Tough CB rules for dealers in post bond-scam era
View(s):The Central Bank (CB) has issued a set of strict guidelines to dealers in treasury operations of commercial banks and specialised banks in the post bond-scam era that cover ethical transactions and includes whistle blowing provisions.
The guidelines issued on August 29 to the market, according to bank dealers, contain new and old provisions made in the immediate aftermath of the bond scam which called for ethics, governance and transparency in all dealings. Former Central Bank Governor Arjuna Mahendran and his son-in-law Arjun Aloysius have been charged in the Central Bank bond scam that transpired in 2015 and 2016.
The CB said the purpose of these directions to “authorised persons” is to “further improve the market conduct and practices for treasury operations and to strengthen market risk management systems in licensed banks to increase their soundness, thereby strengthening financial system stability.”
Under the whistleblowing provision, dealers are immediately requested to report to the Director of Bank Supervision, any undue influence from the members of the Board (of directors), senior management or a shareholder to execute a transaction based on the non-public market sensitive information available with such parties.
It said banks must formulate a Board-approved code of conduct for treasury operations and ensure controls and limits are established with the approval of the Board of Directors to identify, measure, monitor and control market risk.
“Licensed banks shall ensure that appropriate measures are in place to enforce the Customer Due Diligence and Know Your Customer principles in trading activities to ensure that transactions are not used to facilitate money laundering, fraud or other criminal activities,” it said adding that policies and procedures at a minimum, shall cover ethical market conduct, handling confidential information, clear guidelines on whether dealers are allowed to trade for their own account in any of the instruments and products that the licensed bank is dealing in, clear guidelines on use of non-public price sensitive information to ensure the best interest of the counterpart and the market in general, and practices of acceptance of entertainment, gifts or favours including a threshold value for gifts and entertainment, frequency and requirements to disclose such entertainment.
The reference to ‘favours’ in the guidelines also deals with a situation during the oil hedging fiasco, more than 10 years ago, when a bank – in the eye of the storm – invited treasury dealers of other banks on a joyride to Singapore after which these bank dealers also invested in the oil hedging deals.
The rules restrict the usage of mobile phones, chatting applications and video conferencing for dealing conversations as these could be used to circumvent telephone recording and compromise confidentiality. It also sets a procedure for retention of call records, listening to call records and destruction of outdated call records. The destruction policy shall include effective communication channels and approval authority for destruction so that routine destruction of certain records may be suspended, if necessary; and maintaining confidentiality of recorded dealing conversations,
On ethics and standards of conduct, authorised persons are directed to abide by the code of conduct formulated by their respective licensed banks so as to conduct themselves with integrity and uphold the highest standard of professionalism; and sign a code of conduct issued by their respective licensed banks in line with these Directions and international best practices.
The directions state that “authorised persons” shall not engage in manipulative or deceptive conduct or any form of conduct which would give other participants of the market or the regulator a false or misleading impression on prevailing market conditions, including but not limited to price, yield, rate, supply or demand; collude with other authorised persons in the same licensed bank or in other licensed banks to artificially alter market prices, other market conditions or engage in large transactions with the intention of artificially altering market price and conditions; willfully spread rumors or disseminate false or misleading information or shall not misuse or manipulate the price discovery mechanism; and not pressurise any other licensed bank or authorised persons by duress, inducement, threat or promise, for information or action.