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Singapore mandates bank risk management

Ross O. Storey | Jan. 24, 2011
Compulsory training required for local bank board members.

The Monetary Authority of Singapore (MAS) has announced that all Singapore banks and 'significant insurers' will be required this year to have a dedicated risk management committee.

 The members of the boards of all local banks will also be required to receive mandatory risk management training.

 The measures were announced by MAS managing director, Heng Swee Keat at Friday's (21 January 2011) opening of the EDHEC-Risk Institute's Asian centre in Singapore.

 "MAS will mandate all local banks and significant insurers, following their Annual General Meetings this year, to have a dedicated Risk Management Committee, and for members of this Committee to have the appropriate balance of skills and expertise to discharge their responsibilities," Heng said in a keynote address.

 Board training

 "Starting this year, we will also be requiring mandatory training for all members of the Boards of local banks.  

 "At the management level, MAS expects risk management units have to be sufficiently empowered and adequately plugged in to the risk-taking activities of the firm." 

The MAS managing director said that, apart from responding to policy reforms and initiatives, investors and financial institutions would "do well to continuously rethink and challenge the fundamental tenets of their investment and risk management tools and methodologies.  To do so, it is imperative for investors to have the right risk mindset".

"We should put once-neglected risks, such as counterparty credit risk, model risk, liquidity risk and technology risks, at the forefront of risk considerations," Heng said.

 "We have to be mindful that falling back on historical experience may not necessarily provide the guidance especially when developments are unprecedented.  In this regard, boards of financial institutions play a vital role in driving the level of risk consciousness in their institutions and exercising effective risk management oversight." 

 Multiplied risks

Heng said the measures were necessary because of the growing complexity and interconnectedness within the financial system, and between the financial and economic systems, that have multiplied risks significantly.  

 "There are now many more potential sources of failures and the transmission of shocks from one market to another have become faster and more unpredictable," he said.  

 In the speech, Heng said that "This year, the IMF expects emerging Asia to grow by nearly seven per cent, Almost double the rate forecast for the global economy as a whole.  

 "Many analysts expect the differential in growth rate to persist in the coming decade.  The global economy went through stagflation in the 1970s, disinflation in the 1980s, and a roaring decade in the 1990s.  In 2000s, we had the dotcom bubble, and a severe financial crisis.   How the coming decade will turn out, especially for emerging economies, will change many of the risks and return assumptions on a wide range of asset classes."


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