Focus on individual accountability in Asia

[Interview of Lapman Lee by Thomson Reuters]

Market keeps close watch on MAS for manager regime as focus on individual accountability continues.

As Asian regulators continue to focus on individual accountability with Hong Kong's most recent introduction of the manager-in-charge regime, the market is keeping a close watch on the Monetary Authority of Singapore (MAS) for similar moves.

It has been a relatively quiet year in two of Asia's leading financial centres without the spotlight on any scandals but individual accountability continues to rank high on regulators' agenda. This was most palpable in the introduction of the manager-in-charge regime in Hong Kong and the banking executive accountability regime in Australia.

These regimes seek to raise individual awareness of their regulatory obligations and accountability for misconduct that comes under their area of responsibility. Australia's banking executive accountability regime, in particular, includes accountability maps and statements as well as deferral of variable remuneration of up to 40 percent to discourage short-term risk taking.

"Clearly, there is more focus on individual accountability now. We predicted that there will be more naming and shaming. We now have the manager-in-charge regime in Hong Kong and similar regime in Australia which is the banking executive accountability regime," said Lapman Lee, managing director at compliance and regulatory consulting at Duff & Phelps in Hong Kong.

List of decision-makers MAS required financial institutions in Singapore last year to submit a list of decision-makers with details about their roles and responsibilities, without requiring those institutions to provide the names of the decision-makers, sources said.

"They [MAS] appears to be going in the direction of requesting senior executive accountability maps to have clarity on the roles of each senior executive but it is not requesting for the names of those senior executives. My suspicion is that this was MAS's response to the market given what Hong Kong and Australia have done. MAS wants to show that it is also doing something on this front, but a lighter touch approach," Lee said.

In response to Thomson Reuters' question about whether it will implement a similar senior manager regime in Singapore, a MAS spokesperson said: "As the financial sector regulator, MAS regularly reviews [its] regime to ensure it is aligned with market and international developments, as well as global best practices."

Regulatory fatigue Joanna Pearson, partner at Simmons & Simmons in Singapore, said MAS has chosen to emphasise the importance of individual accountability in various statements, picking up on the theme of the manager regimes introduced in the UK and Hong Kong rather than introduce a formal regime itself.

"Certainly there is significant work being undertaken by the banks on various regulatory projects at the moment, including those coming from Europe, and there is a danger of regulatory fatigue if too much change happens at once," she said.

For example in the consultation paper issued in February which proposed amendments to the Banking Regulations and Banking (Corporate Governance) Regulations to support the amendments to the Banking Act, MAS said it would require banks to specify the roles and responsibilities of officers and employees of the bank. The aim was to ensure their compliance with laws and the regulations, codes of conduct and standards of good practice, all of which comes under the banner of individual accountability.

"Notably, the proposed new regulations do not go as far as the UK senior manager regime and the Hong Kong regime, in that they do not require specific individuals to be identified/named," MAS said in the consultation paper.

Friendlier, lighter touch approach That MAS stopped short at asking for the names of the decision-makers was interpreted as a more subtle and friendlier approach in place of a full-blown senior manager regime as has been seen in the UK, Australia and Hong Kong.

"I don't think MAS wants to go as far as Hong Kong and Australia to put people to shame. MAS appears to be taking the approach where it knows, for instance, who the chief risk officers at banks are, and it will talk to them when necessary. Looking at Asia, individual accountability is less explicitly emphasized in Singapore. It still wants to portray a business friendly image by saying 'we are not following exactly what Hong Kong and Australia are doing'," Lee said.

Wariness The environment in Hong Kong now is one of wariness where experienced professionals working in the financial sector are asking for more monetary compensation for taking on senior management roles and responsibilities. They are also asking to be indemnified to some extent, should they become embroiled in any regulatory breaches involving the financial institutions they work for in the future, Lee said.

"Regulators appear to have successfully increased awareness among financial institutions in respect of their expectations," he said.

The Hong Kong Securities and Futures Commission (SFC) has said on several occasions that its enforcement focus now is on "high impact" cases.

"Investigations on such cases could cause substantial disruptions to the business and have detrimental impact on reputation," Lee said.

Not a holy grail Hong Kong's manager-in-charge regime has already had an impact on how the financial industry views enforcement. Local regulators however, seem to have a different view about the true intention behind implementing the manager-in-charge regime.

Sources said Thomas Atkinson, head of enforcement at the SFC, had made it clear the manager-in-charge regime was not developed specifically by the SFC's enforcement division for enforcement purposes. Rather, the manager-in-charge regime serves to be a mechanism for continuing supervision of financial institutions, according to a source with knowledge of the discussions who asked not to be identified.

"Hong Kong's manager-in-charge regime is for the regulators to know who is responsible for what at financial institutions. It's for ongoing controls and governance practice, to keep them [financial institutions] on their toes. It's not a holy grail; it's not as like 'if you make one wrong move, we will shoot'," the source said.