Guidelines On The “Fit And Proper Criteria” And “Individual Accountability And Conduct” For Financial Institutions In Singapore
Singapore’s robust financial ecosystem has been centered upon on its established infrastructure, international connectivity, and highly skilled workforce. To maintain a high degree of standards and integrity of its workforce, the Monetary Authority of Singapore (“MAS”) has set out the Guidelines on Fit and Proper Criteria [FSG-G01] (the “Guidelines”) which was last revised in January 2020, covering all relevant persons carrying out any activities regulated by the MAS.
In relations to the Securities and Futures Act (“SFA”), specifically funds and fund managers, the “relevant persons” shall include the substantial shareholder(s) of a Capital Market Services (“CMS”) licensee, Chief Executive Officer, director, or an equivalent person. The substantial shareholder(s) of relevant person where it is an institution or exempt entity must also meet the fit and proper criteria of the Guidelines.
It is important to note that the onus of ensuring satisfaction to the Guidelines is on each relevant person, and not MAS to prove otherwise. Nonetheless, MAS will assess the suitability with considerations to the nature of the responsibilities of the relevant person. MAS may additionally consider other factors that are relevant to the designations and responsibilities, but not included in the Guidelines.
The key requirements in the Guidelines include:
- Conducting Fit and Proper Test in three broad components i.e. (i) honesty, integrity and reputation; (ii) competence and capability; and (iii) financial soundness, to assess the adequacy of the relevant person.
- A relevant person where it is an exempt financial institution, should have in place recruitment policies, adequate internal control systems and procedures to ensure that any persons in relation to its conduct of the any regulated activities meet the criteria of the Guidelines.
Factors for the Fit and Proper Test to assess the relevant person include:
- Honesty, integrity and reputation
- Has been refused the right or restricted in any trade, business or profession, for which a specific licence, registration or other authorization is required by law in any jurisdiction.
- Has been subjected of any investigations or disciplinary proceedings or been issued a warning or reprimanded by MAS or any other regulatory authority in Singapore or elsewhere.
- Has been convicted of any offence or is being subject to any pending proceedings which may lead to a conviction under laws in any jurisdiction.
- Competence and capability
- Has reasonable past performance or expertise in the relevant person’s business or duties, in and out of Singapore e.g. appointing a Chief Executive Officer (“CEO”) with a minimum of 5 or 10 years of relevant experience for a Licensed Fund Management Company.
- Has satisfactory educational qualification or experience, relevant skills and knowledge in relation to the nature of the duties to be performed. The person should also have satisfied the applicable requirements stipulated in the Entry and Examination Notice.
- Has concurrent responsibilities which would contribute to a conflict of interests or otherwise impair the ability to discharge duties in relation to any activity regulated by MAS.
- Financial soundness
- Has been unable to fulfil any of its or his financial obligations in and out of Singapore.
- Has entered into a compromise or scheme of arrangement with any creditors.
- Has been subjected to a judgment debt which is unsatisfied, either in whole or in part, whether in Singapore or elsewhere.
Tone at the top
As the nature of financial misconduct develops along with market complexity and technology advancement, to set the right tone from the top, it is critical for Board members and senior management to take a top down approach and fully understand the requirements set out in the Guidelines. The requirements detailed in the Guidelines should be considered and incorporated into relevant policies.
In addition to the fit and proper test criteria, the Board and its nominating committee should also consider the individual’s good standing in the profession such as a compliant track record, experience and achievements in the relevant industry, when recommending candidates for senior or executive position.
The common weaknesses and risks in compliance
With limited resources, it is important for the Board and senior management to adopt a risk-based approach to effectively organize time and resources to address high-risk areas, premised on the size, nature and complexity of the business such as market abuse, financial services misconduct and money laundering-related control breaches.
The common compliance vulnerabilities include, weak governance and oversight from the Board and senior management, lack of proactive capabilities to provide early detection of potential risks, lack of early intervention to mitigate risks before further damage to relevant stakeholders and ineffective compliance measures including poor implementation of controls, among others.
Steps to monitor and address these vulnerabilities and risks were discussed in our previous article ‘The MAS Takes Strong Action against Financial Institutions and Fund Managers’ published on the 04 January 2021.
Strengthening individual responsibility and accountability
To ensure good corporate culture and proper business conduct is cascaded to senior managers and ‘material risk personnel’, MAS issued the Guidelines on Individual Accountability and Conduct (“IAC Guidelines”) on September 2020 that supplements existing regulatory framework. The IAC Guidelines will take effect one year later on 10 September 2021.
The five (5) main conduct outcomes as per the MAS’ IAC Guidelines are as follows:
- Senior managers who have responsibility for the management and conduct of functions that are core to the financial institution’s operations are clearly identified.
- Senior managers are fit and proper for their roles, and held responsible for the actions of their staff and the conduct of the business under their purview.
- The financial institution’s governance framework is supportive of and conducive to senior managers’ performance of their roles and responsibilities. The financial institution’s overall management structure and reporting relationships are clear and transparent.
- Employees in material risk functions are fit and proper for their roles, and subject to effective risk governance as well as the appropriate standards of conduct and incentive structure.
- The financial institution has a framework that promotes and sustains the desired conduct among all employees.
Implications of breach of requirements
Any breaches or non-compliance to the Guidelines and SFA requirements would lead to warnings, prohibition orders, financial penalties, or revocation of license from the relevant authorities. In severe cases, it may lead to civil penalties or criminal convictions. Ultimately, risking the reputation and branding of the organization.
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