Singapore has announced new guidelines on individual accountability and professional conduct for its financial sector. Here’s an overview of what regulated firms can expect starting in September of next year
The Monetary Authority Of Singapore—the country’s central bank and integrated financial regulator—recently set out its first set of personal responsibility guidelines for financial firms. On 10 September 2020 MAS’s Guidelines Of Individual Accountability And Conduct were announced. On 10 September 2021 they go into effect. At the core of these guidelines are five high-level outcomes all firms are expected to achieve in the country’s pursuit of promoting the accountability of senior managers, strengthening the oversight over material risk personnel, and reinforcing professional conduct standards among all employees.
Following is an overview of the new guidelines. For full coverage please refer to the official MAS PDF copy. For recent StarCompliance coverage of the SMCR—the UK’s sister set of financial accountability and conduct guidelines—see UK COVID-19 Compliance Update: Joint FCA-PRA Statement On SMCR.
WHO’S COVERED AND WHO ISN’T: GUIDELINE APPLICABILITY
The new guidelines apply to all financial institutions regulated by MAS, with the following exceptions:
- An exempt financial adviser
- An exempt corporate-finance adviser
- An exempt trust business
- An exempt over-the-counter derivatives broker
- An exempt futures broker
- An exempt payment services provider
- A Recognized Market Operator incorporated outside Singapore
- A Recognized Clearing House incorporated outside Singapore
- A Licensed Foreign Trade Repository
- The Continuous Linked Settlement Bank
ACCOUNTABILITY AND CONDUCT OUTCOME 1:
Senior managers responsible for managing and conducting core firm functions are clearly identified
Clarity in individual responsibilities and overall firm management structure ensures that senior managers are held to account for matters under their purview. This is fundamental to an effective governance framework, and facilitates greater transparency in firm management and decision-making processes.
GuidanceThe board or head office should ensure the following:
- Clear identification of the senior managers responsible for functions core to firm affairs, including the core management functions (CMFs).
- Accurate identification of senior managers that reflects actual oversight responsibilities and decision-making authority.
- Appropriate management oversight over all material aspects of firm affairs, including but not limited to CMFs.
- Firms should review how each CMF applies in the context of their operations in Singapore and where applicable, across the group.
- Firms may deviate from the list of CMFs if they’ve determined that any of the CMFs aren’t applicable to their circumstances.
- Firms should consider designating senior managers for CMFs which are relevant to their circumstances, but are presently not assigned to any individual.
- Board directors are considered senior managers under the guidelines if they're employed in the capacity of an executive function within the firm.
ACCOUNTABILITY AND CONDUCT OUTCOME 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
ACCOUNTABILITY AND CONDUCT OUTCOME 3:
Firm governance framework supports senior managers’ performance of their roles and responsibilities, with a clear and transparent management structure and reporting relationships
Firms are responsible for conducting necessary due diligence prior to appointing senior managers. Firms should establish the appropriate governance policies and processes to promote proper accountability, and facilitate senior managers’ performance of their roles and responsibilities in an effective manner.
And as part of their internal governance framework, firms should clearly articulate the roles and responsibilities of senior managers and overall management structure. Firms are expected to maintain accurate and comprehensive records of these arrangements.
The board or head office should ensure the following:
- Robust standards and processes to assess the fitness and propriety of each senior manager, prior to appointment and on an on-going basis thereafter.
- Clear specification of each senior manager’s individual areas of responsibility and his or her appointment and responsibilities in management committees.
- Appropriate delineation of the firm’s overall management structure, including the reporting relationships among senior managers and management committees.
- Acknowledgement by each senior manager of his or her specified roles, responsibilities, and reporting lines.
- Approval by the board or head office of each senior manager’s specified roles and responsibilities and the firm’s overall management structure.
- Documentation of each senior manager’s specified roles and responsibilities and the firm’s overall management structure.
- Appropriate incentive, escalation, and consequence management frameworks that hold senior managers accountable for the effective performance of their specified roles and responsibilities.
- A succession plan that’s regularly reviewed and updated, including the identification of potential candidates in the pipeline and appropriate handover policies and procedures.
- The emphasis on individual accountability does not absolve the collective accountability of management committees and vice versa.
- In setting up management committees, firms should establish a formal mandate and articulate the terms of reference and reporting lines for each committee.
ACCOUNTABILITY AND CONDUCT OUTCOME 4:
Material risk personnel are fit and proper for their roles, and subject to effective risk governance and appropriate incentive structures and standards of conduct
Material risk personnel, or MRPs, are individuals who have the authority to make decisions or conduct activities that can significantly impact firm safety and soundness. MRPs can be front, middle, and back-office functions, as well as any other employee with supervisory capacity over such functions who aren’t senior managers.
