Monetary Authority of Singapore Consults on Proposed Guidelines on Individual Accountability and Conduct

• The Proposed Guidelines will be applicable across the financial sector to a number of FIs, including CMS Licensees.
• It will therefore apply to Singapore FMCs that are CMS Licensees but will not apply to registered FMCs.

• FIs should clearly identify senior managers who have responsibility for functions that are core to the management of the FI’s affairs, including to the core management functions (CMFs) set out in Annex A.
• FIs should review how each CMF applies in the context of their operations in Singapore and identify the senior managers who have actual decision-making authority and oversight of each function.
• The identification of senior managers should take into account seniority within the organization.
• Apart from the CEO who is directly accountable to the board of directors (Board) or head office, senior managers should generally have direct reporting lines to the CEO and, where relevant to the performance of that function, to the Board or head office as applicable².
• FIs may, in certain circumstances, determine that more than one senior manager have responsibility for a certain function³. In such cases, FIs should ensure that there is clarity in each senior manager’s scope of authority and reporting lines so that the underlying principle of proper accountability is met.
• Where the activities of a function have been outsourced, FIs should identify the senior manager who has responsibility for making decisions on and overseeing the outsourced function and who has responsibility for reporting on the activities of that function directly to the CEO and Board or head office, as applicable.
• FIs may designate senior managers who are based in Singapore or overseas, as long as the identification of each senior manager reflects where actual oversight responsibilities and decision-making authority reside in practice, regardless of his or her physical location.
• In identifying senior managers, FIs should ensure that all material aspects of their operations⁴, including the CMFs, are subject to appropriate management oversight.
• Directors are considered senior managers under the Proposed Guidelines only to the extent that they are employed in the capacity of an executive function within the FI. For such executive directors, the Proposed Guidelines address specifically their role as senior managers (and not as directors) concerned with or taking part in the day-to-day management of the FI’s affairs. The roles and responsibilities of directors are separately set out in other existing legislation and guidelines, as applicable to the relevant FI⁵.

•  FIs are responsible for conducting the necessary due diligence prior to appointing senior managers, regardless of whether senior management appointments are subject to regulatory approval.
• Specifically, the Board or head office, as applicable, should ensure robust standards and processes to assess the fitness and propriety of each senior manager, prior to appointment and on an ongoing basis thereafter.
• As part of ongoing supervision, MAS will engage FIs on the rigor of their screening and hiring process.

Outcome 3: The FI’s governance framework is supportive of and conducive to senior managers’ performance of their roles and responsibilities.

The FI’s overall management structure and reporting relationship are clear and transparent.

•  FIs should establish appropriate governance policies and processes to promote proper accountability and facilitate senior managers’ performance of their roles and responsibilities in an effective manner.
• Specifically, the Board or head office, as applicable, should ensure:

(i) clear specification of each senior manager’s individual areas of responsibility and his or her appointment and responsibilities in management committees

(ii) appropriate delineation of the FI’s overall management structure, including the reporting relationship among senior managers and management committees, between senior managers or management committees and the Board, and across entities within the group, as applicable

(iii) acknowledgment by each senior manager of his or her specified roles and responsibilities and reporting lines

(iv) approval by the Board or head office, as applicable, of each senior manager’s specified roles and responsibilities and the FI’s overall management structure

(v) documentation of each senior manager’s specified roles and responsibilities and the FI’s overall management structure, including timely updates where there have been material changes

(vi) appropriate incentive, escalation, and consequence management frameworks that hold senior managers accountable for the effective performance of their specified roles and responsibilities, including the actions of their staff and the conduct of the business under their purview, and

(vii) a succession plan that is regularly reviewed and updated, including the identification of potential candidates in the pipeline and appropriate handover policies and procedures to facilitate smooth transition in the senior management team

• FIs should determine the most effective method of accurately and comprehensively maintaining information on the specification of senior managers’ roles and responsibilities and the FI’s overall management structure.

• MAS does not intend to require regulatory submissions from FIs on the roles and responsibilities of the senior managers. However, as part of ongoing supervision, MAS will review the effectiveness of FIs’ governance frameworks, including the relevant policies, systems, and documentation, as well as senior managers’ understanding of their areas of responsibility.

• With regards to management committees:

(a) The collective accountability of management committees is not absolved by the emphasis on individual accountability and vice versa.

(b) In setting up management committees, FIs should establish a formal mandate and articulate the terms of reference and reporting lines for each committee.

(c) Individual senior managers constituting a management committee are expected to have a robust understanding of the matters under their purview, and how these matters affect the FI’s business and risks. Accordingly, it is the responsibility of each senior manager to determine the issues that ought to be raised at relevant committee meetings and make constructive contributions to the discussions at these meetings, so as to facilitate more informed decision-making by the committee collectively.

