Guidelines planned to raise finance execs' accountability

Move is part of MAS efforts to build culture of ethical behaviour and responsible risk-taking

New guidelines are on the way to strengthen the accountability of senior managers and raise standards in financial institutions.

The move, which is likely to take effect in the fourth quarter, is part of efforts to foster a culture of ethical behaviour and responsible risk-taking in the finance industry.

They mirror efforts across the world to instil a culture of personal accountability at the top of financial firms in the wake of the global financial crisis a decade ago.

"Globally, there has been increased focus on the manner in which financial institutions conduct their business, and interact with their customers and other stakeholders," the Monetary Authority of Singapore (MAS) said in a consultation paper.

"Incidents of misconduct and egregious risk-taking in the industry have undermined public trust and confidence, with poor culture being one of the root causes."

The proposed guidelines include requiring financial institutions to identify senior managers who are responsible for core management functions and clearly specify their individual areas of accountability.

Institutions should ensure that senior managers are fit and proper for their roles and hold them individually responsible for their staff's actions and the conduct of business.

Employees in material risk functions that can significantly impact an institution's soundness or cause harm to a significant segment of its customers or other stakeholders should also be identified and subject to an appropriate incentive structure and risk governance.

The proposals also call for a proper framework to be put in place that promotes and sustains the desired conduct among all staff.

There should be appropriate incentive systems and effective feedback channels, such as whistle-blowing mechanisms, available too.

"Clear accountability and proper conduct are important elements of good governance and sound business practice," said Mr Ong Chong Tee, deputy managing director of financial supervision at MAS.

It is ultimately the responsibility of each financial institution to hold its senior managers accountable for their actions and ensure proper conduct among their employees, MAS said.

Financial institutions will be able to determine the most appropriate ways to achieve the desired outcomes of proper accountability and conduct although the MAS will monitor implementation through regular supervision.

"Timely identification and diagnosis of weak culture and poor ethics can mitigate the impact and risks of downstream control deficiencies and misconduct," it said.

When there are lapses in risk management, conduct or breaches, the regulator can exercise a wide range of actions, including issuing warnings, imposing supervisory conditions, directing a financial institution to remove a director or referring a case to the Attorney-General's Chambers for criminal prosecution.

Various jurisdictions have introduced regulatory frameworks to strengthen individual accountability and conduct in the financial industry, including Britain, Hong Kong and Australia.

Mr Warren Lim, chief executive of Finexis, welcomed the move. He said: "It is a good initiative for MAS to give greater clarity, yet allowing the financial institution some autonomy to decide what level of risk to take. The penalties are also clear.

"To me, it's still all in the best interest of the customers."

A version of this article appeared in the print edition of The Straits Times on April 27, 2018, with the headline 'Guidelines planned to raise finance execs' accountability'. Print Edition | Subscribe