MAS Revises Corporate Governance Guidelines for FIs

New guidelines incorporate 2018 changes to Corporate Governance Code, including greater stakeholder focus.

The Monetary Authority of Singapore (MAS) has issued a consultation paper setting out revised guidelines on corporate governance for financial institutions in Singapore.

The current guidelines on corporate governance were last revised in April 2013 and contain the 2012 version of the Corporate Governance Code. In August 2018, the Code was revised to reinforce board competencies, place greater emphasis on disclosures of the relationship between remuneration and value creation, and increase focus on the interests of stakeholder groups other than shareholders.

The revised guidelines incorporate the changes to the Corporate Governance Code, as well as additional guidelines for Singapore-incorporated financial institutions, taking into account international standards and industry good practices.

The additional guidelines elaborate on the role and responsibilities of the board of directors, including in relation to their oversight of the FI’s strategic direction, overall business objectives, senior management, risk management, and the need to safeguard customer interests.

“The Board should review the FI’s corporate governance framework, culture and conduct framework, business objectives and strategies on an annual basis, or more frequently as appropriate, to ensure that they remain relevant and effective,” the guidelines say.

On remuneration practices, the guidelines set out expectations for FIs on the design and operation of remuneration policies, particularly in relation to key management personnel and other material risk takers.

Under the guidelines, the board’s Remuneration Committee and senior management should exercise active oversight and monitor the effectiveness of remuneration polices, including through the use of performance evaluations and independent annual reviews, which take into account both financial and non-financial factors.

Where remuneration is variable, it should be awarded in a mix of instruments aligned with long-term value creation and subject to deferral arrangements – consistent with the FIs’ long-term objectives and financial soundness. Guaranteed bonuses should only be granted only under exceptional circumstances, such as for new hires, limited to the first year of employment.

Remuneration policies for all employees should contain ex-ante adjustment mechanisms, to account for all types of risk, including conduct risk. For key management personnel and other material risk-takers, remuneration policies should also contain ex-post adjustment mechanisms, taking into consideration risks that are longer-term in nature.

MAS proposes to extend existing remuneration requirements for executive officers to material risk-takers, given that their decisions or actions could “materially impact an FI’s risk profile”.

To mitigate risks arising from possible conflict of interest situations, the guidelines propose to require that unresolved concerns of the independent directors be documented in the minutes of meetings of the board.

In addition, MAS proposes to include a requirement that the board committees’ written terms of reference should clearly set out the authority and duties of the committees.

The guidelines apply to designated financial holding companies, banks, direct insurers, reinsurers and captive insurers incorporated in Singapore.

The guidelines, available here, are open for comment until 18 June 2021.

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