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Monetary Authority of Singapore

ANNUAL REPORT 2012/2013

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Monetary Authorityof Singapore

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CONTENTS

Chairmans Message 05

Board o Directors 08Management Team 10

Board Committees 12Organisational Structure 13

ANCHOR OF ECONOMIC

AND FINANCIAL STABILITYTHE ECONOMY GLOBAL, REGIONAL AND

DOMESTIC 16

A Year o Tepid Growth 16

The G3 Economies Underperormed as Fiscal

Withdrawals Intensied 16

Growth in Asia ex-Japan Slowed amid Sluggish

External Demand 17

Immediate Risks in Financial Markets have Receded 17

Global Infation was Subdued as Commodity Prices

Eased 17

Singapore Experienced a Slowdown amid ExternalVulnerabilities 17

Domestic Factors Kept Infation Elevated 19

MONETARY POLICY 19

LIQUIDITY MANAGEMENT 21

Enhancing Our Liquidity Management Framework 21

PBC-MAS Bilateral Swap Arrangement 21

MACROPRUDENTIAL POLICIES 21

Property Measures to Maintain a Stable and

Sustainable Property Market 21

Financing Restrictions on Motor Vehicle Loans 22

INDUSTRY STRESS TEST 22

Industry Wide Stress Test / Financial Sector

Assessment Programme Stress Test 22

SINGAPORE GOVERNMENT SECURITIES (SGS) 22

Developing the SGS marketIntroduction o

30-year SGS 22

CAPITAL MARKETS DEVELOPMENT 22

Broadening and Deepening Singapores DebtCapital Market 22

ROBUST, TRUSTED, ANDPURPOSEFUL FINANCIAL

CENTRE

A ROBUST FINANCIAL CENTRE 26

Strengthening Capital Requirements or

Singapore-incorporated Banks 26

Enhancing Regulatory Capital Framework orCapital Market Services Licensees 26

A Regulatory Framework or Financial Holding

Companies 26

Changes to the Qualiying Full Bank Programme 27

Enhance Supervision o Insurers 27

Box 1: Amendments to the Monetary Authority o

Singapore Act 28

Monograph on Supervision o Financial Market

Inrastructures in Singapore 29

Technology Risk Management Notice and Guidelines 29

Enhancing Corporate Governance Standards 29

Develop and Implement a Regulatory Framework

or OTC Derivatives 30Implementation o Enhanced Regulatory Regime or

Fund Management Companies 30

Oers and Prospectuses Electronic Repository

and Access (OPERA) 30

Payment System (MEPS+) 31

A TRUSTED FINANCIAL CENTRE 31

Rates Review 31

Strengthen Anti-Money Laundering / Countering

the Financing o Terrorism

Requirements or Financial Institutions 31

Enorcement o Anti-Money Laundering /

Countering the Financing o Terrorism Regulations 32

Industry Sound Practices to Further Saeguard

Singapores Wealth Management Sector 32

A PURPOSEFUL FINANCIAL CENTRE 32

Foreign Exchange (FX) 32

Developments in OTC Derivatives Markets 33

Asset Management 33

Corporate Debt Market 33

Inrastructure nance 34

Insurance 34

Enhancing the RMB inrastructure in Singapore 34

Asian Dollar Market 34Promote Local Talent and Leadership Pipeline 35

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VALUED PARTNER ON THEINTERNATIONAL FRONT

COMMITTED TOWARDS INTERNATIONAL

EFFORTS ON FINANCIAL STABILITY AND

FINANCIAL REGULATORY REFORM 38

International Engagements 38

Promote Consolidated Supervision and Cooperation

with Foreign Regulators 38

Crisis Management Group Meetings 38

Islamic Financial Services Board 38

Singapores participation in the International Monetary

Funds Financial Sector Assessment Programme 38

Strengthening the International Monetary Funds

Resources 39

Singapore is Committed Toward International Eorts

or Financial Regulatory Reorm 40

Concluding an Inter-Governmental Agreement on the

Foreign Account Tax Compliance Act 40

Regional Engagements 40

Strengthening Cooperative Ties with Fellow Regulators 40

Executive Meeting o East Asia-Pacic Central Banks 41

Maintaining Strong Bilateral Relations 41

MAS-AMBD Bilateral Meeting 41

Revision o the Chiang Mai Initiative Multilateralisation

Agreement 41

Box 2: MAS Lecture 42

SERVING THE PUBLIC,ENGAGING STAKEHOLDERS

ENGAGING THE PUBLIC 46

Box 3: The Singapore Third Series Coins 46

Managing Dollars and Cents 47

MAS Website 48

GENESYS 48

PROTECTING CONSUMERS 48

Enhancing Credit Cards and Unsecured Credit Rules 48

Enhancing Regulatory Regime to Raise Market

