Singapore’s Financial Supervision and Development
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The Monetary Authority of Singapore (MAS) was established in the 1970s to regulate and develop Singapore's financial system. Over four phases of development, MAS balanced financial supervision with innovation. It established consistency and flexibility as guiding principles. MAS focused on ensuring financial stability, protecting consumers, and cultivating Singapore as a global financial center. Today, MAS utilizes a risk-based approach with objectives of maintaining stability, oversight of sound institutions, and empowering stakeholders. It aims to promote innovation while upholding high regulatory standards.
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Singapore’s Financial Supervision and Development
- 1. Singapore’sFinancialSupervisionand Development Global Financial Markets GROUP 1: Guo Zong Ren | Zheng Yayuan | Ng Wenying | Long Hong Zhang Li Yiyun | Cai Xin | Anand Shankar Ravisankar
- 2. Outline 1 Introduction about MAS 2 Phases in history of Supervision a. 1970s: The formative years b. 1981 – 1997: Strengthening the Financial system c. Post 1997: New Millennium d. Insurance Regulation 3 Current Supervisory Regime a. MAS Mission and Objectives b. MAS Principles and Functions 4 Balancing Supervision & Development
- 3. Introduction1 Lead-up to MAS Supervision vs Innovation Singapore gained independence in 1965 without proper financial regulatory system Singapore was already a regional financial centre Small and open economy Financial sector esp. impt intermediary for businesses However there was no institution in charged of safeguarding the soundness of the financial system Regulation and Financial Innovation are conflicting agendas and have always posed huge challenges for policy makers How did MAS balance between Supervision and Innovation (Financial Development)? Sound Financial Sector: Confidence in system Market would be active Economy able to mobilize savings for economic use MAS MAS’ Duel Role
- 4. Introduction1 MAS Two Axioms Principles that MAS relies on throughout the 44 years of history Consistency Flexibility It is MAS’ priority to ensure that their actions are always predictable and consistent so as to instill confidence and credibility with global financial institutions. As the financial market is a fast- evolving sector, MAS is always keeping in mind the need to be adaptable to new innovations and quick to adjust its policies in response to changing global trends.
- 5. Phase ONE2 The Formative Years (1970s) Motivations 1 Newly independent nation without financial regulatory body 2 Establish Singapore as regional and international FC 3 Catch up with the newly developed Asian Dollar Market (ADM) 1 Develop the central tenets of its financial supervision policy 2 Learn fast by leveraging on the banking sector’s existing knowledge and expertise 3 Build up necessary infrastructure from scratch quickly 4 Prioritize development and soundness of Local Banks instead of foreign banks Priorities
- 6. Phase ONE2 The Formative Years (1970s) Characteristic 1 Central tenets of policies 1. Gatekeeping 2. Ongoing supervision 2 Supervision focused on banks’ financial soundness and solvency 3 More micro-managing of banks’ management qualities, internal control, direction and even down to staff training 4 Maintained very accessible to and close with international banks - To attract reputable institutions who would contribute to the development of Spore 5 Training and educating staff and public on financial knowledge - Set up 2 training and educational bodies to support Singapore’s development 6 Any volatilities in market (e.g. Bretton Woods / Chit Funds) were closely managed Overall: this phase is characterised by close rapport and close supervision of the financial industry necessitated by the need for MAS to grasp and understand best-practices fast 7 Interest rates determined through cartel arrangements, subsequently banks allowed to quote their rates freely
- 7. Phase ONE2 The Formative Years (1970s) Monetary Policies Motivations 1 Dependency on imports 2 Vulnerability to imported inflation 3 Traditional macroeconomic monetary policies not effective 1 A built-up Reserve 2 Accumulation of foreign reserve 3 Credibility of MAS 4 Prioritize development and soundness of Local Banks instead of foreign banks Foundation for Exchange rate Policy Phase one of MAS history also saw the transformation of Singapore’s Monetary Policies… 4 MAS focus on maintaining price stability (low & stable inflation) Evolved from using a cartel to determine interest rates Exchange rate policy Monetary Policy
- 8. Phase TWO2 Strengthening the Financial System (1981-1997) Motivations 1 Series of financial shocks & crisis overseas - Latin American Crisis - Etc 2 Appointment of Dr Goh Keng Swee as MAS Chairman 3 Keep up with global developments 1 Ensure financial sector was resilient enough towards any shocks 2 Cultivate greater self-regulation and self-discipline within industry 3 Further build up credibility as FC and as regulator 4 Maintain higher prudential standards , more encompassing standards Priorities 4 MAS need to better serve its myriad of functions 5 Establish new rules / review old rules to keep up with financial developments
