Individual Accountability And Conduct (“IAC”) – It Is Here And Are Companies Ready For The Change?
It has been a year from 10th September 2020 since the Monetary Authority of Singapore (“MAS”) finalized Singapore’s own equivalent to the United Kingdom’s Senior Managers and Certification Regime (“SMCR”), Hong Kong’s Managers-in-Charge Regime (“MIC”), and Australia’s Banking Executive Accountability Regime (“BEAR”) with the aptly titled Guidelines on Individual Accountability and Conduct (“IAC”). Across the board, individual accountability regimes are mostly centered on the definition of Senior Managers and their prescribed responsibilities.
Additionally, this is by no means a new regime as regulators from around the world have been looking to the Board and Senior Management of Financial Institutions (“FIs”) to ensure a strong culture of responsibility and ethical conduct within their organizations especially since the Global Financial Crisis of 2008.
As much of Singapore’s views on improving the city-states financial industry’s regulations and best practices are based on observations and collaborations with other global regulators, it is by no surprise the MAS have formulated this Guidelines in accordance with the standards that are currently in place and implemented across the above-mentioned jurisdictions.
Among the salient expectations noted within the Guidelines, the MAS highlights five outcomes which it expects applicable FIs to adhere i.e. those that have more than 20 employees. It must be said as well, the IAC Guidelines is not intended to be exhaustive or prescriptive, but rather the MAS is taking a more proportional implementation hence the headcount threshold.
This provides some level of comfort to smaller FIs (i.e. those that have less than 20 employees) as there are usually heavy oversight and much greater control over the employees conduct including directors and the Chief Executive Officer. However, though smaller team sized FIs are not required to adhere to the full guidance, the MAS have implied that it may still specifically require certain FIs to comply with the IAC Guidelines. This is in consideration such as the nature and complexity of the FIs operations.
It is worthwhile to note, with regards to professional indemnity insurance, the MAS have previously responded that FIs should not make arrangement that undermine the accountability of Senior Management. These includes arrangements such as insurance or other agreements that have the effect of indemnifying Senior Managers against financial penalties for misconduct or other offences.
We at Tricor Axcelasia, had previously provided a brief summary of the Guidelines here.
It Is Finally Here
FIs in Singapore had a year to consider the practical implementations for the Guidelines and now that it is in effect as of 10 September 2021, the question on many FIs is are they ready and what do they currently have in-place? For the larger firms, there are several options and providers that are offering RegTech solutions and tools to assist companies with the implementation. These are softwares specifically designed to support FIs to manage their accountability, avoid financial implications for breaches of the Guidelines and prevention of any reputation risk of the company.
These processes usually consist of tools that are able to design an implementation plan by utilizing template project plans and project management solutions and also providing bespoke advisory services to guide FIs on key implementation issues.
For the smaller outfits that are concerned about cost, there are ways to curb and conduct the implementation internally. Here are some suggested ways in which companies may approach:
1) Setting out a Governance Framework – This is to ensure that the FIs Board and Senior Management have a holistic understanding of its organizational structure and reporting lines, including head office and overseas operations. Some of the suggestion actionable items could include defining the criteria for the identification of Core Management Function (“CMF ”), relevant Senior Managers, and material risk personnel, and assessing the adequacy and appropriateness of their decision-making powers and responsibilities.
2) Human Resource Planning – This is to ensure that culture and conduct considerations are incorporated in a FIs hiring and onboarding processes, the FIs will need to review the roles, responsibilities, and key performance indicators of the identified list of Senior Managers and material risk personnel. Crucially, it should also ensure that its performance management and remuneration structures promote prudent risk-taking and ethical behaviors. Suggested actionable items could include establishing frameworks for incentive structures, performance evaluation processes to ensure that they hold Senior Managers accountable and encourage proper conduct amongst all employees. Fitness and propriety assessments should also be enforced with the appropriate appraisal, compensation, and disciplinary policies that commensurate with the respective escalation points, while existing succession planning processes should be reviewed to ensure that the appropriate handover policies are in place to ensure smooth transitions to potential candidates.
3) Set out a Culture and Conduct Framework – FIs may consider establishing a culture and conduct framework to identify and manage its conduct risk. This may include assessments of culture and conduct into its internal audit process, review standards of conduct, and re-evaluating the existing communication and reinforcement of these standards, by enforcing disciplinary and investigation procedures. It should also implement the necessary processes to monitor its culture and evaluate the effectiveness of its culture initiatives. To foster a safe environment for employees to provide their feedback and raise concerns, FIs should also look to conveying and cultivate a culture of by incorporating into its framework a whistleblowing provision to able an open channel of communication, appointing culture and conduct champions, and recognizing positive behaviors.
4) Training and Awareness – FIs will need to review its training and communication programs in the areas of individual accountability, culture, and conduct. This approach should at the very least cover both the head office and its branch offices to ensure consistency in terms of the key messages and feedback loops.
5) Project-based Governance – FIs may consider coordinating the activities across all the workstreams, including but not limited to managing their interdependencies and key risks. FIs should set up a central project management team with the objective of overseeing governance. These may include items such as preparing project plans, reporting of key milestones, addressing key issues and risks, and liaising with stakeholders to gather inputs and facilitate feedback loops.
In light of the above suggestive approach, the direction of the MAS and what is required for companies in Singapore is clear: FIs must begin to foster a culture of accountability either through balanced incentive plans, strong governance and controls, appropriate monitoring, reporting and escalation processes to avoid another major fallout in the economy at large.
How can Tricor Axcelasia help?
Tricor Axcelasia provides ongoing compliance support and regulatory updates to support companies in their strategic directions. Our team of compliance experts assist FMCs in developing robust policies, manuals and checklists to safeguard the companies against breaches of prevailing laws, regulations and standards.
Depending on the size and nature of your business, Tricor Axcelasia recommends regular compliance health checks and reviews to ease fears of unexpected breaches or misconduct by employees, executives or service providers.
In accordance with MAS expectations, Tricor Axcelasia provides internal audit services to assists FMCs in independently assessing the adequacy and effectiveness of internal controls and provide recommendations for improvements.
About Tricor Axcelasia
Tricor Axcelasia is an integrated professional services group providing strategic business advisory and governance risk & compliance (“GRC”) systems to publicly listed companies, private companies, multinational corporations and government-linked entities. We help organizations build their capabilities in strategic planning and execution by identifying and anticipating potential risks, and sharing comprehensive expertise in business management.
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