On April 26, 2018, the Monetary Authority of Singapore (“MAS”) consulted on the proposed introduction of guidelines on individual accountability and conduct (“Guidelines”). The consultation deadline is 25 May 2018.
Paragraph 4 of the consultation paper states that the Guidelines only apply to certain categories of licensed or approved financial institutions (“FIs”), including holders of capital markets services licences. Thus, the consultation would not affect registered fund management companies and exempt FIs.
The guidelines are designed to drive cultural change and make senior management and persons in key functions more accountable for doing “what is right.” The MAS consultation expressly acknowledges that “rules and regulations alone are insufficient in influencing behavior. MAS strives to shift the industry away from mechanistic compliance with rules and a box-ticking mentality, and elevate the industry beyond doing what is permitted or legal to doing what is right and ethical.” The move by MAS is part of a global regulatory trend in financial services to raise trust in the sector, as introduced in Hong Kong via the Manager-In-Charge Regime and in the United Kingdom via the Senior Managers & Certification Regime.
Specifically, the Guidelines seek to promote the individual accountability of senior managers who are defined as employees principally responsible for an FI’s day-to-day management. This includes, but is not limited to, certain defined “core management functions,” strengthening oversight of employees in certain defined material risk functions (“MRFs”) and reinforcing standards of proper conduct among all employees. It sets out five accountability and conduct outcomes that FIs are expected to work towards:
- Senior managers who have responsibility for the management and conduct of functions that are core to the FI’s operations are clearly identified.
- Senior managers are fit and proper for their roles, and held responsible for the actions of their staff and the conduct of the business under their purview.
- The FI’s governance framework is supportive of and conducive to senior managers’ performance of their roles and responsibilities. The FI’s overall management structure and reporting relationships are clear and transparent.
- Employees in MRFs are fit and proper for their roles, and subject to effective risk governance as well as the appropriate standards of conduct and incentive structure.
- The FI has a framework that promotes and sustains the desired conduct among all employees.
MAS is consulting on the applicability of the Guidelines and their implementation, including the feasibility of attaining the Outcomes. The Guidelines are targeted to be issued in 4Q 2018.
Assuming the Guidelines are introduced, FIs should no longer take a “cloak and dagger” approach to compliance. Instead, it will require more participation and judgement by senior management. FIs should consider what is best for the business, taking into account commercial aims alongside the interests of customers and desired regulatory outcomes.
Read the consultation paper here.