On June 23, 2015, the Monetary Authority of Singapore (MAS) published a consultation paper entitled “Consultation on Enhancements to Resolution Regime for Financial Institutions in Singapore” (the Consultation Paper), which sets out proposals to strengthen the resolution regime for financial institutions in Singapore.
The proposals take into account the Key Attributes of Effective Resolution Regimes for Financial Institutions adopted by the Financial Stability Board. The MAS’ policy intent is to apply recovery and resolution planning requirements to financial institutions that are systemically important to Singapore or that maintain critical functions.
The proposed policy changes will be effected primarily through amendments to the MAS Act and supported by necessary accompanying regulations.
This briefing sets out the key proposals in the Consultation Paper that would affect fund managers who are Capital Markets Services (CMS) license holders in Singapore (Please note that proposals affecting other types of financial institutions are outside the scope of this briefing).
Key proposals in the Consultation Paper
A summary of the key proposals in the Consultation Paper is set out below.
|Resolution Regime For CMS License Holders in Singapore
|Recovery and resolution plans (RRPs)
- Only CMS license holders who have been notified by MAS will be subject to the RRP requirements.
- Notified CMS license holders will be required to:
- prepare, maintain and submit a recovery plan setting out the procedures and establishing systems necessary to restore their financial strength and viability in the event of financial pressure or stress;
- make specific changes to the recovery plan to address material deficiencies;
- implement recovery measures where necessary;
- furnish information required for the purposes of resolution planning; and
- take measures to improve resolvability by addressing or removing impediments to orderly resolution.
- Responsibility for the development and maintenance of a RRP will lie with the board and executive officers of the CMS license holders, and a failure to discharge such responsibilities will constitute an offence.
|Temporary stays on early termination rights on financial contracts
- MAS proposes to introduce, subject to certain safeguards, statutory powers to temporarily stay early termination rights of counterparties to financial contracts entered into with a CMS license holder over which the MAS may exercise its resolution powers.
|Ensuring continuity of essential services and functions
- MAS proposes to introduce powers to suspend the termination rights of non-financial contracts, or to require these contracts to continue to be performed on the same terms and conditions that were in place prior to the resolution. This may include requiring service providers to continue to provide essential services to the entity in resolution, any successor or an acquiring entity.
|Statutory bail-in regime
- MAS proposes to introduce statutory powers to carry out the bail-in of liabilities under the MAS Act. Such powers will be applied to Singapore-incorporated banks and bank holding companies in the first phase, and MAS may consider extending the bail-in regime for non-bank financial sectors that may be systemically important for Singapore.
- Bail-in regime is intended to be applied to unsecured subordinated debt and unsecured subordinated loans, issued or contracted after the effective date of the relevant legislative amendments implementing the statutory bail-in regime.
- MAS proposes to introduce statutory powers to either convert into equity or write down contingent convertible instruments and contractual bail-in instruments whose terms had not been triggered prior to entry into resolution.
|Resolution funding arrangements
- Resolution funding arrangements will be used to support costs incurred in implementing resolution measures. Such arrangements may also be used to address any creditor compensation claims.
- It is proposed that any costs incurred in resolving a CMS license holder should first be borne by that CMS license holder, with losses also imposed on its equity holders and unsecured creditors. Where this is insufficient, the costs incurred in resolving the CMS license holder could be recovered from the industry through a funding mechanism for ex post recovery from the industry.
- MAS may grant loans to a bridge institution or asset management company, or another financial institution acquiring the assets or shares of a financial institution that is being resolved. MAS may also enter into loss-sharing agreements.
Please refer to the Consultation Paper for the complete set of proposals.
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