Senior managers responsible for the core functions of financial institutions could be clearly identified, going forward.
This is one of the outcomes the Monetary Authority of Singapore (MAS) hopes to see as it spelled out yesterday guidelines aimed at strengthening the individual accountability of senior managers and raising standards of conduct in financial institutions.
The 23-page guide is aligned with worldwide efforts to instil a culture of personal accountability among senior managers at banks and financial institutions since the 2008 global financial crisis.
Senior managers' work had come under the spotlight as countries sought explanations for how the crisis occurred.
The MAS guidelines said the high-level staff must be "fit and proper for their roles, and held responsible for the actions of their employees and the conduct of the business under their purview".
They will apply in full to all financial institutions except those with fewer than 50 staff.
In an analysis of the 2008 crisis, the Centre for Economic and Social Rights in the United States said a systemic lack of accountability among financial institutions contributed to the crisis, though another key factor was growing income and wealth inequality.
Moral hazards, flawed incentives and the abdication of personal or institutional responsibility for the downside costs of financial activities contributed to the crisis. Moral hazards refer to a lack of incentives to guard against risk.
For instance, financial institutions feared no meaningful sanctions or corrective actions enforced by the market or the government, which would shoulder most of the blame due to lax regulations, the centre added.
The latest MAS guidelines come after refinements to a consultation paper introduced in April 2018, following feedback.
They are accompanied by a 17-page information paper on how the institutions can instil ethical behaviour in areas such as hiring, communication channels, monitoring and assessment, and performance management.
Best industry practices include setting up an ethics and conduct board committee, chaired by the financial institution's chairman; offering workshops for middle management staff; and having senior management involved in hiring processes to ensure cultural fit.
GOVERNANCE PRACTICES KEY
It is also increasingly important that organisations, not just limited to the financial industry, implement governance practices which reflect the importance of culture and conduct for their employees in the new work normal.
DBS SINGAPORE COUNTRY HEAD SHEE TSE KOON
The information paper also contains a reminder that the MAS will take supervisory or enforcement action against banks and financial institutions if lapses are found, from warning letters to removing directors or executive officers.
CIMB Private Banking economist Song Seng Wun said the guidelines serve as a "useful reminder to financial institutions not to take their eyes off corporate governance and risk management controls".
United Overseas Bank and DBS Bank welcomed the new guidelines. UOB group chief risk officer Chan Kok Seong said: "Responsibilities must be clearly understood and communicated... Strong governance is crucial to organisational success."
DBS Singapore country head Shee Tse Koon said: "It is also increasingly important that organisations, not just limited to the financial industry, implement governance practices which reflect the importance of culture and conduct for their employees in the new work normal."
Associate Professor Lawrence Loh of the National University of Singapore Business School, who is also director of the Centre for Governance, Institutions and Organisations, said: "The unique thrust of the new guidelines is the focus on the individual level.
"Moreover, these are more specific and readily applicable to financial institutions."