(Delivered in Parliament on 4 July 2017)
Madam Speaker, the MAS Amendment Bill seeks to strengthen the MAS’ powers to resolve distressed financial institutions, taking reference from the Financial Stability Board or FSB’s Key Attributes of Effective Resolution Regimes.
I do not object to the Bill or any of its provisions. In particular, the new provision that subordinates MAS’s developmental objective to its supervision objective, a recommendation emerging from the 2013 IMF Financial Sector Assessment Programme, is welcome.
However, I would like to pose a few questions and suggestions.
Firstly, giving the central bank the authority to remove an FI’s management and appoint an administrator was suggested by the FSB, but has not been taken up by MAS. This was expressed in section 3.2 of the FSB’s Key Attributes of Effective Resolution Regimes document. I would like to ask why this was not included in the legislation as this would give the MAS more resolution powers, including the power to compel a recalcitrant or problematic FI to implement the MAS’ directives in a way that is in line with what the MAS needs in order to avoid financial contagion. Of course such an outcome is not something anyone would want to see happen. But having this power as a weapon of last resort may also help nudge FIs to avoid the kind of decisions that may provoke that outcome. Often when an FI fails, it is the management that is at fault and it may not always be possible to implement corrective actions through the existing management, as it were.
Next, on depositors and insurance policy holders. Part of the bills relates to creditors and their rights but it is not entirely clear if depositors and policy holders are included in this category. The proposed legislation appears not make any special provisions for depositors, instead seeing compensation for them as coming from the existing deposit insurance scheme. No less than the FSB suggested that “The treatment of creditors and ranking in insolvency should be transparent” to depositors, so this should be made clear.
Next, on transparency. I would like to ask: will the MAS make public which banks are required to comply with the new provisions of this Bill? The new RRP requirements, for example, apply to domestic systematically important banks or D-SIBs as well as “other banks that are assessed to have systemic impact or that maintain critical functions.” Will the wider public will be informed about the identity of these other banks? The public may have a legitimate interest in knowing this.
Next, this Bill confers greater powers of intervention on the MAS. I would like to ask the Minister to comment about how the resources and expertise of the MAS to exercise these powers is going to be developed.
And lastly, a technical query – is the expectation for banks to maintain systems which can produce data in a timely manner basically met if a bank complies with the Basel Committee’s Principles for Effective Risk Data Aggregation and Risk Reporting (BCBS 239)? This approach is currently applicable to all domestic systematically important or D-SIB banks. The answer to this question was not entirely clear from the MAS’s Response to Feedback paper released in May.