Shuhui Kwok at Allen & Overy provides practical tips for FIs to consider when assessing the IAC Guidelines, their application and implementation.
Following two years of continuous consultation and thematic inspections on banks and their incentive structures, the Monetary Authority of Singapore (MAS) released its finalised Guidelines on Individual Accountability and Conduct (the Guidelines) on 10 September 2020.
Effective from 10 September 2021, the Guidelines set out the MAS’ general principles and expectations relating to individual accountability and conduct, and in particular require financial institutions (FIs) to achieve five key outcomes in respect of senior management, material risk personnel and governance and conduct frameworks.
While the Guidelines are consonant with regimes already in place in the UK, Hong Kong and Australia and should be of little surprise to industry participants, they nevertheless have far reaching implications on how FIs (big and small alike) will operate in Singapore.
The full year given to FIs to prepare for the implementation of the Guidelines provides scant comfort to those who have previously been involved in projects of this nature and scale. This article seeks to provide some practical tips for FIs to consider when assessing the Guidelines and their application.
First step – assess whether the Guidelines apply to your organisation
The most obvious starting point for most FIs will be to consider whether the Guidelines apply to them, and the extent to which they apply. As a general rule, most FIs regulated by the MAS will need to implement the Guidelines with the exception of certain financial and corporate finance advisers operating on limited exemptions, as well as recognised market operators and clearing houses incorporated in Singapore.
The Guidelines also distinguish between FIs with a headcount of 50 or more persons and those with less than 50, as the former will need to comply with both the outcomes and the specific guidance proposed by the MAS in the Guidelines. Locally incorporated banks and insurers will have to comply with the Guidelines on a group basis.
Assemble a broad-based project team
Practical experience from FIs in the UK, Hong Kong and Australia has shown that one of the vital components of successful implementation is to assemble a broad-based project team that spans a variety of functions, including business functions, HR, legal, compliance and risk.
This cross-team collaboration allows for consideration of the viewpoints of the different functions, and ensures that the outcomes and specific guidance in the Guidelines can be adapted and enhanced in a way that is applicable to the FIs’ business model. It is important to avoid a tick-box approach.
Early and proactive engagement
Obtaining buy-in and cooperation from senior management for the project is also critical to the success of any implementation programme, so that other senior managers and material risk personnel will follow their lead in ensuring compliance with both the Guidelines as well as internal guidance.
In particular, if a senior manager or material risk personnel is brought on board at an earlier stage of the process, so that his/her views as regards to their prescribed role and responsibilities can be agreed via an interactive process from the outset, this generally leads to a smoother implementation process.
Prior experience has also shown us that proactive communication strategies tend to work better than reactive strategies – early and proactive engagement will set the tone from the top, and ensure that adherence to the proposed improved standards which the FI intends to introduce can flow naturally throughout the organisation.
Adapt your existing governance arrangements
Most FIs in the market will have some form of existing governance arrangements, as well as policies and procedures already in place. FIs should take advantage of those existing arrangements, and avoid starting with a blank sheet. There is every likelihood that those existing arrangements already take into account the FI’s business model and so there should be no need to reinvent the wheel.
FIs who have global operations should also be able to leverage off materials prepared for compliance with SMCR in the UK, MIC in Hong Kong and BEAR in Australia. What is crucial here is to use existing arrangements and build a model that is suitable for and reflects that FI’s culture and structure, while at the same time meets the requirements of the Guidelines.
Develop appropriate infrastructure
Another essential component of the project is to ensure that there is appropriate infrastructure in place for FIs to monitor compliance with both the Guidelines and the terms of the implementation programme that has been put in place. This is often one aspect that is overlooked, as FIs will be very much focused on ensuring that the initial timeline imposed by the MAS can be met.
For example, beyond identifying and setting out the criteria for assessing senior managers and material risk personnel, infrastructure should be introduced to accommodate both periodic and ad hoc assessments of matters such as fitness and propriety outside of the annual appraisal process.
Avoid delays and build in buffer time
The old adage “time and tide waits for no (wo)man” is particularly apt for those looking to implement the Guidelines. FIs who have had experience with assembling programmes to comply with SMCR, MIC or BEAR will know that the process is likely to be challenging and time consuming, and there will likely be a multitude of issues to solve throughout the process.
It is therefore imperative to draw from that experience, and ensure that enough buffer time is built in to test the systems and controls that an FI is intending to put in place to implement the Guidelines. If possible, stress test those arrangements, considering in particular how the arrangements would work if past scenarios repeated themselves.
Training, training and more training
Last but not least, one of the most important aspects of the Guidelines is the emphasis on training of senior managers, material risk personnel and employees generally, so that there is consistent and effective communication on the expected standards of conduct applicable to each and every employee.
FIs should be aware that there is no room for a one-size-fits-all training programme, and that the training delivered must be tailored to the roles and responsibilities of employees. Therefore, there may be a need for both group and individual training sessions, depending on the relevant employee’s scope of responsibilities.
As would be the case currently, FIs should also note and monitor completion of the relevant training modules.
Read more about the Guidelines and their key features here.
Shuhui Kwok is Counsel at Allen & Overy. She regularly advises banks, insurers, payment service providers, capital markets intermediaries and other FIs on a range of regulatory matters.