Conduct Standards and Saeguarding Interests o

Retail Investors and Public 48Mystery Shopping Survey 48

Box 4: Raising the Bar or the Financial Advisory Industry 49

Enhancing Market Conduct 51

EDUCATING CONSUMERS 51

MoneySENSE 51

- Media Outreach 51

- Outreach Through Other Platorms 51

Box 5: MoneySENSE - Singapore Polytechnic Institute

or Financial Literacy 52

MoneySENSE Website 52

ENGAGING THE INDUSTRY 53

MAS Streamlines and Enhances Requirements on

Disclosure o Interests in Listed Entities 53

Enhancing Physical Security o the Financial Industry 53

Working with Key Stakeholders 53

Insurance Directors Programme 53Partnership with Academia 54

ONE MAS: INTEGRATED ANDCOHESIVE

BUILDING HIGH PERFORMANCE TEAMS AND A

STRONG MAS FAMILY 58

Expertise and Leadership Development 58

- General and Functional Training 58

- Regional and External Programmes 58

- Leadership Programmes 58

- MAS Peer Groups 58

- Attachment and Secondment 59

- Engaging Sta 59

- Recognition o Sta 59

Box 6: MAS An Employer o Choice! 59

- National Day Awards 60

FOSTERING CLOSER TIES 60

- MAS Dinner & Dance 2012 60

- Inter-Central Bank Games 2012 60

- ChristMAS 2012 60

RAISING PRODUCTIVITY 61

UPHOLD HIGH GOVERNANCE AND

OPERATIONAL STANDARDS WITHIN MAS 61

Procurement Governance and Management 61

Security and Fire Saety 61

Building Services and Inrastructure 61

Risk-Based Audit 61

ENHANCING MAS RISK MANAGEMENT CULTURE,

OPERATIONAL RESILIENCE AND CRISIS

PREPAREDNESS 62

FINANCIAL STATEMENTS 66

KEY ECONOMIC AND FINANCIAL STATISTICS 98

STATISTICAL ANNEX 102

GLOSSARY 122

MAS ANNUAL REPORT 2012/2013 3

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Whoweare MAS is the central bank o Singapore.Our mission is to promote sustained non-infationary economic growth, and a soundand progressive nancial centre.

MAS FUNCTIONS

To act as the central bank o Singapore,

conduct monetary policy, issue currency,

oversee payment systems and serve as banker

to and nancial agent o the Government;

To conduct integrated supervision o the nancial

services sector and nancial stability surveillance;

To manage the ocial oreign reserves o

Singapore; and

To develop Singapore as an international

nancial centre.

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CHAIRMANS MESSAGE

The global economy is on a rmer ootingcompared to a year ago. The repair o bankand household balance sheets has progressed,most notably in the United States. Central bankactions, including unconventional monetary

policies, have reduced the risks o nancialinstability and a sharp economic recession.

A gradual, i modest, recovery in the G3economies can now be expected in the secondhal o 2013, supported by a steady improvementin the housing and labour markets in the USand the short-term eects o concerted monetaryand scal stimuli in Japan. China is expandingat a more moderate pace, but remains animportant source o global demand growth.

The rest o Asia should also be supported byresilient domestic demand and increasing intra-regional trade.

Notwithstanding this improved global picture,we have not returned to the path o normalgrowth, especially in the advanced economies.

There is a critical need to reduce an over-relianceon monetary policy and achieve greaterprogress in structural reorms, so as to promotelasting, sel-sustaining growth. However, recurring

volatility is likely in nancial markets during thetransition to more normal liquidity conditionsand interest rates over the medium term.

Against this backdrop, the Singapore economy isexpected to continue on a moderate expansionpath o 13% this year. The gradual improvementin the global economy will provide some upsideto Singapores external-oriented industries,while domestic demand is likely to stay resilient.

Our labour market remains tight. This is supportingwages, as well as a urther pass-through o costpressures. MAS Core Infation, which excludes

the costs o accommodation and private roadtransport, could rise moderately in the latterhal o this year. CPI-All Items infation will easethis year, refecting the gradual slowdownin the increase in imputed rentals on owner-

occupied accommodation, and the recentcorrection in COE premiums due to the packageo motor vehicle policy measures.

