Singapore consults on enhanced resolution regime for financial institutions

The proposed changes will strengthen MAS's powers to resolve distressed financial institutions in Singapore, MAS said.

Having established frameworks to deal with cross-border institutions, and extended its powers to cover a wider range of financial institutions, it is time to strengthen MAS's resolution regime for institutions in Singapore, it said.

The proposals include requiring financial institutions, when notified by MAS, to put together recovery and resolution plans (RRPs).

"Robust and credible" resolution plans can reduce the risk posed by a financial institution to the system's stability by making sure its critical functions can continue while it is restructured or leaves the market "in an orderly manner", MAS said.

MAS will set out details of the scope, coverage, essential components, update and submission requirements for RRPs, it said.

MAS also proposes introducing temporary stays on termination rights on financial contracts, which could "derail" any resolution, it said. This will cover financial contracts, insurance contracts and contracts for essential services and functions.

The authority could request a stay of up to two business days, or until the completion of a transfer of business, shares or restructuring of the institution, or, if earlier, the receipt of a written notice from MAS that the contract will not form part of the business that is being transferred.

MAS also proposes being able to extend this stay if necessary, it said.

Insurance cover, in particular, may need to be secured, MAS said: "It is important to secure the continuity of insurance coverage for policy owners as far as reasonably practicable in the resolution of an insurer."

Insurance policies could be transferred from an insurer undergoing resolution to another insurer, and MAS would be able to temporarily suspend the rights of policy owners to withdraw from these insurance contracts.

MAS would also be able to stay insurers from terminating or not reinstating cover, it said.

The authority proposes introducing powers to write down unsecured or uninsured creditor claims, or convert them into equity or other ownership "instruments", it said. This would help to recapitalise an institution to make sure critical functions can continue, reduce the use of public funds, and maintain public confidence, MAS said.

This would initially apply to Singapore-incorporated banks and bank holding companies, and MAS would consider later whether to extend it to non-banks, it said.

A framework should be set up to compensate creditors who will be worse off under resolution than in liquidation, MAS said. This would be decided by an independent valuation agent, and creditors would have the right to appeal against that decision.

MAS has also proposed funding arrangements to cover the costs of putting resolution steps into place, and for any creditor compensation claims.