Singapore Vigilant Against Financial Misconduct, Menon Says

Monetary Authority of Singapore Managing Director Ravi Menon Speaks At IMAS Conference

Ravi Menon.

Photographer: Munshi Ahmed/Bloomberg
  • Responsibility of compliance rests with company boards: Menon
  • Country should be able to avoid recession, MAS chief says

Singapore has increased inspections of banks’ anti-money-laundering and terrorism-financing controls as it steps up enforcement actions against misconduct in the industry, the head of the central bank said.

Financial institutions must promote constant vigilance and set the right moral tone, Ravi Menon, managing director of the Monetary Authority of Singapore, said at an event hosted by the Foreign Correspondents Association in the city Tuesday. The responsibility of ensuring compliance lies with each company’s board and senior management, he said.

“We will make more robust risk assessment of financial institutions, business activities, client profiles, geographical connections, transaction volumes and the quality of their controls," Menon said. “We will intensify the supervision of financial institutions that pose higher risks. And we will conduct thematic inspections of activities that pose higher risks across financial institutions.”

In July, Menon vowed stronger action to address the reputational damage caused by anti-money laundering lapses at banks in the city linked to the troubled state investment fund 1Malaysia Development Bhd. Singapore is the first country to charge a banker for alleged financial misconduct related to 1MDB.

The Malaysian investment company is at the center of several international investigations into alleged corruption and money laundering by public officials. Prosecutors in at least four countries -- Singapore, Switzerland, Luxembourg and the U.S. -- are looking into money flows from the investment vehicle, which was established for national development.

Bond Rebates

Menon also stressed the importance of banks treating their customers fairly, especially in regards to disclosing how financial advisers are rewarded for selling certain products. The MAS said in August the private banking code of conduct is being reviewed to explicitly require private banks to disclose bond rebates at the transaction level.

For a story on the practice of rebates for selling risky debt, click here.

The central bank chief said Tuesday banning the practice would be "quite a draconian step" because it risks weakening the distribution channels for financial products.

“Minimally, I think some kind of disclosure will be important,” Menon said. “That’s a legitimate thing to expect. And I think that with that kind of disclosure in place, we can move to a better place. It’s something that the industry is discussing and I don’t want to prejudge the outcome."

Zika Outbreak

Menon said the financial sector is vulnerable to risks and some of the pressures seen in the oil and gas industry may show up in banks. Still, lenders are actively managing the risks from the energy-related sector and stress tests show they would be able to absorb losses under the worst-case scenarios, the managing director said.

He estimated financial services may see its share in the economy increase to 14 percent by 2020 from 13 percent currently, if they keep growing at twice the pace of the overall Singaporean economy as they have since 2011.

While the city state’s economy is still facing risks, it should avoid a recession this year, according to Menon. The outbreak of the Zika virus, which prompted countries including the U.S. and Australia to issue cautions on traveling to Singapore, may have a small impact on the economy, though it’s still too early to assess the effect, he said.

"Sub-par growth doesn’t mean recessionary conditions," Menon said, referring to global conditions. “As long as the global economy can chug along at this moderate pace, I think the Singapore economy should steer clear of recession."

Growth has remained sluggish this year as exports continue to contract, with the government on Aug. 11 lowering the top end of its 2016 forecast to 2 percent.

The central bank, which uses the exchange rate as its main tool, eased its policy stance in April and said in July there’s no need for a further adjustment unless there’s a “marked deterioration in the global economy or significant shift to the inflation outlook.” Menon reiterated the July statement on Tuesday.

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