This country-specific Q&A provides an overview of Banking & Finance laws and regulations applicable in Singapore.
What are the national authorities for banking regulation, supervision and resolution in your jurisdiction?
The Monetary Authority of Singapore (“MAS”) operates as an integrated banking and financial services regulator.
Which type of activities trigger the requirement of a banking licence?
Under the Banking Act (Cap.19) (“BA”), no person or company may transact banking business in Singapore unless they are in possession of a bank licence issued by MAS.
The term “banking business” is defined as the business of receiving money on current or deposit account, paying and collecting cheques, and the making or advances to customers.
In relation to deposit-taking, the BA also bars a person from accepting deposits in Singapore from any person in Singapore, in the course of carrying on (whether in Singapore or elsewhere) a deposit-taking business, unless the former person is a bank or falls within certain specified categories. This rule is intended to reserve the activity of taking deposits from the public to licensed banks and certain permitted financial institutions.
Does your regulatory regime know different licenses for different banking services?
There are, presently, two broad classes of banking licences awarded by MAS:
(a) full bank licences; and
(b) wholesale banking licences.
Full banks are generally able to offer the full range of banking business, including serving retail customers.
Within the licence category of full banks, there are three sub-tiers. At the top end, there are the local banks (namely, DBS Bank, United Overseas Bank, Oversea-Chinese Banking Corporation and its subsidiary, Bank of Singapore). The local banks are not subject to any limits as to the number of places of businesses they are able to establish within Singapore (although regulatory notifications may still be needed). At the other end are the regular full banks, each of which are constrained to operate only from a single place of business in Singapore. In between these two tiers are the qualifying full banks. Qualifying full banks are foreign banks which have been granted additional privileges, such as to enable them to compete with the local banks in the retail banking space. Qualifying full banks are allowed to establish up to 25 places of businesses within Singapore.
Wholesale banks are generally able to offer the full range of banking services, but are subject to the important limitation that they cannot provide Singapore dollar retail banking services.
Apart from banks that are licensed and regulated under the BA, there are also merchant banks and finance companies, which are regulated by MAS as part of the broader banking services market.
Merchant banks are approved by MAS to operate in Singapore under a distinct regulatory regime under the Monetary Authority of Singapore Act (Cap. 186) and generally provide fee-based banking activities, such as corporate finance, mergers and acquisitions advisory, and wealth and investment management. It is relatively common for private banks to operate in Singapore under a merchant bank licence.
Finance companies are licensed by MAS under the Finance Companies Act (Cap. 108). They focus on retail deposit accounts and credit facilities to individuals and corporations. Unlike banks, they do not issue cheques.
Does a banking license automatically permit certain other activities, e.g., broker dealer activities, payment services, issuance of e-money?
Only in some cases, depending on the nature of the other activity and the relevant legal and regulatory framework applicable to that activity.
A banking licence issued under the BA will authorise the entity to carry on banking business (subject to any conditions specified by MAS within the licence). Therefore, a licensed bank will therefore have to observe all requirements applicable to it under the regime of the BA.
Apart from banking business, a licensed bank may also engage in other financial activities that are regulated under other statutes.
Overall, the various regulatory regimes in Singapore for financial services are activities-based, in that a single financial institution may be subject to regulation under several distinct frameworks based on the activities it chooses to engage in. As an integrated financial services regulator, MAS does not typically require a financial institution to apply for and hold multiple licences under each of the applicable frameworks.
For instance, broker-dealer activities are regulated by MAS under Part IV of the Securities and Futures Act (Cap. 289) (“SFA”) and a broker-dealer must ordinarily hold a capital markets services licence issued by MAS. A licensed bank or approved merchant bank that wishes to engage in broker-dealer activities is exempt from having to apply for and hold a capital markets services licence. Instead, it will only be required to file a notification with MAS under Part IV of the SFA to obtain exempt status. However, the exempt status relates only to licensing. To ensure a level playing field, MAS still requires compliance with all applicable business conduct requirements of the SFA regime.
Similarly, the provision of investment advisory services is regulated by MAS under the Financial Advisers Act (Cap. 110) (“FAA”). A licensed bank or approved merchant bank that offers investment advisory services is exempt from having to apply for and hold a financial adviser’s licence, but must instead file a notification with MAS under the FAA to obtain exempt status. Again, the exempt status relates only to licensing, and all applicable business conduct requirements under the FAA regime would continue to apply.
