New Omnibus Act for the Financial Sector

May 11, 2021 | Finance, Regulatory Updates

On 21 July 2020, the Monetary Authority of Singapore (“MAS”) published a Consultation Paper on a proposed new omnibus Act for the financial sector (the “Omnibus Act”). The consultation period has closed on 20 August 2020. The Omnibus Act will be a standalone legislative framework that aims to enhance and consolidate MAS’ supervisory powers and allow the MAS to adopt a financial sector-wide regulatory approach to financial institutions (“FIs”) and digital services across the financial sector.

This legal memorandum provides an overview of some of the key provisions of the proposed Omnibus Act:

  1. A harmonized and expanded power to issue prohibition orders.
  2. Regulation of virtual asset service providers created in Singapore for anti-money laundering and countering of financing of terrorism purposes.
  3. A harmonized power to impose requirements on technology risk management.
  4. Providing mediators, adjudicators and employees of an operator of an approved dispute resolution scheme with statutory protection from liability.

A harmonized and expanded power to issue prohibition orders

Prohibition orders (“POs”) are currently issued to bar persons from conducting certain activities or from holding key roles in FIs for a period of time.

MAS’ current PO powers reside only in the Securities and Futures Act, the Financial Advisers Act and the Insurance Act. This means that MAS cannot issue POs to persons regulated under other Acts administered by MAS even if they have committed serious misconduct in the financial industry. The existing PO powers also do not comprehensively address risks as they only prohibit the subject from carrying out a limited scope of regulated activities.

The proposed Omnibus Act will amend the existing framework to expand MAS’ power to issue POs against any person whose misconduct has the potential to cause harm to Singapore’s financial industry. The fit and proper criteria will be the sole ground for determining if a PO should be issued. Under the MAS’ Guidelines on Fit and Proper Criteria, this comprises the key elements of (i) honesty, integrity and reputation, (ii) competence and capability, and (iii) financial soundness.

In addition to barring a person from holding certain key roles in FIs, MAS will be able to prohibit a person from carrying out four additional specified functions: (a) handling of funds, including safeguarding or administration of digital payment tokens or digital payment token instruments; (b) risk-taking; (c) risk management and control; and (d) critical system administration.

Regulation of Virtual Asset Service Providers created in Singapore for Anti-Money Laundering (“AML”) and Countering of Financing of Terrorism (“CFT”) purposes

The Financial Action Task Force (“FATF”) defined five activities of virtual asset service providers that jurisdictions should regulate for AML/CFT:
  1. exchange between virtual assets (“VAs”) and fiat currencies;
  2. exchange between one or more forms of VAs;
  3. transfer of VAs;
  4. safekeeping and/or administration of VAs or instruments enabling control over VAs; and
  5. participation in and provision of financial services related to an issuer’s offer and/or sale of VAs.
Pursuant to the FATF Standards (and the MAS’ commitment to aligning Singapore laws with the above recommendations), the MAS is proposing to expand its legislative framework for VA services by making certain additional activities licensable. MAS proposes to regulate entities that are created in Singapore but which carry on a business of providing VA activities outside of Singapore as digital token service providers (a new class of FI).

The proposed Omnibus Act intends to capture entities that are created in Singapore but offer services outside of Singapore and that are not captured under the current legislation.

A harmonized power to impose requirements on Technology Risk Management (“TRM”)

TRM is a key area of focus of the MAS. The MAS has previously issued guidance to FIs pursuant to its powers under the respective Acts under which the FIs are licensed – for example, MAS Notices on Technology Risk Management, MAS Notices on Cyber Hygiene and Guidelines on Risk Management Practices – Technology Risk (“the Notices”). However, the Notices stated above are limited to systems that support a regulated activity and there was therefore a concern that “unregulated” systems can pose contagion cyber risk due to inter-linkages.

The proposed Omnibus Act will introduce powers on the MAS to issue directions or make regulations on TRM which will allow MAS to impose TRM requirements on any FI in relation to the FI’s systems, whether or not the system(s) supports a regulated activity.

The maximum penalty was proposed to be increased to S$1 million for the contravention of any TRM regulations and Notices to ensure that the maximum penalty for breaches of notices or regulations is commensurate with the most serious types of breaches that can be committed by FIs.

Providing mediators, adjudicators and employees of an operator of an approved dispute resolution scheme with statutory protection from liability

MAS requires FIs prescribed under the MAS (Dispute Resolution Scheme) Regulations 2007 to subscribe as members of an approved dispute resolution scheme. This aims to provide consumers with an independent and affordable avenue for resolving disputes with their FIs. Currently, the Financial Industry Disputes Resolution Centre Ltd operates the only approved dispute resolution scheme.

To strengthen the confidence and autonomy of an approved dispute resolution operator’s mediators, adjudicators and employees, the proposed amendment aims to provide them with statutory protection from liability in all cases where they act with reasonable care and in good faith.