From 12 September 2024 to 11 October 2024, the Monetary Authority of Singapore (“MAS“) conducted a public consultation on its proposed amendments to the Financial Services and Markets (Resolution of Financial Institutions) Regulations 2024 (“FSM-RFI Regulations“) to: (i) extend the statutory bail-in regime to the insurance sector; and (ii) prescribe a maximum duration of two business days for temporary stays on reinsurers’ rights to terminate coverage relating to periods after the commencement of resolution (collectively, “Resolution Powers“).
The key proposed amendments to the FSM-RFI Regulations are summarised below:
1. MAS proposes to amend the FSM-RFI Regulations to extend the statutory bail-in regime presently applicable to the banking sector (i.e. the information requirements, the restrictions on eligible instruments, the disclosure requirements, and MAS’ statutory bail-in powers) to the insurance sector by:
- scoping in Singapore-incorporated licensed insurers and designated financial holding companies that have a subsidiary that is a licensed insurer incorporated, formed or established in Singapore (DFHCs) (collectively, “bail-in insurers“); and
- expanding the scope of eligible instruments (i.e. certain types of equity instruments and unsecured liabilities, etc) to cover instruments issued by these bail-in insurers.
2. MAS has clarified that the following safeguards will apply:
- The statutory bail-in regime will only apply to instruments issued or contracted after the effective date of legislative amendments.
- MAS intends to respect the statutory creditor hierarchy of claims in liquidation and the principle of equal treatment of creditors of the same class.
- MAS has established a creditor compensation framework, where creditors who receive less in a resolution (compared to what they would have received had the insurer been liquidated) would be able to claim the difference from a resolution fund (to be recovered from the insurance industry).
- MAS will consider whether the failure of the specific bail-in insurer is assessed to have a widespread adverse impact on the financial system or economy, or to be detrimental to the public interest, when exercising its powers.
3. MAS also proposes to amend the FSM-RFI Regulations to prescribe a maximum duration of two business days for temporary stays on reinsurance contracts.
4. MAS has clarified that:
- The proposed maximum duration of two business days will provide it with more time to deliberate on the appropriate resolution actions to take and is in line with the maximum stay duration catered for financial and non-financial contracts.
- For its temporary stay powers to apply, one of the parties to the reinsurance contract must be a financial institution that is subject to a resolution measure, which includes any insurer approved, authorised, designated, recognised, registered, licensed or otherwise regulated by MAS, i.e. not limited to notified insurers.
- For reinsurance contracts governed by Singapore law: No updates to the contractual clauses are needed, as the statutory provisions will override the contractual terms.
- For reinsurance contracts governed by foreign law: MAS will not introduce contractual recognition requirements at this stage, given that international developments on adopting contractual recognition clauses in reinsurance contracts remain nascent, and the impact to an orderly resolution is also usually contained in such cases.
The Consultation follows: (i) an earlier September 2023 Consultation Paper (“September 2023 Consultation“) on the Resolution Powers (among other things), which you may read more about in our RTA Viewpoints article dated 8 October 2023 titled “MAS Consults on Proposals to Augment Resolution Regime for Insurance Sector”; and (ii) MAS’ September 2024 Response to feedback received on the September 2023 Consultation.
For more information on the Consultation, please see MAS’ “Consultation Paper on Proposed Amendments to Financial Services and Markets (Resolution of Financial Institutions) Regulations 2024” and the accompanying Annex A titled “Draft Amendments to Financial Services and Markets (Resolution of Financial Institutions) Regulations 2024”.
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