MAS Guidelines on Risk Management Practices and Islamic Banking Rules

The guidelines on corporate governance practices highlight that the Board should ensure that senior management maintains a sound system of risk management and internal controls to safeguard stakeholders’ interests and the institution’s assets, and should determine the nature and extent of the significant risks which the Board is willing to take in achieving its strategic objectives. The Board and senior management should understand the institution’s business strategy, nature of the business activities, new products, material modifications to existing products, and major management initiatives and their associated risks. Senior management should provide the Board with information on all potentially material risks facing the institution, including those relevant to the institution’s risk profile, capital and liquidity needs. The guidelines further mention that the Board and senior management should notify MAS in advance of any substantive changes in the institution’s business activities, structure and overall condition, or as soon as they become aware of any material adverse developments, including breach of legal or prudential requirements. MAS should also be notified of material information that may negatively affect the suitability of a relevant shareholder, and the fitness and propriety of a Board member or a member of the senior management.

The guidelines on application of banking regulations to Islamic banking cover general approach of MAS to the regulation of Islamic banking, providing guidance on the admission framework for financial institutions intending to offer Islamic financial services and the regulatory treatment for Islamic banking products, including the capital treatment of such products. These guidelines only cover the application of the Banking Act (Cap 19), Banking Regulations and written directions issued pursuant to the Banking Act, and do not cover the application of other legislation, such as the Securities and Futures Act and Financial Advisers Act. These guidelines apply to all financial institutions offering Islamic banking in Singapore. 

In addition, MAS published Notices 1108 and 1001 for merchant banks, which will take effect from July 01, 2021. MAS Notice 1108 sets out requirements for merchant banks on protecting the confidentiality of customer information in all outsourcing arrangements. This notice applies to all merchant banks. It sets out the conditions for outsourcing operational functions when such functions involve disclosure of customer information, and which will be performed outside Singapore. MAS Notice 1001 sets out definitions for the terms "capital funds" and "net head office funds" for merchant banks. MAS also announced that it will be cancelling guidelines for operation of merchant banks with effect from July 01, 2021. 

Effective Date: July 01, 2021 (Guidelines)

Keywords: Asia Pacific, Singapore, Banking, Merchant Banks, Islamic Banking, Governance, Regulatory Capital, Banking Act, ESG, MAS