The provision of payment services is regulated by MAS under the Payment Services Act 2019 (No. 2 of 2019) (“PSA”). The range of payment activities regulated under the PSA comprise (a) account issuance services; (b) domestic money transfer services; (c) cross-border money transfer services; (d) merchant acquisition services; (e) e-money issuance services; (f) digital payment token services; and (g) money-changing services. A licensed bank or approved merchant bank that provides any payment service is exempt from having to apply for and hold a payment service provider licence. In addition, to avoid double regulation of payment activities conducted by deposit-taking institutions, licensed banks and approved merchant banks are also exempted from complying with certain business conduct requirements under the PSA, to the extent that these would overlap with the existing requirements applicable to licensed banks and approved merchant banks in respect of the conduct of their deposit-taking businesses.
Is there a “sandbox” or “license light” for specific activities?
Yes. However, at present, the regulatory sandbox is only for Financial Technology entities that offer innovative financial products or services, or that offer existing financial products or services in a new and innovative way.
The process involves an application to MAS for a sandbox, supported by various information as specified within published guidelines. The overriding objective of the sandbox is to enable the entity to conduct experimentation and testing within a live operating environment, but under a less stringent regulatory framework. After MAS’s approval, the entity concerned will be allowed to carry on business within a more relaxed regulatory environment for a specified period of time. Ultimately, the sandbox will be operative only for a limited period of time. Depending on the experience gained during the sandbox, the entity will, upon exiting the sandbox, be required to determine whether to continue with its business model, refine it or abandon it altogether.
Are there specific restrictions with respect to the issuance or custody of crypto currencies, such as a regulatory or voluntary moratorium?
At the time of writing, Singapore does not have a specific regulatory regime catering specifically to crypto currencies. MAS’s position is that, a crypto currency will be subject to the existing regulatory framework to the extent that it has features or functionalities that make it a product that is within the scope of existing Singapore regulatory laws. In this regard, MAS has published a “Guide to Digital Token Offerings” that explains how the SFA, the FAA or other regulatory law might potentially apply to a crypto currency.
What is the general application process for bank licenses and what is the average timing?
Applying for a bank licence involves the submission of an application form to MAS, together with various specified supporting documents.
It is not possible to discern an average timing, as much will depend on the quality of the initial application paperwork and the overall merits of the application, as determined by MAS. In general, it will be prudent for an intended applicant to allocate between 6 to 18 months for the entire process.
In practice, an interested party will enter into an initial exploratory discussion with MAS, before formally putting in the application paperwork.
Is mere cross-border activity permissible? If yes, what are the requirements?
In relation to inbound banking services, the BA contains restrictions on the provision of banking services to persons in Singapore, by entities operating outside of Singapore. Please see the response to question 2 above.
In relation to outbound banking services, once a bank is licensed by MAS, MAS will generally not regulate the manner in which a bank carries on activities outside of Singapore (although it would expect the bank to comply with all relevant laws in the foreign country).
Local banks must obtain MAS’s approval before they set up new places of businesses outside of Singapore.
What legal entities can operate as banks? What legal forms are generally used to operate as banks?
An application for a bank licence can only be made by a company. However, for this purpose, the term “company” is defined in the BA to include unincorporated bodies that are formed or established outside Singapore. Therefore, it is theoretically possible for a foreign unincorporated association to apply to MAS for a bank licence. However, because the regulatory framework is largely predicated on a bank taking the form of an incorporated entity (and thus having paid up capital, shareholders and directors, etc), in practice it would be unusual for a bank licence to be awarded to an entity that is constituted other than as an incorporated entity.
In terms of local legal form, banks in Singapore would typically be Singapore incorporated companies or locally registered branches of foreign incorporated companies.
All of the local full banks are incorporated in Singapore. In addition, MAS encourages foreign banks that have a sizable share of the local retail banking market to form a locally incorporated subsidiary, through which to provide retail banking services. Several foreign banks have already done so.
What are the organizational requirements for banks, including with respect to corporate governance?
There are extensive organisational and governance requirements imposed on local banks. These are largely set out in the Banking (Corporate Governance) Regulations 2005 and supplemented by various regulatory guidelines.
