The Monetary Authority of Singapore is going to adjust various rules to enable financial institutions to concentrate on their reaction to the financial disruption that springs from the Coronavirus pandemic.

In doing so the MAS uses an ambiguous phrase that regulators around the world are picking up - it wants firms to "support their customers," whatever that may mean.

It will take the following steps:

• adjust the things that it requires of banks on the subject of capital and liquidity, the object being to help keep them lending;
• allow financial institutions to take into account "the Government’s fiscal assistance and banks’ relief measures" (an unexplained phrase) in setting more realistic accounting loan loss allowances;
• defer their implementation of the final set of 'Basel III' reforms, margin requirements for non-centrally cleared derivatives and other new regulations and policies, the aim being to ease their operational burdens;
• give them more time to send it reports;
• defer "industry projects" (a phrase that might have something to do with its "financial services industry transformation roadmap," which it unveiled in November) that are not urgent; and
• pay no visits to firms till further notice.

Banks' capital and liquidity

The MAS is encouraging banks to use their capital buffers to support their lending activities. Banks in Singapore can afford to do this because they have managed their businesses prudently and have built up healthy capital buffers over the years. The Singaporean Government is convinced that they have enough capital to see them through the current economic slump while continuing to supply credit to the economy at large. It sees this supply as a means of "providing support." The promotion of lending activities should take priority over discretionary distributions. Banks should not 'release' capital buffers to finance share buybacks.

The MAS will allow banks to recognise as capital more of their regulatory loss allowance reserves. The amount of stable funding that banks must maintain for loans to individuals and businesses that are maturing in less than six months will be halved from 50% to 25% and this will apply until 30 September 2021, if not longer.

Setting Accounting Loan Loss Allowances

Financial Reporting Standard 109 (on the subject of financial instruments) requires firms to account for expected credit losses when financial assets are first recognised and to recognise full lifetime expected losses when credit quality deteriorates. The MAS says that when FIs assess the plague’s effect on economic conditions in future when estimating accounting loan loss allowances, they should also consider the extraordinary measures taken by the Government to make the economy more resilient. It also does not expect financial firms to maintain higher accounting loan loss allowances solely because they are applying "Coronavirus relief measures" to these loans. Instead, they should assess the risk of borrowers defaulting comprehensively.

Regulatory reforms deferred

The MAS will defer by one year the implementation of the final set of 'Basel III' reforms for banks in Singapore. It will defer to 1 January 2023 the implementation of revised standards for:

• credit risk, operational risk, debt ratio, output floor and related disclosure requirements (with the accompanying transitional arrangements for the output floor extended to 1 January 2028); and
• market risk and credit valuation adjustments for supervisory reporting purposes (for the purpose of compliance with capital adequacy and disclosure requirements, these standards will come into force on 1 January 2023 or later).

The MAS will defer by one year the implementation of the final two phases of the margin requirements for non-centrally cleared derivatives. The new times are:

• 1 September 2021 for a bank whose group’s aggregate non-centrally cleared derivatives exposure is more than S$80 billion (S$1 = 70c US); and
• 1 September 2022 for a bank whose group’s aggregate non-centrally cleared derivatives exposure is more than S$13 billion and up to S$80 billion.

The MAS will also extend to 1 October 2021 the final phase of the reporting requirements for over-the-counter derivative trades. It will delay certain new licensing and conduct requirements that spring from the Securities and Futures (Amendment) Act 2017 (see Annex A) and the transitional period for these requirements until 8 October 2021.

• It will also postpone the advent of the following new policies and will give financial institutions enough time to adjust to the new dates (when it announces them).
• Controls to stop market abuse;
• Guidelines to make individuals accountable for various things and "conduct/information paper on culture and conduct practices"; complaints-handling and 'resolution' regulations;
• requirements that pertain to the execution of customers’ orders.      

It will provide a longer response time for firms to write to it about each of its future policies. It will not consult banks about outsourcing requirements and new guidelines regarding environmental risk management, even though it has planned to do so.
     
Longer reporting times

The MAS will allow firms more time to hand in their regulatory reports which, in turn, are designed to facilitate its supervisory reviews. It has not announced any new times yet.

The "non-urgent industry projects" that it wants to defer include the building of a new electronic system on which banks and insurers can apply to it for permission to appoint important executives. The new system was scheduled for launch in Q2 2020. The existing application process will continue to be used until further notice.

The suspension of on-site inspections and supervisory visits

The regulator is putting all regular on-site inspections and supervisory visits 'on hold' until further notice but adds that it "will therefore focus its supervisory reviews on how financial institutions are managing the impact of COVID-19 [the epidemic] on their business and operations. MAS has begun to conduct on-site visits to financial institutions’ customer-facing locations to verify and enforce the implementation of safe-distancing measures in line with guidelines from the Ministry of Health.

Sound risk management

Above all, the regulator expects firms to keep providing customers with 'key' financial services and sustain the flow of credit to the economy. They should also keep their operations 'resilient' and manage risks soundly, despite the economic ravages of the pandemic that is gripping the earth. They must keep an eye out for threats to cyber-security, fraudulent transactions and scams, money laundering and terrorist finance, all of which phenomena the regulator believes in some way to be 'heightened.'