Global financial market group 1.ppt

Singapore’s Financial Supervision and Development

Global Financial Markets

GROUP 1: Guo Zong Ren | Zheng Yayuan | Ng Wenying | Long Hong ZhangLi Yiyun | Cai Xin | Anand Shankar Ravisankar

Outline

1 Introduction about MAS

2 Phases in history of Supervision

a. 1970s: The formative yearsb. 1981 – 1997: Strengthening the Financial systemc. Post 1997: New Millenniumd. Insurance Regulation

3 Current Supervisory Regime

a. MAS Mission and Objectivesb. MAS Principles and Functions

4 Balancing Supervision & Development

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

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.

Phase ONE2The 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

Phase ONE2The 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

Phase ONE2The 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

Phase TWO2Strengthening 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

Phase TWO2Strengthening 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

Phase THREE2Supervision 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

Phase THREE2Supervision 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

Insurance Regulation2Phases 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

Current RegimeSupervision in the new millennium (Post-1997)

New Regulatory Framework?

CRAFT – Risk assessment system?

3

Current Regime3Mission and Objectives

Mission

1 Promote sustained and non-inflationary economic growth

2 Promote a strong and progressive financial service sector

o Exchange rate policyo Management of official

foreign reserveo Regulating and supervising

financial sectoro Work with industry to

develop Singapore into IFC

MAS Structure


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 riskso Seize financial flowso Undermine obligation fulfilmentso Transmit shocks btw institutions

• Efficient infrastructure:o Reduce frictiono Lower costso 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


Objectives

5 Transparent and fair-dealing intermediaries and offerors

• MAS supervises them by:o Conducting testso Setting up requirementso Instilling fair business practices

• Requirements:o Make proper disclosure of material

informationo Help ensure market transparencyo 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

Current Regime3Principles and Functions

Principles

Risk-FocusedStakeholder-

ReliantDisclosure-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


Principles



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


Principles



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


Principles



11 Give due regard to competitiveness, business efficiency and innovation

12 Adopt a consultative approach to regulating the industry


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

Balancing Supervision & Development4MAS’ 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 quicklyMaking the dual roles complementary:- Clear separation between both functions in MAS- Senior management to resolve conflicts / trade-offsRisk-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

Balancing Supervision & Development4MAS’ duel role of Supervision vs Development

Risk & Impact Framework

Achieve Effective Level of Supervision

Balancing Supervision & Development4Collaboration 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

The End

Global Financial Markets

GROUP 1: Guo Zong Ren | Zheng Yayuan | Ng Wenying | Long Hong ZhangLi Yiyun | Cai Xin | Anand Shankar Ravisankar

Economy & Finance

Global financial market group 1.ppt