The principle-based definition of MRPs seeks to facilitate proportionate application by firms, in a manner applicable to their business models and commensurate with the nature of their business and risk. Firms are responsible for critically assessing and identifying MRPs, and subjecting them to the necessary oversight.
Guidance:1. The board and senior management should ensure appropriate standards and processes are in place to:
- Identify MRPs, including establishing the relevant criteria for identifying such employees.
- Assess the fitness and propriety of MRPs, prior to their appointment and on an ongoing basis.
- Facilitate effective risk governance, including subjecting MRPs to the appropriate mandates, decision-making authority, risk limits, and supervisory oversight relevant to the types of activities which they undertake.
- Subject MRPs to standards of proper conduct in relation to the types of activities they undertake: standards that align with the nature and time horizon of risks and that encourage behavior consistent with desired conduct outcomes.
- The identification of MRPs is built on two considerations: (1) the risks a firm is exposed to due to the nature, size, and complexity of its business; and (2) the individuals who have the authority to make decisions or conduct activities that could materially impact this risk profile. Accordingly, in identifying MRPs, the board and senior management of firms should establish criteria that consider:
- The financial and non-financial risks which the firm is or may be exposed to, including credit, market, liquidity, operational, tech, conduct, money laundering, regulatory, reputational, and strategic risks.
- The materiality of the impact that an individual’s decisions or activities could have on this risk profile, based on the appropriate quantitative and qualitative indicators.
- Quantitative indicators may include:
- The authority or mandate to structure, deal in, or approve transactions or trades that give rise to credit, market, or liquidity risk exposures beyond a certain risk limit.
- Responsibility for the investment management of, or advising on, assets beyond a certain size.
- The authority or mandate to underwrite or approve insurance or reinsurance policies, including claims, beyond a certain risk limit.
- An individual’s level of remuneration, as it is often correlated with the returns generated by the individual, and hence the materiality of risks the individual may potentially expose the firm to.
- Qualitative indicators may include:
- The authority to make decisions on or approve the development, structuring, or distribution of products and services.
- The development or deployment of new technologies in internal processes or products and services offered to customers.
- The onboarding or retention of customers that present higher risks.
- Privileged rights in relation to the handling or administration of critical infrastructure and systems of the firm or assets of the firm or its customers.
- The examples of indicators in the previous paragraphs are not exhaustive. The board and senior management are to establish criteria for identifying MRPs that are suitable to firm circumstances.
- The direct supervisors of MRPs are automatically considered MRPs, unless they’ve already been designated as senior managers.
ACCOUNTABILITY AND CONDUCT OUTCOME 5:
The firm has a framework that promotes and sustains among all employees the desired conduct
The manner in which a firm conducts business and interacts with customers and other stakeholders is driven by the values, attitude, and behavior of its employees at all levels. The board and senior management have a critical role in defining the conduct standards they would expect of all employees.
- MAS already has in place legislation and guidelines that set out requirements and expectations on the conduct of firms and their employees. To augment the existing regulatory regime, senior management should ensure that a framework is in place which addresses the following.
- The standards of conduct expected of all employees, including but not limited to: standards on honesty and integrity; management of conflicts of interest; and compliance with the applicable laws and regulations.
- Consistent and effective communication of the expected standards of conduct through a code of conduct, regular training programs, and sharing of lessons learned where misconduct has already occurred.
- Appropriate policies and processes to enforce the expected standards of conduct, including but not limited to: regular monitoring, reporting, and escalation; an incentive structure which considers risk and control objectives; and a formalized whistleblowing program.
- Firms should notify MAS as soon as they become aware of any material adverse developments, including: misconduct; lapses in risk management and controls; or breaches in legal or regulatory requirements that have the potential to cause widespread disruption to firm operations.
- Effective monitoring and management of conduct risks is an iterative process. The firm should regularly review the adequacy and effectiveness of the its conduct framework, taking into account any gaps between observed behaviors and desired standards of conduct.
MAKING COMPLIANCE SIMPLE AND EASY
So how can Singapore-based firms meet the requirements of this forthcoming regulation with ease and efficiency? The same way firms in countries with similar regulations, including the UK and Australia, do: technology. Compliance software solutions can help firms automate important processes, create comprehensive audit trails, provide previously unavailable levels of data and insights, and even shift responsibility for employee oversight down to line managers, i.e., the people in closest contact with regulated employees and arguably those best positioned to determine if misconduct is occurring.
The STAR Platform is a robust base of operations for all this and more—giving firms a true data-centralizing capability that will allow them to monitor employee activities more efficiently, more effectively, and in the process reduce risk. Star offers a range of solutions that makes staying compliant simple and easy. Two good places to start are Star’s personal trading product and Star's supervisory dashboards.