In summary, the regulations impose requirements on the composition of the bank’s board of directors, and for the establishment of various board committees.
To ensure separation between the roles of the Chairman of the Board and the Chief Executive, the Chairman must not hold an executive role within the bank. There are also requirements to the effect that a proportion of the board’s directors have to be independent of the bank’s management, relationships and substantial shareholders.
The guidelines on corporate governance set out various best practices which MAS generally encourages banks to adopt.
Do any restrictions on remuneration policies apply?
Yes. Under the Banking (Corporate Governance) Regulations 2005, a local bank must have a Remuneration Committee. It will be the function of the Remuneration Committee to recommend a framework for determining the remuneration of directors of the bank, as well as for the remuneration of the executives of the bank. The remuneration framework for executives has to be consistent with a prescribed statutory criteria (including the specific job function of the executive, input from control job functions, alignment with risks, linkage to performance of the executive and the overall performance of the bank, and the need for justification in relation to the mix of cash, equity and other incentives). The Remuneration Committee has to review the bank’s remuneration practices annually to ensure alignment with the regulations.
Has your jurisdiction implemented the Basel III framework with respect to regulatory capital? Are there any major deviations, e.g., with respect to certain categories of banks?
MAS is a member of the Basel Committee on Banking Supervision. The Basel III framework has been duly implemented via MAS Notice 637.
Are there any requirements with respect to the leverage ratio?
Yes. These are effected within MAS Notice 637.
What liquidity requirements apply? Has your jurisdiction implemented the Basel III liquidity requirements, including regarding LCR and NSFR?
Singapore has implemented the Basel III liquidity requirements. The liquidity coverage ratio requirements are set out in MAS Notice 649.
In relation to the net stable funding ratio, the requirements are set out in MAS Notice 652.
Do banks have to publish their financial statements? Is there interim reporting and, if so, in which intervals?
Yes. Banks are subject to requirements concerning disclosure and publication of their financial statements stemming from several distinct sources.
One of these is MAS Notice 608, which applies to the local banks over and above any requirements that apply under the Companies Act (Cap. 50) (since all the local banks are Singapore incorporated companies).
DBS Bank Ltd, United Overseas Bank Ltd, and Oversea-Chinese Banking Corporation are also listed on the Singapore Exchange, and accordingly, they are required under the Singapore Exchange Listing Manual to publish quarterly financial statements.
Does consolidated supervision of a bank exist in your jurisdiction? If so, what are the consequences?
Consistent with international standards, MAS, as the home supervisor of local financial groups, adopts an integrated supervisory approach, evaluating local financial groups on a whole-of-group basis, taking into account all of their banking, insurance and securities activities. Financial groups are also supervised on a consolidated basis, with both local and overseas operations taken into consideration.
For foreign banks and financial institutions, MAS will make sure that they are similarly subject to consolidated supervision by their respective home regulators.
MAS also cooperates and shares information with counterpart foreign regulators regularly to ensure that there is effective supervision of cross-border activities.
What reporting and/or approval requirements apply to the acquisition of shareholdings in, or control of, banks?
There are restrictions at several distinct levels.
For Singapore incorporated banks, the prior approval of the Minister responsible for the BA must be obtained for a person to become a substantial shareholder of a bank incorporated in Singapore. A substantial shareholder is one who has an interest of not less than 5% of the votes attached to the voting shares in the bank. The prior approval of the Minister must also be obtained before a person can cross the thresholds of 12% and 20% respectively of shares or voting power in a bank incorporated in Singapore.
For foreign banks, while there are no formal requirements relating to changes to shareholdings occurring overseas, as a matter of practice, foreign banks in Singapore would notify MAS ahead of any significant change in ownership structure, as continued licensing in Singapore is always dependent on MAS being satisfied that a foreign bank’s shareholders are fit and proper persons.
Does your regulatory regime impose conditions for eligible owners of banks (e.g., with respect to major participations)?
Yes. Consistent with broader international standards, MAS expects owners and controllers of banks to meet its prescribed fit and proper criteria.
Are there specific restrictions on foreign shareholdings in banks?
No. There are no restrictions in relation to shareholdings by foreigners.
Is there a special regime for domestic and/or globally systemically important banks?
