Singapore issues first conduct framework
In a long-awaited development, the Monetary Authority of Singapore has published guidelines on senior managers’ conduct – firing the starting gun on a new phase of self-scrutiny for firms operating in the city-state.
MAS issued its Guidelines on Individual Accountability and Conduct (IAC) on 10 September, a year before they are expected to bite 10 September 2021.
It said the guidelines will promote ethical business practices and prudent risk-taking behaviour, including firm risk management. It pointed to similar conduct regimes for senior managers in the United Kingdom, Hong Kong and Australia as peers for the new framework.
MAS said while existing legislation in Singapore addressed “many elements” of those foreign regimes, the new guidelines would clarify the steps financial institutions should take to strengthen senior managers’ accountability and promote ethical conduct.
The Singaporean authority began consulting on the guidelines in 2018, noting an “increased focus” on bad conduct in the industry including incidents “egregious risk-taking” which it said had undermined public trust.
The guidelines are structured around five “expected outcomes” identified by the regulator. In the first, the guidelines require that financial institutions clearly identify the senior managers responsible for core management functions in a way that reflects “actual oversight responsibilities and decision-making authority”, not physical location.
MAS suggested that financial institutions give their senior managers specified responsibilities – using the role of chief data officer as an example – even where the function has not previously had a single individual ultimately responsible before.
In its second and third outcomes, MAS said senior managers should be held responsible for the actions of their employees and the conduct of the business under their purview, and that financial institutions’ governance frameworks include a “clear and transparent management structure and reporting relationships”.
The guidelines emphasise individual accountability of senior managers, but say that “does not absolve the collective accountability of management committees and vice versa”. They say financial institutions should have succession plans for their senior managers, including the names of potential candidates in the pipeline, and “appropriate incentive, escalation, and consequence management frameworks that hold senior managers accountable”.
MAS also addressed the fitness of staff below the senior level making key risk decisions affecting soundness, in its fourth outcome – saying these staff too should be subject to conduct standards, and also have incentives “aligned with the nature and time horizons of risks”. It also outlined a series of indicators to help identify which staff would fall under this definition.
In the final outcome set by MAS, the guidelines address the “tone-from-the-top” of companies and how it encourages standards across the business, saying financial institutions should establish a formalised whistleblowing programme and a consequence management system.
“[Financial institutions] that diligently gave the guidelines some thought when they were first consulted on in 2018, will likely need to go back to the drawing board,” Natalie Curtis, partner at Herbert Smith Freehills in Singapore, tells GBRR. “Not because the guidelines are markedly different, but because the challenges posed by the ‘new normal’ to the management of culture and conduct risk certainly are.”
“In any event, a significant amount of work will need to be undertaken by FIs to achieve the five conduct outcomes,” she adds.
Linklaters partner Peiying Chua calls the guidelines "a labour of love".
"Overall, they are certainly a step in the right direction, and will likely drive meaningful behaviour changes in the Singapore financial services industry, similar to those already observed elsewhere, e.g. the UK."
But Chua says "questions remain" about whether the guidelines may have encompassed too wide a range of firms, such as payment services firms.
She notes that the guidelines give flexibility to financial institutions with a headcount of less than 50 in terms of how they achieve the five outcomes. "This proportionate application of the IAC guidelines would go some way in alleviating the compliance burden that smaller firms will have." Chua recommends monitoring the outcome of this proportionate approach and any unintended consequences, "for instance whether it is right in certain circumstances to lay blame on a single individual for complex issues caused by various internal and external factors".
The new guidelines come after MAS issued new proposals for legislation expanding its power to issue prohibition orders in July.
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