MAS to enhance resolution regime for financial institutions

There will be amendments in the MAS Bill 2017.

The Monetary Authority of Singapore will soon have additional powers and tools to enhance Singapore's resolution regime and bring it up to date with international developments.

Speaking before the parliament, Ong Ye Kung, Minister for Education and Second Minister for Defence, said MAS consulted the industry and the public on the proposed enhancements to the resolution regime for financial institutions (FI) in the past two years.

He was reading a speech on the second reading of the MAS (Amendment Bill 2017) by Tharman Shanmugaratnam, Deputy Prime Minister and Minister-in-charge of the Monetary Authority of Singapore.

One of the enhancements in the bill is the explicit powers for MAS to require FIs to prepare recovery plans and submit such information to MAS for resolution planning.

" This is necessary because robust and credible recovery and resolution plans can reduce the risks that a distressed FI poses to the stability of the financial system. They help to ensure the continuity of critical functions and services to the economy, and allow distressed FIs to regain their financial strength, restructure, or exit from the market in an orderly manner," he said.

More so, the proposed amendments introduce legal provisions for MAS to temporarily block counterparties’ rights to terminate contracts with an FI in resolution.

"These provisions are necessary to ensure the orderly resolution of the FI. Nevertheless, certain counterparties, such as central banks, payment systems, approved or recognised clearing houses, and depositories, will not be subject to these powers," the minister added.

The bill also introduces a statutory bail-in regime to enable MAS to write down or convert an FI’s debt into equity. The bail-in tool can help recapitalise distressed FIs, and reduce the risk to depositors and reliance on public funds to “bail out” distressed FIs.

Additionally, it introduces a statutory framework for MAS to recognise resolution actions taken by a foreign resolution authority on FIs in Singapore.

The minister furthered, " Timely access to funding is key to the successful and orderly resolution of a distressed FI. It is also in the interests of the private sector to ensure this, and to limit any contagion effect. MAS’ preferred approach is a private sector solution that does not require the injection of public funds. But it would be unwise to assume that private funds would always be readily available at the time of resolution. The Bill, therefore, proposes to put in place Resolution Funding Arrangements, to support the implementation of resolution measures."

In this regard, the MAS, as the central bank, will first provide a temporary loan to the Resolution Fund for its immediate operating needs. Withdrawals from the Resolution Fund will subsequently be recovered from the industry via ex-post levies. MAS will be consulting the industry on the methodology for determining such levies.