Parliament: MAS to have more powers to manage distressed financial institutions

The Monetary Authority of Singapore building in Shenton Way on June 19, 2017.
The Monetary Authority of Singapore building in Shenton Way on June 19, 2017.ST PHOTO: LIM YAOHUI

SINGAPORE - The Monetary Authority of Singapore (MAS) will soon be equipped with more powers and tools to resolve the position of distressed financial institutions in an orderly manner.

This will help enhance Singapore's resolution regime and bring it up to date with international developments, given that standards and good practices have evolved, said Mr Ong Ye Kung, Minister for Education (Higher Education and Skills) and Second Minister for Defence,in Parliament on Tuesday.

He was presenting the second reading of the MAS (Amendment) 2017 Bill on behalf of Mr Tharman Shanmugaratnam, Deputy Prime Minister and Minister-in-charge of the MAS. The Bill was passed the same day.

Under the changes, the MAS will be able to get financial institutions that are systemically important - such as banks, finance companies and collective investment scheme trustees - to prepare recovery plans and submit such information for resolution planning.

"This is necessary because robust and credible recovery and resolution plans can reduce the risks that a distressed financial institution 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 financial institutions to regain their financial strength, restructure, or exit from the market in an orderly manner," said Mr Ong.

The Bill will also introduce legal provisions for MAS to temporarily block counterparties' rights to terminate contracts with a financial institution in resolution.

Also, in the event of a resolution, the new law will have a compensation framework for creditors who are more adversely affected in a resolution than they would have been in a liquidation.

To determine the amount of compensation payable, valuations will be performed by a valuer appointed by the Minister-in-charge of MAS.

The compensation amount will be payable out of a Resolution Fund. The MAS, as the central bank, will first provide a temporary loan to the Resolution Fund for its immediate operating needs, while withdrawals from the Resolution Fund will subsequently be recovered from the industry via ex-post levies, said Mr Ong.

The Bill followed a round of public consultation in 2015 discussing enhancements to MAS' resolution regime. The changes were then proposed in April last year.