SINGAPORE: An Introduction to Banking & Finance: Regulatory

Singapore: Banking and Financial Services Regulatory Outlook: Domestic 

Singapore has emerged as the top financial centre in Asia, according to the latest edition of the Global Financial Centres Index. As Singapore's integrated financial regulator, the Monetary Authority of Singapore ("MAS") is responsible for both the prudential oversight of all banks and financial institutions ("FIs") and building a dynamic and progressive financial centre. In 2023/2024, the key focus areas on its regulatory radar are:

• customer protection;

• data governance and management;

• managing climate related risks;

• countering money laundering/terrorism financing (ML/TF); and

• safe and innovative use of technology.

These key focus areas are discussed in the context of recent regulatory and industry developments, which we anticipate will impact on banks and other FIs in 2024 and beyond.

Customer Protection - Delivery of Fair Dealing Outcomes to Customers 

Treating customers fairly is a foundational value that MAS expects boards and senior management of banks and FIs to champion. In this vein, new standards have come into effect on 30 May 2024 following updates to the Guidelines on Fair Dealing - Board and Senior Management Responsibilities for Delivering Fair Dealing Outcomes to Customers. All banks and FIs will be expected to incorporate key principles of fair dealing at various stages of the life cycle of products or services that they offer. They will need to implement measures to provide:

• products that are suited to the needs of their target market segment;

• advice that contains suitable product recommendations, accurately represents information and provides extra consideration for persons who are more vulnerable;

• explanations on a product and its terms and conditions; and

• independent and responsive handling of feedback.

Data Governance and Management 

The banking industry is an increasingly data-driven business as technology advancements enable the leveraging of data to manage risks and increase operational efficiency. Correspondingly, the need for robust data governance and management cannot be ignored. MAS conducted thematic inspections in 2022/2023 on the data governance and management frameworks of selected Domestic Systemically Important Banks. An information paper on MAS’ observations was published in May 2024, which details their supervisory expectations and recommended good practices. Banks are expected to benchmark their practices against the paper and take steps to address gaps in a risk-appropriate manner.

Climate-related Risks - Transition Planning for a Net Zero Economy 

Singapore, as a signatory to the Paris Agreement, has committed to achieve net zero emissions by 2050. There is regulatory impetus to ensure an orderly transition to net zero. A disorderly transition could result in elevated financial risks and increase operational challenges. Banks can play an active role to support an orderly transition to net zero by engaging their customers to shape corporate decisions. As lenders, banks are in a position to raise customers’ climate risk awareness and work with them to implement robust risk mitigation and adaptation measures as part of their due diligence process. 

In launching the public consultation on the proposed Guidelines on Transition Planning in October 2023, MAS is proposing to set supervisory expectations to steer the transition planning processes. The proposed guidelines for banks, insurers, and asset managers contain best practices relating to governance frameworks and client engagement processes to manage climate-related financial risks and enable transition in the real economy towards net zero.

Strengthening Defences Against ML/TF Threats 

The growth of the financial ecosystem in Singapore has raised the risk of ML/TF threats. The SGD3 billion money laundering bust last year involving funds from illegal remote gambling businesses underscores the urgency to defend against these threats. The MAS’ three-pronged strategy to counter these risks encompasses prevention, detection and enforcement.

To strengthen the detection capabilities of banks, the MAS has launched of a digital platform known as COSMIC (ie COllaborative Sharing of Money Laundering / TF Information & Cases) on 1 April 2024.

The Financial Services and Markets Act 2022 was amended to allow participant banks to warn one another of potential criminal behaviour, while safeguarding the interests of the vast majority who are legitimate customers. COSMIC will allow participant banks to share customer information where the customer’s profile or behaviour displays certain objectively-defined indicators of suspicion.

The platform was co-developed by MAS and six commercial banks in Singapore (DBS, OCBC, UOB, Citibank, HSBC and Standard Chartered Bank), who are also the participant FIs on COSMIC during its initial phase. The sharing of information over COSMIC is currently on a voluntary basis and primarily targeted at the misuse of legal persons, misuse of trade finance for illicit purposes and proliferation financing. MAS plans to expand COSMIC’s coverage to more focus areas and FIs, and make sharing mandatory in higher-risk circumstances.

Recently, MAS has flagged the risk of money laundering from environmental crimes in its report released in May 2024 on Environmental Crimes Money Laundering National Risk Assessment ("NRA"). Singapore was assessed to be exposed to environmental crime-related money laundering due to its position as an international financial centre and a trading and transit hub, with a highly externally-oriented economy. It was also assessed that Singapore is susceptible to money laundering-related threats arising from illegal wildlife trafficking, illegal logging, and waste trafficking, which are prevalent in Southeast Asia. The MAS has also indicated that FIs (including banks) should take note of the risks outlined in the NRA in assessing their own environmental crime money laundering risks, and enhance their controls as appropriate.

Safe and Innovative Use of Technology 

The emergence of new technologies such as Distributed Ledger Technology ("DLT") and Artificial Intelligence ("AI") will change the shape of the financial ecosystem. MAS is actively collaborating with the financial industry and international partners to lay the foundations for the safe and innovative use of such technologies. These collaborative projects involves practical experimentation to:

• build the foundational digital infrastructure and blueprint required for a future interoperable digital currency ready platform to facilitate digital money transactions in the future. Such digital money could take the form of wholesale central bank digital currencies, tokenised bank liabilities, and regulated stablecoins;

• develop a clear and concise framework on the responsible use of Generative AI within the financial industry and to catalyse Generative AI powered innovation to solve common industry-wide challenges and enhance risk management; and

• enhance liquidity and efficiency of financial markets through asset tokenisation by developing a sound and sustainable digital asset ecosystem with commercial use-cases, guided by policy considerations and frameworks.

The results and learnings from these projects will shape the financial ecosystem of the future.

Moving Forward 

It will be imperative for FIs to take steps to ensure effective governance and risk management so as to maintain a safe and resilient financial system. FIs must also allocate the appropriate resources to take action on transition planning, given that MAS has communicated its supervisory expectations early. Finally, FIs will need to innovate to keep up with technological advancements. In doing so, they will need to implement robust measures to enable safe and efficient use.