisions
Current Regime3Principles and Functions
Principles
Risk-FocusedStakeholder-
ReliantDisclosure-Based Industry-Conscious
11 Give due regard to competitiveness, business efficiency and innovation
12 Adopt a consultative approach to regulating the industry
Current Regime3Principles and Functions
MAS’ Oversight Functions
Regulation
Authorisat-ion
Supervision
Surveillance
Enforcement
Resolution
Corporate Governance
Market Discipline
Consumer Education
Consumer Safety-Net
“Gatekeeper” for institutions
Soundness and effectiveness of
market
Empowered to take action against breach
of market conduct
Resolve conflicts and aim to protect depositors and investors
Oversee and manage internal risk, promote
sound governance
Empower consumers with understanding of
products & services
Amount protected if institution fails
Balancing Supervision & Development4MAS’ duel role of Supervision vs Development
Regulate and Supervise
Innovate & Develop
BALANCE BY
Abiding by the principles of:- Achieving credibility by acting predictably and consistently under various
situation- Taking flexible and adaptable action so that innovation can respond to the
changes of the market quicklyMaking the dual roles complementary:- Clear separation between both functions in MAS- Senior management to resolve conflicts / trade-offsRisk-based framework encourage innovation:- Does not seek “zero failure” overregulation & impairment of development- Bracket system focus on reducing risk & impact, not penalise all risks
Risk & Impact model: CRAFT
Balancing Supervision & Development4MAS’ duel role of Supervision vs Development
Risk & Impact Framework
Achieve Effective Level of Supervision
Balancing Supervision & Development4Collaboration with Financial Institutions
1. MAS minimally intervenes in the institution’s business operations as long as the risks are adequately managed..
2. MAS reinforces the responsibility of the management within the institutions to oversee the behaviour of institution and improve the risk management.
3. MAS caters it supervisory responsibilities with respect to the type of institution, its scale and complexity of business activities and its related risk.
Promotes innovation w/o compromising on Supervision
The End
Global Financial Markets
GROUP 1: Guo Zong Ren | Zheng Yayuan | Ng Wenying | Long Hong ZhangLi Yiyun | Cai Xin | Anand Shankar Ravisankar