“Risks remain, not least the prospect of political instability and the possibility of a rise in protectionist tendencies in the major economies”
– Singapore Trade Minister Mr Lim
Singapore’s Minister for Trade and Industry and Deputy Chairman of the Monetary Authority (MAS), Mr Lim Hng Kiang, last week gave a forthright speech on the implications of the tougher macro-economic environment and MAS’ risk surveillance expectations for companies.
The central plank of Mr Lim’s speech, given at the Singapore Association of Banks annual dinner, was the growing complexity of operational and technological risks placing large demands on banks’ risk management and compliance systems.
The nature of the speech and the calls for greater compliance awareness comes at a time when Singapore’s economy is heading for a second quarter of negative growth. The banking and financial service industries are feeling the full brunt of the downturn in oil and gas markets and the corresponding negative effects to manufacturing and shipping.
In his speech, Mr Lim said the local economy was entering a low-growth, low-inflation, low-interest environment cycle with volatile markets and tightening financial conditions in the regional and emerging market economies.
He highlighted the example of Brexit and the importance of financial institutions and regulators working together to ensure the continued resilience of Singapore’s banking system and financial sector.
Commenting specifically on Brexit, he said the local market would suffer turbulence, with wider economic implications for the region. He expected it would weigh on both market confidence and on an already listless global recovery.
Minister Lim was confident that the Singapore banking system would remain resilient. He expected non-performing loans to increase but still remain below the peaks seen during the Asian financial crisis. He predicted the banks to continue to meet Basel regulatory requirements comfortably and have sufficient capital and liquidity to cover potential loan losses and cash outflows.
He expected stress tests to become an integral part of risk management in the financial sector. For individual participating banks, stress testing will facilitate discussions with MAS on their resilience to adverse scenarios, planned responses and actions to mitigate risk management gaps. For the banking sector, the stress test results will help to identify common vulnerabilities across financial institutions (FIs), such as exposures to a particular sector or country.
He also expected banks to take a holistic approach to address cyber risk. In 2017 a new, standalone Cybersecurity Act is expected to be tabled in parliament to ensure that operators of Singapore’s critical information infrastructure take active steps to secure such systems and report incidents. It will also empower the Cybersecurity Agency (CSA) to manage cyber incidents and raise the standards of cyber security providers.
Part of securing sound cyber management will be through transparent management of outsourced services, with a guiding principle for banks to manage outsourcing arrangements as if the services were conducted in-house. This follows last year’s MAS review on guidelines associated with cloud services, customer information, and risk management frameworks.
The key upcoming changes include MAS’ expectations on the use of cloud computing services by FIs and a greater emphasis on safeguarding customer information. Also, the revised guidelines will no longer require FIs to pre-notify MAS of any outsourcing arrangements on a case-by-case basis but instead are expected to be to be responsible for ensuring the safety of all of their outsourcing arrangements on an ongoing basis.
Minister Lim said the guidelines were not intended to be exhaustive, with MAS recognising that the diverse range of outsourcing arrangements and rapid pace of progress in digital technology preclude a prescriptive approach to risk management practices for outsourcing, or a one-size-fits-all set of rules. MAS will adopt a risk-based approach in implementing the guidelines.
Kees Jan Boonen is a Director in the Strategic Communications practice of FTI Consulting, based in Singapore.
About Our Team
In Singapore, FTI Consulting is a market-leading business advisory firm organized into key client-focused business segments — Corporate Finance & Restructuring, Economic Consulting, Forensic and Litigation Consulting, Strategic Communications and Technology. Our professionals provide multidisciplinary solutions to complex business challenges and opportunities in areas such as compliance, governance, investigations, litigation, mergers and acquisitions, regulatory issues, reputation management, risk and restructuring.