MAS tightened its monetary policy stance inApril 2012 by increasing slightly the slope o theS$ nominal eective exchange rate (S$NEER)policy band, with no change to the level at whichit was centred. This was a measured step,aimed at averting a build-up o price pressures,anchoring infation expectations and keepinggrowth on a sustainable path as the economyrestructures. The policy stance was maintainedin October 2012 and April 2013.

We recognise that infation will generally be higherthan the historical norm during the medium-termtransition towards a higher-productivity economy.However, MAS remains vigilant in preventingcost pressures rom escalating and ensuring thatconsumer price infation stays moderate.

Asset market infation, especially in housing,remains an important ocus or MAS. Lowglobal interest rates put pressure on asset pricesand credit growth, with potential knock-oneects on both consumer price infation andnancial stability. MAS has applied targetedmacroprudential tools to cool investmentdemand in the property market, complementingmonetary policy in promoting sustainableeconomic and nancial conditions. The measures,

together with coordinated actions by otherGovernment agencies, have helped to stabilise themarket. We continue to monitor their eects.


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In keeping with international developments innancial regulation ollowing the recent global

nancial crisis, MAS has reviewed and renedits rules so as to strengthen our ramework ornancial stability and ensure robust protectiono depositors, insurance policy holders andconsumers o nancial services. With the passingo the MAS (Amendment) Bill by Parliamentearlier this year, MAS has additional resolutionpowers and a broader range o regulatory optionsto deal with ailed nancial institutions, as wellas share inormation with oreign resolutionauthorities, where necessary. In addition, we have

reviewed the ramework or the issuance osecurities by MAS.

We launched the Financial Advisory IndustryReview or FAIR in March 2012, aimed atenhancing the quality o nancial advice andeciency in the distribution o lie insuranceand investment products. FAIR reviewed areassuch as operational standards amongst nancialadvisory rms, competence and remunerationo representatives, and the transparency

and accessibility o products to customers.

We have also strengthened oversight o theund management industry in several respects.

The enhanced und management regulatoryregime introduces more stringent admissioncriteria or und managers such as enhancedcapital and competency requirements, as wellas higher standards o business conduct.

In the banking system, MAS has announced

changes to the Qualiying Full Bank (QFB)programme aimed at encouraging oreign banksto deepen their roots in Singapore whilestrengthening Singapores nancial stability.For a very small number o QFBs determinedto be signicantly rooted, MAS may grant anadditional 25 places o business, o which up to10 being branches, as part o an overall packagenegotiated under ree trade agreements (FTAs)with these QFBs home countries. MAS willconsider a range o quantitative and qualitativeattributes that demonstrate a QFBs ability andwillingness to support Singapores nancial

stability and development, in determining i theQFB is signicantly rooted. In addition, MAS will

require existing QFBs that are important to thedomestic market, as well as new QFBs oeredunder uture FTAs, to locally incorporate theirretail operations at minimum, so as to enhancedepositor protection.

In line with measures by regulatory authoritiesin major international centres, MAS initiated areview o banks nancial benchmarks settingprocesses in July 2012. Upon conclusion o thereview, MAS took supervisory actions against

several banks or governance and riskmanagement deciencies. These actions includeimposing additional statutory reserves, andrequiring banks to plug identied decienciesand conduct independent reviews to ensurethe robustness o enhanced risk managementprocesses and internal controls. Changes tothe benchmarks setting processes will also berolled out progressively over 2013 to strengthenthe governance and the design o nancialbenchmarks and their setting processes.

Singapore has been active in global eorts tocombat money laundering, terrorism nancingand prolieration nancing. We operate a rigorous

AML/CFT regime, which has been well ratedand assessed by the Financial Action TaskForce (FATF) to be aligned with internationalstandards. Consistent with the revised FATFrecommendations, Singapore criminalised thelaundering o proceeds rom serious tax crimesrom 1 July 2013. We will continue to strengthen

Singapores ramework or internationalcooperation, and ensure that our nancial systemis not used as a harbour or conduit or illicit assets.

