The Monetary Authority of Singapore has completed its investigations into benchmark rate fixings in the island state and has released a proposed regulatory framework to govern the process going forward. As part of the process, the MAS says that 20 banks and 133 traders have been found in breach of best practice and that it has taken “supervisory actions” against institutions and individuals.
MAS says the banks were found to have “deficiencies” in the governance, risk management, internal controls, and surveillance systems for their involvement in benchmark submissions. These banks have been censured and directed to adopt measures to address their deficiencies. The banks are required to report their progress to MAS on a quarterly basis, and conduct independent reviews to ensure the robustness of their remedial measures.
In further action, MAS says the banks are required to set aside additional statutory reserves with MAS at zero interest for a period of one year. The duration for which the additional statutory reserves are to be placed with MAS may be varied depending on MAS’ assessment of the adequacy of the measures put in place by each bank to address the deficiencies and risks identified.
The authority says its actions against the banks are “calibrated according to the severity of attempts by traders in these banks to inappropriately influence financial benchmarks”. This includes consideration of the number of traders within the bank who attempted to inappropriately influence benchmarks, whether traders from other banks were involved, and the number of times these attempts occurred. MAS has also considered supervisory actions taken by other regulators for deficiencies relating to the London Interbank Offered Rate benchmark submissions, and the size of the Singapore market relative to other markets.
Although MAS notes that 133 is a “small proportion” of the number of traders in Singapore, there is some shock at the number involved. The authority says these traders were “found to have engaged in several attempts to inappropriately influence the benchmarks”.
MAS acknowledges that there is no “conclusive” finding that SIBOR, SOR and FX benchmarks were successfully manipulated, but stresses the traders’ conduct reflected “a lack of professional ethics”. It adds that it takes “a serious view of the need to uphold high standards of integrity in the industry and expects banks to foster a culture of ethical conduct among all their employees”.
Although the respective banks have taken disciplinary actions against the traders involved and about three-quarters of these traders have resigned from or have been asked to leave their banks, MAS warns that the rest of the traders who remain employed by their banks “have been, or will be, subject to disciplinary actions”. These include reassignment to other jobs, demotions, and forfeiture of bonuses. The industry will put in place measures to facilitate reference checks, so that an institution would be made aware if a potential hire had been implicated in attempts to inappropriately influence benchmarks.
On an even more serious note, MAS has referred some cases to the Commercial Affairs Department and the Attorney-General’s Chambers, but it notes that based on the available information and evidence, “no criminal offence under current Singapore law appears to have been committed”.
As far as the revised framework is concerned, MAS says it will introduce specific criminal and civil sanctions under the Securities and Futures Act (SFA) for manipulation of any financial benchmark. This will cover all financial benchmarks including SIBOR, SOR, and FX Benchmarks.
It also intends to subject the setting of key financial benchmarks to regulatory oversight. MAS will have the powers under the SFA to designate key benchmarks based on considerations such as the systemic importance of a benchmark and an assessment of its susceptibility to manipulation. MAS proposes to designate as key benchmarks the SIBOR, SOR and FX Benchmarks currently administered by the Association of Banks in Singapore (ABS).
The administrator and submitters of key benchmarks will be required to be licensed by MAS, and will be subject to regulatory requirements and requirements for administrators of key benchmarks will include the establishing of effective arrangements for regular monitoring and surveillance of benchmark submissions;?the putting in place robust governance arrangements to identify and mitigate actual and potential conflicts of interest; and?the establishment of a committee that will be responsible for overseeing the benchmark administration process and code of conduct for submitters.
The proposal further states that the submitters of key benchmarks will include compliance with the code of conduct for submitters developed by the respective administrators and?the appointment of an external auditor to conduct an annual independent review of the submitter’s benchmark submission activities and submission of this auditor’s report to MAS.
Teo Swee Lian, deputy managing director at MAS, says, “Ensuring the integrity of the processes for setting financial benchmarks is vital. MAS has taken firm supervisory actions against the banks, based on a careful assessment of their respective deficiencies. The proposed new regulatory framework will minimise the risk of attempts to inappropriately influence these benchmarks. The industry must also play its part in enhancing the robustness of the financial benchmarks, and in cultivating high standards of professional integrity and ethics.”