- 9. Phase TWO2 Strengthening the Financial System (1981-1997) Characteristic 1 Tighter grip on the 2 central tenets 2 Cut down on reporting and adopt an oversight role to promote self-regulation 3 Stricter enforcement to keep self regulation in check 4 Maintain arms-length relationship with industry practitioners 5 Uphold role as regulator in a consistent fashion 6 Formation of 2 new advisory / legislative bodies - Securities Industry Council (SIC) - Stock Exchange of Singapore (SEC) Overall: this phase is characterised by higher and stricter standards enforced at arms-length 7 More encompassing regulation; even credit card limit is regulated 8 Set up of GIC
- 10. Phase THREE2 Supervision in the new millennium (Post-1997) Motivations 1 Rapid globalisation & technological advancement 2 Permit openness without compromising high standards 3 Financial Innovation 1 Give industry room for innovation and liberalisation 2 Adapt approach towards new-age supervision Risk-based Supervision 3 Harmonize and integrate MAS functions / practices 4 Emphasis on systematic risk Priorities 4 Need for efficient way to manage supervisory resources 5 Ensure policies were more versatile and tailored to individual institutions 5 Avoid one-size-fit-all regulations 6 Encourage more innovation and competition
- 11. Phase THREE2 Supervision in the new millennium (Post-1997) Characteristic 1 Focus on minimising systematic risk rather than protect individual firms / products 2 Macro-surveillance that monitors stability in industry 3 Reinforced responsibilities of board and management of financial institutions 4 More frequent but shorter and focused inspections on banks Overall: this phase is characterised by the risk-based supervision and a more robust regulatory framework 5 Use of risk assessment system CRAFT 6 Supervisory resources divert to systematically important institutions 7 MAS departments operate with more cross-interaction 8 Developed integrated regulatory framework that provides consistency - Financial Advisers Act 8 Developed 6 Tenets of regulation 9 Open and consultative relationship with industry practitioners
- 12. Insurance Regulation2 Phases and Characteristics of Insurance Regulation Phase 1 1 MAS took over supervision from MOF 2 Emphasized on growth 3 Consultative with industry practitioner Phase 2 1 Amended Insurance Act to transfer to MAS the duties of Insurance Commissioner 2 Policyholder’s interest protects in insolvency Phase 3 1 Insurance Intermediaries Act and Regulations 2 More routine and thematic inspection 3 New regulatory framework for A&H insurance 4 Standardized industry definitions and disclosures 5 Risk-based capital framework for insurers
- 13. Current Regime Supervision in the new millennium (Post-1997) New Regulatory Framework? CRAFT – Risk assessment system? 3
- 14. Current Regime3 Mission and Objectives Mission 1 Promote sustained and non- inflationary economic growth 2 Promote a strong and progressive financial service sector o Exchange rate policy o Management of official foreign reserve o Regulating and supervising financial sector o Work with industry to develop Singapore into IFC MAS Structure
- 15. Current Regime3 Mission and Objectives Objectives 1 Stable Financial System • Risk is required for the financial system • Institutions can incur huge losses if the risk is not well managed. • MAS cannot completely prevent losses • Reduce the risk and impact of a failure by requiring adequate internal control in Institutions 2 Safe and sound financial intermediaries • May affect systemic stability / undermine confidence • Information asymmetry for normal investors calls for intermediaries’ ability to identify / monitor / mitigate risk • Combat money laundering and terrorism financing may pose legal and reputational risks to Singapore 3 Safe and efficient financial infrastructure - Exchanges / Clearinghouse / Settlement sys • When such platform fail: o Amplify systemic risks o Seize financial flows o Undermine obligation fulfilments o Transmit shocks btw institutions • Efficient infrastructure: o Reduce friction o Lower costs o Max economic benefits of financial intermediation 4 Fair, efficient and transparent organize markets • Markets must have Proper trading practices • Fair access to market facilities and information • Fair structures: o Processes that disseminates information in timely and organised manger o Information made publicly available on real- time basis
- 16. Current Regime3 Mission and Objectives Objectives 5 Transparent and fair-dealing intermediaries and offerors • MAS supervises them by: o Conducting tests o Setting up requirements o Instilling fair business practices • Requirements: o Make proper disclosure of material information o Help ensure market transparency o Equip investors with required knowledge to make informed decisions 6 Well-informed and empowered consumers • Based on principle that consumers will bear responsibility for protecting their own interests • MAS does not and cannot protect consumers from the risk they decide to undertake • Ensure consumers are well-informed and empowered • Seeks to address risks that stem from misleading disclosure, conflict of interest and mis- representation • Work with public sector agencies in helping equip consumers with money mgmt, financial planning and investment skills