• Employees in MRFs will be defined as employees whose decisions or activities could materially impact an FI’s risk profile. These include employees in executive, business, risk management control or support functions who, while not senior managers, are vested with material decision-making authority or mandates that may lead to significant impact on the FI’s safety and soundness or cause harm to a significant segment of the FI’s customers or other stakeholders.
• MRFs will include front, middle and back office functions, as applicable to the FI, as well as any other employee with supervisory capacity over such functions.
• This principles-based definition of MRFs is intended to facilitate proportionate application by FIs in a manner applicable to FIs’ business models and commensurate with the nature of their business and risks.
• The Board and senior management should ensure that appropriate standards and processes are in place to

(i) identify employees in MRFs, including establishing the relevant criteria for identifying such employees

(ii) assess the fitness and propriety of employees in MRFs, prior to their appointment and on an ongoing basis thereafter, taking into account the specific nature and risk implications of their roles

(iii) facilitate effective risk governance, including

a. subjecting employees in MRFs to the appropriate mandates, decision-making authority, risk limits, and supervisory oversight as relevant to the type(s) of activities they undertake, and

b. according the necessary stature and authority to employees in MRFs where such employees perform risk management or control functions, and

(iv) subject employees in MRFs to

a. standards of proper conduct in relation to the type(s) of activities they undertake

b. continuing training on the competencies required for their role, risk implications of their activities, and standards of proper conduct, and

c. an appropriate incentive structure, including performance evaluation, compensation and promotion, that is aligned with the nature and time horizon of risks and effective in encouraging behavior consistent with the desired conduct outcomes.

• MAS will, as part of its ongoing supervision, engage FIs and assess the appropriateness of their identification of MRFs in achieving Outcome 4.

• The Board and senior management should ensure that a framework is in place that addresses the following:

(i) the standards of conduct expected of all employees, including but not limited to standards on honesty and integrity, due care and diligence, fair dealing (treating customers fairly), management of conflicts of interest, competence and continuous development, adequate risk management and compliance with applicable laws and regulations

(ii) consistent and effective communication of the expected standards of conduct, such as through a code of conduct, onboarding and continuous training programs, and sharing of lessons learned where misconduct has occurred, to ensure that employees understand and observe these standards

(iii) appropriate policies, systems and processes to enforce the expected standards of conduct, including

a. regular monitoring, reporting and escalation to the Board and senior management of matters relating to the FI’s and employees’ conduct

b. an incentive structure that considers risk and control objectives as well as feedback from human resources, compliance, risk management, internal audit, and other control or support functions as applicable to the FI, in performance evaluation, compensation and promotion decisions;

c. a consequence management system, including transparent investigation and disciplinary procedures

d. a formalized whistleblowing channel, including procedures to ensure adequate protection of employees who raise concerns over the FI’s policies, practices and activities via this channel, and

(iv) engagement strategies with key stakeholders, including investors, corporate and institutional clients and counterparties, shareholders and regulators, to ensure transparent and timely communication of relevant material information

• The Board and senior management should notify MAS as soon as it becomes aware of any material adverse developments. These include misconduct, lapses in risk management and controls or breaches in legal or regulatory requirements that have the potential to cause widespread disruption to the FI’s day-to-day operations, services or activities and/or significantly impact the FI’s customers, or safety and soundness.
• MAS should also be notified in a timely manner of any information that may negatively affect on the fitness and propriety of senior managers or employees in MRFs.

• The Proposed Guidelines are targeted to be issued in the fourth quarter of 2018.
• The outcomes-based approach of the Proposed Guidelines is intended to give FIs flexibility in establishing the appropriate governance and conduct framework to cater to their specific organizational structure and promote their desired culture while achieving the objectives and spirit of the five outcomes.
• MAS will adopt a consultative approach to assessing FIs’ compliance with the Proposed Guidelines in the initial phase of implementation and continue to engage FIs on the adequacy and effectiveness of their practices through its supervision.
• MAS’ ongoing supervisory process will include inspections, supervisory visits and meetings with the Board, senior management and other employees. MAS will review the robustness of FIs’ governance arrangements and measures to achieve the objectives and spirit of the Proposed Guidelines. Relevant observations will be taken into account as part of MAS’ supervisory assessments of the FIs, including assessments on the effectiveness of the Board and senior management.
• MAS will take appropriate supervisory actions where FIs and their Board and senior management do not meet the expectations under the Proposed Guidelines, and/or demonstrate an unwillingness or inability to take remedial actions. These actions could include issuing warning or reprimand letters or imposing conditions on the FI’s activities, depending on the nature and severity of the deficiencies observed.