In line with Basel standards, MAS has published on its website, its framework for Domestic Systemically Important Banks. These being banks that have been assessed to have a significant impact on the Singapore financial system and the broader functioning of the Singapore economy.
What are the sanctions the regulator(s) can order in the case of a violation of banking regulations?
This would depend on the particular provision or requirement that is violated.
Violations of statutory requirements are generally enforced via criminal prosecution. For instance, a person who transacts banking business without a licence is liable, upon conviction, to a fine not exceeding S$125,000 or to imprisonment for a term not exceeding 3 years or to both. In the case of a continuing offence, there will also be a further fine not exceeding S$12,500 for each day the offence continues after conviction. In the case of a corporate offender, the penalty will be a fine not exceeding S$250,000 and, in the case of a continuing offence, a further fine not exceeding S$25,000 for each day the offence continues after conviction.
Individuals who willfully cause a corporation to breach a regulatory requirement may also be held criminally liable in certain cases.
However, in practice, there are a broad range of enforcement measures available to MAS and it is rare for MAS to refer a matter for criminal prosecution. The most powerful weapon at the disposal of MAS is in fact the ability to revoke a bank’s licence. In less serious cases, MAS may impose ad hoc curbs on a bank’s operations either for a specific or indefinite period of time.
What is the resolution regime for banks?
MAS has several options to deal with the situation where a bank runs into financial or operational difficulty.
Firstly, in certain defined circumstances, MAS has the power under section 49 of the BA to:
(a) direct a bank to take or refrain from certain action in relation to its business;
(b) appoint a statutory adviser to advise the bank on the management of its business; and
(c) assume control of the business of the bank itself.
Secondly, under Part IVB of the Monetary Authority of Singapore Act (which grants MAS the power to take over certain types of financial institutions, including banks), MAS is able, in certain defined circumstances, to:
(a) compulsorily transfer all or any business of a bank to another party;
(b) compulsorily transfer all or any shares of a bank to another party;
(c) compulsorily restructure the share capital of a bank; and
(d) bail-in certain defined eligible instruments and unsecured liabilities of a bank (presently being equity instruments, unsecured debt instruments that are subordinated to the claims of unsecured creditors, and any other instruments that provide for a write-down, conversion or modification when specified events occur) by cancelling, converting or modifying such eligible instrument or liabilities.
To ensure the effectiveness of any resolution option, MAS is also able to apply to the High Court for a moratorium (of up to 6 months) against the passing of any resolution or the making of any court order for the winding up of a bank. MAS is also able to temporarily stay the termination rights of counterparties in financial and non-financial contracts entered into with a bank over which MAS has exercised resolution powers.
How are client’s assets and cash deposits protected?
The underlying theme behind MAS’s regulation and supervision of banks has always been to protect the interests of depositors.
This is achieved through a legal framework for prudential supervision that is established through a mix of legislative provisions (set out in Parts IV, V and VI of the BA), as well as regulations made pursuant to section 78 of the BA, and legally binding notices issued by MAS pursuant to various authorising provisions in the BA.
Does your jurisdiction know a bail-in tool in bank resolution and which liabilities are covered?
Yes. Please see the response to question 22 above.
Is there a requirement for banks to hold gone concern capital (“TLAC”)?
Yes. The requirements on total loss absorbing capacity have been implemented within MAS Notice 637.
In your view, what are the recent trends in bank regulation in your jurisdiction?
In the last few years, MAS has been focusing its attention on technology, both in terms of the threat posed by technology to conventional banking operations, as well as the disruptive effect on conventional banking services that arise from technology enabling new ways of doing business and service offerings.
More recently, in a bid to add diversity to and strengthen the digital capabilities of Singapore’s banking system, MAS has invited applications for digital bank licences which will allow entities, including non-bank players, to conduct digital banking businesses in Singapore. Applicants for the digital bank licence are required to demonstrate a clear value proposition that incorporates the innovative use of technology to serve customer needs and reach the under-served segments of the Singapore market. The application window has since closed on 31 December 2019 and the successful applicants are expected to be announced in mid-2020.
What do you believe to be the biggest threat to the success of the financial sector in your jurisdiction?
Increasingly, intense global competition fueled by financial services technology, which makes it harder for cities that are traditional financial centres to stand out from a crowded playing field.