SINGAPORE – Banks and insurers incorporated here could soon see stricter corporate governance requirements such as an increased minimum board size and a majority of independent directors on the boards.
The Monetary Authority of Singapore (MAS) is seeking feedback on proposed updates to corporate governance regulations for financial institutions (FIs) as part of its regular review of regulatory standards to keep them current and effective.
The proposed updates build on revisions made in November 2021 to MAS’ guidelines on corporate governance for banks and insurers, as well as their designated financial holding companies.
“Strong corporate governance remains fundamental to well-run and resilient FIs. Banks and insurers play particularly critical roles in safeguarding depositor and policyholder interests. They perform important functions in supporting households, businesses and the wider economy,” MAS said on Sept 29.
Updates have been proposed in four main areas: director independence, board composition, key appointments, and streamlining requirements for lower-impact FIs.
Noting that “clear independence criteria support objective judgement and effective challenge”, MAS proposes to refine the criteria for determining whether directors are independent from management, business relationships and substantial shareholders.
Currently, directors are assessed for independence based on their relationships with the FI, its subsidiaries and substantial shareholders, as well as whether they have served on the board continuously for nine years or more.
The proposed criteria widens the test to cover relationships with the FI’s parent and sister companies, as well as certain business dealings involving directors’ immediate family members.
Directors who have served nine years or more in total, rather than continuously, would also be deemed non-independent.
MAS is also proposing that the boards of domestic systemically important banks would need at least seven directors, while full banks, domestic systemically important insurers and their parent companies would need at least five.
A majority of directors would also have to be fully independent at major banks and insurers.
The regulator said these refinements are intended to ensure that boards continue to have the breadth of perspectives and expertise and independent oversight needed as institutions grow in scale and complexity.
Domestic systemically important banks are DBS Bank, OCBC, UOB, Citibank, Maybank, Standard Chartered Bank and HSBC. Domestic systemically important insurers consist of AIA, Income Insurance, Prudential and Great Eastern.
MAS also proposes to require prior approval for additional key appointments, such as chairperson of nominating committee of locally incorporated banks and insurers, and chief information officer of domestic systematically important banks.
This reflects the increasing importance of succession planning, technology and information risk management at the board and senior management levels.
Another proposed change would remove the need for prior approval of certain board and senior management appointments for FIs with less retail reach or lower systemic importance, to keep regulatory requirements risk-proportionate.
Overall, the proposed changes strengthen safeguards in specific areas where risks and practices have evolved, while streamlining requirements for FIs with less impact on customers and the financial system, MAS said.
FIs that are more systemically important or have greater retail reach can have a larger impact on customers and the financial system, and are therefore subject to more stringent corporate governance requirements.
Interested parties have until Dec 9 to share their feedback here.
