Published Date: 05 February 2013 Monetary Authority of Singapore
1 Acting Minister, Ministry of Culture, Community and Youth and Senior Minister of State, Ministry of Communications and Information, Mr Lawrence Wong, today moved the Financial Holding Companies Bill (FHC Bill) for First Reading in Parliament.
BACKGROUND
2 A financial holding company (FHC) is a company incorporated in Singapore, which holds a Singapore bank or insurance subsidiary or both, but does not itself conduct banking or insurance business.1 Internationally, it is common for financial groups to be organised under holding companies. Growing international recognition of the role of the FHC has prompted regulators in many jurisdictions to include the FHC in their scope of group supervision, either directly or indirectly through a regulated entity like a bank or insurance subsidiary. Australia, Canada and the US are among the countries that have established legal frameworks for FHCs.
3 In Singapore, some financial groups are now organised under FHCs. To support effective prudential oversight of FHC groups, the Monetary Authority of Singapore (MAS) proposes an FHC Bill. The FHC Bill will achieve three purposes.
First, it will provide greater clarity to the industry and other stakeholders on the prudential standards and expectations applicable to financial groups held under FHCs in Singapore.
Second, it will enable MAS to strengthen prudential oversight of a financial group in Singapore, with the regulations aimed at mitigating intra-group contagion risk, preventing the multiple use of capital within the group, and limiting group concentration risk exposures.
Third, it will also help Singapore meet the international standards on group-wide supervision.
4 MAS has conducted two rounds of public consultation on the FHC regulatory framework to be established. The first consultation in February 2012 sought views on the broad policy and regulatory principles underpinning the framework. The second consultation in October 2012 invited comments on the draft FHC Bill. Both consultation papers and MAS’ responses to comments received are published on MAS’ website.
KEY PROVISIONS IN THE FHC BILL
Scope of Regulation
5 The FHC Bill will empower MAS to regulate FHCs of financial groups to strengthen the effectiveness of group prudential oversight and support the safety and soundness of the Singapore financial system. The FHC Bill sets out the following criteria which MAS will consider in assessing whether an FHC should be designated for regulation.
(a) Ultimate parent of Singapore financial groups
Where the FHC is the ultimate parent of a financial group with a bank and/or insurance subsidiary in Singapore, MAS will be the home supervisor of the FHC and its financial group.
(b) Intermediate FHCs within financial groups
Where the FHC is the intermediate holding company, the significance of its bank and/or insurance subsidiary in Singapore to the Singapore financial system, or to the intermediate FHC group will be evaluated. For foreign-owned FHCs, an additional consideration will be the extent to which the parent holding company based overseas is subject to effective group-wide supervision by its home supervisor.
6 Non-designated FHCs will not be regulated under the FHC Bill. Instead, these FHCs may be required to furnish MAS with information that is necessary to carry out MAS’ surveillance and supervision functions.
Control of Shareholdings
7 In view of the critical role played by banks and insurance companies in Singapore’s financial system and the larger economy, the Banking Act (Cap. 19) (BA) and Insurance Act (Cap. 142) (IA) specify shareholding thresholds at which shareholders are required to obtain approval for their shareholdings in, and control of, Singapore-incorporated banks and insurance companies.
8 As FHCs, by definition, are the parent companies of banks and insurance companies and can exercise control over them, it is likewise necessary to require shareholders with substantial or controlling interests in the FHCs to obtain approval. Consistent with existing requirements under the BA and the IA, the FHC Bill will require substantial and controlling shareholders of an FHC to obtain approval for their interests. An assessment of whether the shareholders are “fit-and-proper” and the nature of their likely influence over the conduct of the FHC will be considered in respect of their application for approval.
9 In addition, the FHC Bill provides for corporate governance regulations on the roles and responsibilities of directors, and the appointment of key persons such as the chief executive officer of the FHC.
Regulation and Supervision of FHC Groups
10 An FHC’s bank and insurance subsidiaries in Singapore will continue to be regulated under the BA and IA, respectively. To achieve consistency in the regulatory and supervisory approach towards financial groups, be they held under an operating entity or an FHC, regulatory requirements under the BA and IA will be mirrored in the FHC Bill, where appropriate. For example, an FHC group that comprises only banking entities will be subject to rules at the group level consistent with rules that apply to a banking group regulated under the BA.
11 The FHC Bill will empower MAS to prescribe prudential requirements to support the safety and soundness of the FHC group. These include:
requirements on group-wide capital adequacy to ensure that the FHC group maintains financial resources commensurate with the group’s business;
prudential limits on lending and investments to ensure that exposures are not unduly concentrated; and
requirements for regular reporting on the finances and other information on the FHC group.
The FHC Bill also provides for MAS to conduct on-site inspections and investigations of the FHC and its subsidiaries.
Administrative Provisions
12 In addition to prudential regulation, the FHC Bill contains enabling provisions to support MAS’ administration of the FHC regulatory and supervisory framework. Key administrative provisions include powers to:
make regulations, and issue directions and notices pursuant to relevant clauses of the FHC Bill;
require the submission of annual audited accounts of the FHC and FHC group; and
impose penalties on the FHC and individuals responsible for the contravention of FHC regulations.