- 17. Current Regime3 Principles and Functions Principles Risk-Focused Stakeholder- Reliant Disclosure-Based Industry-Conscious 1 Emphasize Risk-focused supervision rather than one-size-fits-all regulation 2 Assess the adequacy of an institution’s risk mgmt. in the context of its risk and business profile 3 Allocate scarce supervisory resources according to impact and risks 4 Ensure institutions are supervised on an integrated (across industry) and consolidated basis (across geography) 5 Maintain high standards in financial supervision, including observing international standards, and best practices 6 Seek to reduce the risk and impact of failure rather than prevent the failure of any institutions
- 18. Current Regime3 Principles and Functions Principles Risk-Focused Stakeholder- Reliant Disclosure-Based Industry-Conscious 7 Place principal responsibility for risk oversight on the institution’s board and management 8 Leverage on relevant stakeholders, professionals, industry associations and other agencies
- 19. Current Regime3 Principles and Functions Principles Risk-Focused Stakeholder- Reliant Disclosure-Based Industry-Conscious 9 Rely on timely, accurate and adequate disclosure by institutions rather than merit-based regulations of products to protect consumers 10 Empower consumers to assess and assume for themselves the financial risks of their financial decisions
- 20. Current Regime3 Principles and Functions Principles Risk-Focused Stakeholder- Reliant Disclosure-Based Industry-Conscious 11 Give due regard to competitiveness, business efficiency and innovation 12 Adopt a consultative approach to regulating the industry
- 21. Current Regime3 Principles and Functions MAS’ Oversight Functions Regulation Authorisat- ion Supervision Surveillance Enforcement Resolution Corporate Governance Market Discipline Consumer Education Consumer Safety-Net “Gatekeeper” for institutions Soundness and effectiveness of market Empowered to take action against breach of market conduct Resolve conflicts and aim to protect depositors and investors Oversee and manage internal risk, promote sound governance Empower consumers with understanding of products & services Amount protected if institution fails
- 22. Balancing Supervision & Development4 MAS’ duel role of Supervision vs Development Regulate and Supervise Innovate & Develop BALANCE BY Abiding by the principles of: - Achieving credibility by acting predictably and consistently under various situation - Taking flexible and adaptable action so that innovation can respond to the changes of the market quickly Making the dual roles complementary: - Clear separation between both functions in MAS - Senior management to resolve conflicts / trade-offs Risk-based framework encourage innovation: - Does not seek “zero failure” overregulation & impairment of development - Bracket system focus on reducing risk & impact, not penalise all risks Risk & Impact model: CRAFT
- 23. Balancing Supervision & Development4 MAS’ duel role of Supervision vs Development Risk & Impact Framework Achieve Effective Level of Supervision
- 24. Balancing Supervision & Development4 Collaboration with Financial Institutions 1. MAS minimally intervenes in the institution’s business operations as long as the risks are adequately managed.. 2. MAS reinforces the responsibility of the management within the institutions to oversee the behaviour of institution and improve the risk management. 3. MAS caters it supervisory responsibilities with respect to the type of institution, its scale and complexity of business activities and its related risk. Promotes innovation w/o compromising on Supervision
- 25. TheEnd Global Financial Markets GROUP 1: Guo Zong Ren | Zheng Yayuan | Ng Wenying | Long Hong Zhang Li Yiyun | Cai Xin | Anand Shankar Ravisankar
Editor's Notes
- Slide 1 – 7: Zongren Slide 8 – 9: Mia Slide 10 – 13: Wenying Slide 14 – 16: Chris Slide 17 – 20: Erin Slide 21 – 22: Caixin Slide 23 – 24: Anand Slide 9: Need help with the “red text” Slide 21: Need help explaining “resolution” more clearly
- - Singapore is a small and open economy. Financial services sector are especially important in such a situation, as it acts as an intermediary between borrowers and lenders, allocates financial resources efficiently and result in economic growth and job creation. - A sound financial sector gives confidence to individuals and institutes. This is vital because there must be confidence in the system before corporates and individuals will transact in the market to invest or raise capital. Without it, the economy will not have the ability to mobilize savings for economic use. - The question that arises from MAS’s duel role of supervision and development is this: Are these roles compatible. Supervision seeks to have effective monitoring and mitigation of risk while promotion focuses on developing enterprise and business innovation, which often entails taking risk.
