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CONSULTATION PAPER P012 - 2013 October 2013 MAS' power to issue prohibition orders under the Banking Act MAS’ POWER TO ISSUE PROHIBITION ORDERS UNDER THE BANKING ACT OCTOBER 2013 PREFACE i To maintain the integrity of and public confidence in Singapore’s banking sector, persons engaged in the banking sector should be fit and proper and possess, among other traits, honesty, integrity and good repute. To ensure the fitness and propriety of those involved in banking activities, it is proposed that MAS be given the power to issue prohibition orders (“PO”) under the Banking Act (“BA”) to prohibit unfit and improper persons from conducting banking business and functions incidental thereto. ii This consultation paper invites comments on the proposed PO framework to be introduced into the BA. Electronic submission is encouraged. Please submit your written comments by 4 November 2013 to: Prudential Policy Department Monetary Authority of Singapore 10 Shenton Way MAS Building Singapore 079117 Email: [email protected] iii Please note that all submissions may be made public unless confidentiality is specifically requested. MONETARY AUTHORITY OF SINGAPORE 1 MAS’ POWER TO ISSUE PROHIBITION ORDERS UNDER THE BANKING ACT 1 OCTOBER 2013 INTRODUCTION 1.1 MAS expects persons engaged in financial businesses to be fit and proper. MAS currently has the power to issue POs to prevent unsuitable persons from engaging in capital markets, financial advisory and insurance intermediation activities, but does not have similar powers for banking business. Banks are central to Singapore’s financial sector, and it is important to ensure that MAS has the power to safeguard the banking industry by excluding unfit and improper persons from it. The power to do so is in line with those possessed by other regulators, including those in Australia and the United Kingdom. 1.2 MAS proposes to introduce new provisions into the BA to give it the power to issue a PO against any person who is not fit and proper, prohibiting him from conducting banking business and functions incidental thereto and taking part, directly or indirectly, in the management of, acting as a director of, or becoming a substantial shareholder of a bank for such period as MAS may specify. 1.3 As with POs issued under the Securities and Futures Act (“SFA”), Financial Advisers Act (“FAA”) and Insurance Act (“IA”), MAS will not make any PO against a person without giving the person an opportunity to be heard. Thus, a person against whom MAS intends to issue a PO will be notified of MAS’ intention to do so, and afforded an opportunity to make representations. MAS will give due consideration to the representations before making the final decision as to whether to issue the PO. 1.4 Even after the PO has been issued, any person who is aggrieved by MAS’ decision to make a PO against him may, within 30 days of the decision, appeal in writing to the Minister. Within 28 days of the receipt of the appeal, the Minister shall constitute an Appeal Advisory Committee comprising not less than 3 members of the Appeal Advisory Panel and refer the appeal to the Appeal Advisory Committee. The Appeal Advisory Committee shall submit to the Minister a written report on the appeal, and make such recommendations as it thinks fit. The Minister shall consider the Committee’s report in making his decision, but is not bound by its recommendations, and may confirm, vary or reverse MAS’ decision or give such directions in the matter as he thinks fit. The Minister’s decision shall be final. MONETARY AUTHORITY OF SINGAPORE 2 MAS’ POWER TO ISSUE PROHIBITION ORDERS UNDER THE BANKING ACT OCTOBER 2013 1.5 All POs issued under the BA will be published on MAS’ website. Any breach of such a PO will be an offence punishable, in relation to an individual, by a fine not exceeding $125,000 or imprisonment for a term not exceeding 3 years or both, and, in relation to a corporation, a fine of up to $250,000. 1.6 MAS intends to use the proposed PO powers only in egregious cases of misconduct, such as misbehaviour reflecting the lack of honesty and integrity of, or which leads to the erosion of trust in, the person against whom the PO is issued. For example, MAS may consider issuing a PO against a bank employee who misappropriates customers’ monies, dishonestly manipulates a financial benchmark, or who misuses his employer’s trade secrets for personal gain. 1.7 MAS wishes to remind banks that the introduction of the power for MAS to issue POs into the BA would in no way reduce the responsibility to conduct comprehensive due diligence checks prior to employing their staff. As explained above, MAS intends to exercise the power to issue a PO under the BA only in the most severe circumstances; the fact that no PO has been issued against a person should not automatically be taken as an indication of his fitness and propriety. MAS would also like to highlight that a PO issued under the BA relates to employment in the financial sector, and should not necessarily prejudice an individual’s credit-worthiness and suitability for employment in nonfinancial sectors. Question 1: MAS seeks views on the grant of the power to MAS to issue POs under the BA to prohibit unfit and improper persons from conducting banking business and incidental functions. MONETARY AUTHORITY OF SINGAPORE 3 MAS’ POWER TO ISSUE PROHIBITION ORDERS UNDER THE BANKING ACT 2 OCTOBER 2013 PERSONS WHO MAY BE PROHIBITED 2.1 MAS proposes to be allowed to issue POs under the BA against any person, which would include any corporation or individual. Bank employees routinely deal with customers, process customer information, and are often entrusted with handling customers’ money and other assets. It is therefore important for MAS to be able to issue POs under the BA against all bank employees, and not only their key appointment holders. 