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On 10 September 2020 the Monetary Authority of Singapore (MAS) issued Guidelines on Individual Accountability and Conduct (Guidelines) to be effective from 10 September 2021.
For several years the MAS has been focusing on culture and conduct in Financial Institutions (FIs) to achieve two key outcomes:
- ethical business practices that safeguard customers’ interests and ensure fair treatment; and
- prudent risk-taking behaviour and robust risk management that support FIs’ safety and soundness.
Dr. Dayanath Jayasuriya P. C. Senior Academic Advisor (Law) - Nawaloka College of Higher Studies
The need for these Guidelines was explicitly set out by Ravi Menon, Director, Monetary Authority of Singapore at a Symposium on Asian Banking and Finance, held on 3 June 2019:
“…we must foster a culture of good conduct underpinned by strong standards of ethics. Regulations and controls can only go so far in shaping behaviour. Be it being alert to money laundering risks or dealing fairly with customers, mere compliance with regulatory requirements or internal rules is not enough. Ultimately, how professionals in the financial industry conduct themselves is shaped by the shared values, attitudes and norms in their organisations in short, the culture.”
The Guidelines focus on the measures FIs should put in place to promote the individual accountability of senior managers, strengthen oversight over material risk personnel, and reinforce standards of proper conduct among all employees. Specifically, the Guidelines set out the five accountability and conduct Outcomes that FIs should achieve:
(i) Outcome 1: Senior managers responsible for managing and conducting the FI’s core functions are clearly identified.
(ii) Outcome 2: Senior managers are fit and proper for their roles, and held responsible for the actions of their employees and the conduct of the business under their purview.
(iii) Outcome 3: The FI’s governance framework supports senior managers’ performance of their roles and responsibilities, with a clear and transparent management structure and reporting relationships.
(iv) Outcome 4: Material risk personnel are fit and proper for their roles, and subject to effective risk governance, and appropriate incentive structures and standards of conduct.
(v) Outcome 5: The FI has a framework that promotes and sustains among all employees the desired conduct.
The Guidelines are not intended to be exhaustive nor prescriptive. In this regard, FIs are required not adopt a check-box mentality in applying the Guidelines. FIs should carefully review the measures set out in the specific guidance, and identify those relevant to achieve the five Outcomes, with adaptations and enhancements to be made based on the nature, size and complexity of their businesses. FIs with smaller number of employees, such as those with fewer than 50 headcount, should still achieve the five Outcomes, but will not ordinarily be expected to adopt the specific guidance described in the Guidelines. FIs with larger number of employees also have the flexibility not to adopt specific guidance they have assessed to be irrelevant to their businesses. FIs that choose not to adopt the specific guidance, should be prepared to justify their decision and demonstrate how they achieve the relevant Outcomes through other means.
The Board and senior management are responsible for overseeing FIs’ implementation of the Guidelines. This is appropriate given their roles as custodians of effective governance. MAS may engage FIs, their Boards, senior management and other employees on their implementation of the Guidelines as part of its ongoing supervision.
The Guidelines apply to all FIs regulated by MAS, with specified exceptions:
For the purposes of the Guidelines,
“Board” refers to:
(i) in the case of an FI incorporated in Singapore, the Board of directors; and
(ii) in the case of an FI incorporated or established outside Singapore, a governing body or committee beyond local management that is charged with oversight and supervision responsibilities for the FI’s operations in Singapore.
“Material risk personnel” refer to individuals who have the authority to make decisions or conduct activities that can significantly impact the FI’s safety and soundness, or cause harm to a significant segment of the FI’s customers or other stakeholders.
“Senior managers” refer to individuals who are employed by, or acting for or by arrangement with, the FI, and are principally responsible for the day-to-day management of the FI.
MAS has released a document entitled “FAQs on Guidelines on Individual Accountability and Conduct” setting out various explanations. In September 2020 Mas issued an Information Paper entitled Culture and Conduct Practices of Financial Institutions setting out 9 outcomes which amplify the 5 outcomes in Guidelines on Individual Accountability and Conduct. These outcomes are set out below:
Outcome 1 The Information paper thus concludes:
The various components contributing to the culture and conduct of an organisation do not work in isolation. They are inter related and can help to complement and reinforce each other. FIs are encouraged to leverage the findings set out in this paper to guide them in their own journey to develop and entrench sound culture and consistently high standards of conduct within their organisations. MAS will continue to engage FIs, their Boards, senior management and staff on the adequacy and effectiveness of their practices on culture and conduct through its ongoing supervision.
MAS has given one year for implementation measures to be taken to achieve the high level guidelines. In many instances, where liability issues come up in litigation, the issue of determining individual accountability remains a major issue of contention. Conduct which recognises lines of responsibility assume particular importance in resolving such issues. The initiative taken by MAS should hopefully be a good template for other regulators to adapt to ensure that financial institutions remain socially responsible and legally accountable. Sri Lankan FIs as well as stockbrokers need to adopt a more cautious approach in handling customers. The stock market is on a rollercoaster- we need to prevent the recurrence of the ‘pumping and dumping’ syndrome of the past. The Regulator has a special responsibility to monitor transactions.
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