Overall, nancial sector growth remains resilient,with activity seen across most segments o theindustry. One key development was the launchin May 2013 o Renminbi (RMB) clearing servicesin Singapore by the Industrial and CommercialBank o China (ICBC) Singapore branch. Thisollowed the signing o an MOU between MASand the Peoples Bank o China on RMB BusinessCooperation, which acilitates the use o RMB


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in Singapore or cross-border trade and othereconomic transactions and enhances access to

RMB in the region. On 28 May 2013, MASalso opened its Beijing Representative Oce.Together, the collaboration between MAS andthe Chinese central bank and nancial authoritieswill deepen nancial and economic cooperationbetween China and Singapore, and strengthenregional nancial markets.

As Singapore continues to develop as a keynancial centre in the Asian time zone, MAS willsupport nancial institutions in eorts to develop

a strong core o Singaporean nancial sectorproessionals and leaders in nance. Theseinitiatives aim to nurture younger Singaporeanentrants with opportunities to be mentored bysenior leaders and to broaden their horizons

across various unctional roles; to give Singaporeannance proessionals the opportunity to deepen

specialist skills; and to help more mid-careerSingaporeans take on regional and internationalpostings. A solid core o Singaporean specialistsand leaders will be critical to ostering andsustaining a strong nancial sector workorceover the long term.

Mr Lucien Wong, Chairman and Senior Partner,Allen & Gledhill, stepped down rom the MASBoard o Directors on 28 February 2013. He hadserved on the Board since 1 January 2006. On

behal o the Board and Management o MAS,I thank Mr Wong or his active and invaluablecontributions. I also welcome Mr Quek See Tiat asa new member o MAS Board o Directors.

Tharman ShanmugaratnamChairman


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BOARD OF DIRECTORS

Tharman Shanmugaratnam

ChairmanDeputy Prime MinisterMinister or Finance

Lim Hng Kiang

Deputy ChairmanMinister or Trade & Industry

Lawrence Wong Shyun TsaiActing Minister or Culture, Community and Youth

Senior Minister o State orMinistry o Communications and Inormation

Heng Swee KeatMinister or Education


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Quek See TiatChairman o Audit CommitteeChairman,Building and Construction Authority

Lim Chee OnnChairman o Risk CommitteeSenior International Adviser,Singbridge Pte Ltd

Peter Ong Boon KweePermanent Secretary,Ministry o Finance

Tan Chorh ChuanPresident,National University o Singapore

Ravi MenonManaging Director, MAS

Goh Chok TongEmeritus Senior Minister

Senior Advisorto MAS


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MANAGEMENTTEAM


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A. Ravi Menon

Managing Director

B. Ong Chong Tee

Deputy Managing Director

Monetary Policy and Investment /

Financial Development

C. Teo Swee Lian

Deputy Managing Director

Financial Supervision

D. Foo-Yap Siew Hong

Assistant Managing Director

Currency, Corporate Services &

Human Resource /Special Projects Advisor to MD

E. Andrew Khoo


Markets & Investment / External /

MAS Academy

F. Lee Boon Ngiap


Banking & Insurance

G. Lee Chuan Teck


Capital Markets

H. Jacqueline Loh


Policy, Risk & Surveillance

I. Low Kwok Mun


Finance, Inormation Technology and Risk

J. Ng Nam Sin


Development

K. Edward Robinson


Economic Policy

A

D

F B H G

CJ

I

EK


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BOARD COMMITTEES*

The MAS Act provides that the Board o Directors shall be responsible orthe policy and general administration o the aairs and business o MAS.

The Board is assisted by the ollowing committees:

CHAIRMANS MEETINGThe Chairmans Meeting approves major changes to MAS supervisorypolicies and regulatory ramework. It also approves major changesto policies and strategies relating to nancial centre developmentand international and regional relations. The Chairmans Meetingcomprises Tharman Shanmugaratnam (Chairman), Lim Hng Kiang,Heng Swee Keat, Lawrence Wong and Ravi Menon.

MONETARY AND INVESTMENT POLICY MEETINGThe Monetary and Investment Policy Meeting deliberates and decideson issues relating to the ormulation and implementation o monetarypolicy with the objective o maintaining price stability or sustainableeconomic growth. The Meeting also oversees the investment o MASreserves. The Monetary and Investment Policy Meeting comprisesTharman Shanmugaratnam (Chairman), Lim Hng Kiang, Heng Swee Keat,Lawrence Wong and Ravi Menon.

AUDIT COMMITTEEThe Audit Committee provides an independent assessment o MASinternal controls and nancial reporting process. The Committeealso reviews the eorts o MAS internal and external auditors. The

Audit Committee comprises Quek See Tiat (Chairman), Peter Ong andTan Chorh Chuan.