2.2 MAS’ prohibition powers should also extend to persons who are not currently employed by a bank. This would enable MAS to prohibit banks’ outsourced agents who contravene MAS’ rules from further involvement in banking business and incidental functions. It would also allow MAS to pre-emptively bar unsuitable persons from being employed by banks, rather than have to wait until they are so employed before issuing a PO against them. For example, MAS may consider issuing a PO against a person operating fraudulent schemes flagged in MAS’ Investor Alert List, particularly if he tries to join a bank after the schemes are shut down by the Commercial Affairs Department. 2.3 It is further proposed that MAS’ prohibition powers apply not only to individuals, but to corporations as well. Extending the prohibition powers to corporations would, for example, allow MAS to issue a PO against a foreign bank which applies to MAS for a licence to operate in Singapore, and furnishes false or misleading information to MAS in support of its application. Aside from being a clear indication of MAS’ intention not to grant any licence to the bank for the duration of the PO, such a PO would also serve as a reminder to the industry to act with integrity and honesty in all its dealings with MAS. MAS may also consider issuing a PO against a bank whose licence is revoked, where appropriate and necessary to clearly signal MAS’ dissatisfaction with its conduct. Question 2: MAS seeks views on the persons against whom a PO may be issued under the BA. MONETARY AUTHORITY OF SINGAPORE 4 MAS’ POWER TO ISSUE PROHIBITION ORDERS UNDER THE BANKING ACT 3 OCTOBER 2013 GROUNDS FOR ISSUING PROHIBITION ORDERS 3.1 Persons engaged in the banking sector should be fit and proper. As stated in MAS’ Guidelines on Fit and Proper Criteria (FSG-G01)1 (“the Guidelines”), the criteria that MAS takes into account in considering whether a person is fit and proper include the following: (a) honesty, integrity and reputation; (b) competence and capability; (c) financial soundness. 3.2 The Guidelines list the factors which are relevant in the assessment of each criterion. For example, in assessing the honesty, integrity and reputation of a person, MAS may consider whether the person has demonstrated an unwillingness to comply with regulatory requirements or to uphold any professional and ethical standards, whether in Singapore or elsewhere, and whether he has been convicted of any offence under any law in any jurisdiction. Aside from the factors which are currently listed in the Guidelines, MAS intends to enhance the Guidelines to ensure that any unethical behaviour or conduct which may lead to an erosion of trust will suffice to render a person unfit and improper. Question 3: MAS seeks views on the proposed grounds for issuance of POs under the BA. 1 As the Guidelines currently apply only to banks’ key appointment holders, MAS will expand the Guidelines to apply to all banks licensed under the BA and all their employees. MONETARY AUTHORITY OF SINGAPORE 5 MAS’ POWER TO ISSUE PROHIBITION ORDERS UNDER THE BANKING ACT 4 OCTOBER 2013 EFFECT OF PROHIBITION ORDERS 4.1 MAS proposes that POs issued under the BA may do one or both of the following: (a) prohibit the person, for a specified period, from – (i) performing any banking business and function incidental thereto, or performing such banking business and function incidental thereto in specified circumstances or capacities; or (ii) taking part, directly or indirectly, in the management of, acting as a director of, or becoming a substantial shareholder of a bank; and (b) include a provision allowing the person, subject to any condition specified in the order – (i) to do specified acts; or (iii) to do specified acts in specified circumstances, that the order would otherwise prohibit him from doing. 4.2 POs issued under the BA can extend to prohibit the conduct of banking business as well as incidental functions. The BA defines “banking business” to mean only the business of taking deposits, paying and collecting cheques drawn by or paid in by customers and making advances. Given this narrow definition of “banking business”, it is necessary to extend the scope of prohibition to functions that support, bear a close relation to, or are provided in connection with the banking business. Such incidental functions may include: (a) activities regulated under other legislation such as the SFA, FAA and IA, e.g. the provision of financial advisory services; (b) functions common to activities regulated under other legislation such as the SFA, FAA and IA, e.g. compliance, risk management and internal audit functions; and (c) activities specific to banking business, e.g. the provision of payment, clearing and settlement services and facilities. 4.3 Notwithstanding the extension of the prohibition powers to functions incidental to banking business, the scope of prohibition of each PO issued under the BA will be tailored to the circumstances of each case, and no wider than necessary to safeguard the interests of the financial sector. MONETARY AUTHORITY OF SINGAPORE 6 MAS’ POWER TO ISSUE PROHIBITION ORDERS UNDER THE BANKING ACT OCTOBER 2013 Question 4: MAS seeks views on the proposed scope of prohibition of POs issued under the BA. MONETARY AUTHORITY OF SINGAPORE 7