- Motivation: Achieves MAS objectives of low and stable inflation Protecting the purchasing power of the Singapore dollar Preserving the value of Singapore residents’ savings over time Keeping prices predictable for businesses Attracts long term investments into the country - With no natural resources, Singapore is highly dependent on imports Value of imports and exports are 2 times that of GDP Singapore is a price taker Singapore is extremely vulnerable to imported inflation Strengthening the SGD would limit the inflationary effects of higher import prices Simultaneously Singapore’s goods and services would be more expensive lower demand for Singapore’s exports lower demand for local factors of input; controlling domestic inflation. Traditional macroeconomics of controlling inflation through managing the money supply had a weaker effect at managing inflation. Throughout periods of major global events price stability was effectively achieved though controlled exchange rate policy. Foundation: Building up of Reserves that allowed MAS to pursue an effective exchange rate policy High Savings Rate Budget Surpluses Contributions to the CPF savings account Accumulating foreign reserves enables MAS to manage its exchange rate in the face of speculative attacks or external pressures. Exchange Rate Policy could focus solely on maintaining price stability in the medium term Budget surpluses allowed the government to exercise fiscal policy to encourage growth when required (short term) Self-correcting labour market which allowed prompt wage rates changes in light of economic pressures (short term) Credibility of MAS as a central bank. Earning the trust of the market and the public Focused, single minded approach in controlling medium inflation. Massive reserves Independence in selecting monetary policy while maintaining ties with the government reinforces bank’s credibility and promotes efficient execution. Pre-emptive and effective policy decisions have enabled MAS to earn its credibility. MAS applies its policies with an understanding that policies would take 6 to 9 months to take effect. Makes the changes in the exchange rate predictable and provides ample time for businesses and households to react to changes.
- Regulation MAS determines the scope of financial services activities that should be regulated, and sets the rules and standards governing the behaviour of financial markets and institutions. Authorisation MAS is the gatekeeper for institutions that wish to offer financial services in Singapore to ensure that they meet the fit and proper criteria to conduct regulated activities. Supervision MAS is responsible for the prudential supervision of financial institutions to make sure the soundness and effectiveness in the market. Surveillance MAS undertakes various kinds of financial surveillance. Enforcement MAS is empowered to take action against those institutions and individuals who breach prudential and market conduct requirements. Resolution MAS is responsible for exercising resolution powers over financial institutions. Corporate governance To oversee and manage internal risk, MAS seeks to promote effective and sound corporate governance practices by institutions. Market discipline To foster market discipline, MAS seeks a transparent and effective market. Consumer education Guided by the principle 9 about disclosure-based regime, MAS need to empower consumers to let them better understand a growing array of financial products and services. Consumer Safety-Net Consumers can know exactly how much of their money will be fully protected or whether their losses arising from insured perils will compensated if an institution fails. This helps to strengthen market discipline and dispel any public misperception of a government guarantee in the event of a failure.
- Slide 1 – 7: Zongren Slide 8 – 9: Mia Slide 10 – 13: Wenying Slide 14 – 16: Chris Slide 17 – 20: Erin Slide 21 – 22: Caixin Slide 23 – 24: Anand Slide 9: Need help with the “red text” Slide 21: Need help explaining “resolution” more clearly