RISK COMMITTEEThe Risk Committee provides oversight and guidance on the managemento risks aced by MAS. The Committee oversees the MAS-widerisk management ramework, and reviews MAS risk managementpolicies and the processes or reporting o risks. The Risk Committeecomprises Lim Chee Onn (Chairman), Tan Chorh Chuan andRavi Menon.

* As at 1 June 2013


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ORGANISATIONAL STRUCTURE*

Ravi MenonManaging Director

Ong Chong TeeDeputy Managing Director

Monetary Policy and Investment /

Financial Development

Teo Swee LianDeputy Managing Director

Financial Supervision

MONETARY POLICYAND INVESTMENT /FINANCIAL DEVELOPMENTOng Chong TeeDeputy Managing Director

ECONOMIC POLICYEdward Robinson


ECONOMIC ANALYSISNg Bok EngExecutive Director

ECONOMIC SURVEILLANCE &FORECASTINGCeline SiaExecutive Director

MARKETS & INVESTMENTAndrew KhooAssistant Managing Director

MONETARY & DOMESTICMARKETS MANAGEMENTAndrew KhooAssistant Managing Director

RESERVE MANAGEMENTYap Chuin HouiExecutive Director

DEVELOPMENTNg Nam Sin


FINANCIAL CENTRE DEVELOPMENTLeong Sing ChiongExecutive Director

FINANCIAL MARKETS STRATEGYNg Yao LoongExecutive Director

FINANCIAL SUPERVISIONTeo Swee LianDeputy Managing Director

BANKING & INSURANCELee Boon Ngiap


BANKING DEPARTMENT IChua Kim LengExecutive Director

BANKING DEPARTMENT IIWong Nai SengExecutive Director

BANKING DEPARTMENT IIITai Boon Leong Executive Director

INSURANCELuz Foo Executive Director

CAPITAL MARKETSLee Chuan Teck


CAPITAL MARKETSLoo Siew YeeExecutive Director

CAPITAL MARKETSINTERMEDIARIESMerlyn Ee Executive Director

INVESTMENT INTERMEDIARIESChristopher TanDirector

POLICY, RISK & SURVEILLANCE

Jacqueline LohAssistant Managing Director

MACROECONOMIC SURVEILLANCELam San LingExecutive Director

PRUDENTIAL POLICYLim Tuang LeeExecutive Director

SPECIALIST RISKWan Aik ChyeExecutive Director

CORPORATE DEVELOPMENT

CURRENCY, CORPORATESERVICES &HUMAN RESOURCESFoo-Yap Siew Hong


CORPORATE SERVICESBernard YeoExecutive Director

CURRENCYChung Wei KenExecutive Director

HUMAN RESOURCEHo Hern ShinExecutive Director

HUMAN RESOURCE PROJECTSWinnired ChenExecutive Director

FINANCE, INFORMATIONTECHNOLOGY &RISK MANAGEMENTLow Kwok Mun


FINANCETeo Kok MingExecutive Director

INFORMATION TECHNOLOGY

Lawrence Ang Executive Director

RISK MANAGEMENTDaniel Wang Director

MANAGING DIRECTORSOFFICE

SPECIAL PROJECTS ADVISORTO MDFoo-Yap Siew Hong


MAS ACADEMYAndrew KhooAssistant Managing Director

GENERAL COUNSELS OFFICENg Heng Fatt General Counsel

EXTERNALBernard Wee Director

INTERNAL AUDITTimothy Ng Executive Director

STRATEGIC PLANNINGAND COMMUNICATIONSWong Nai Seng Executive Director

SPECIAL DUTIESChia Der Jiun Executive Director

* As at 1 June 2013


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ANCHOR OF

ECONOMIC

AND FINANCIAL

STABILITY

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ANCHOR OF ECONOMIC

AND FINANCIAL STABILITY

THE ECONOMY GLOBAL, REGIONAL AND DOMESTIC

A Year o Tepid Growth

The year 2012 began on a cautiously optimistic

note ater a series o shocks reduced averageGDP growth in Singapores key trading partnersto 4.4% in 2011.1However, a confuence o newuncertainties, including the escalation o the debtcrisis in Greece, the threat o the scal cli inthe US, and ears o a sharp slowdown in China,caused the world economy to lose momentumagain in mid-2012. As a result, external growth ellurther to 3.9% or the yearthe slowest pace oexpansion since the Global Financial Crisis.

Nonetheless, robust policy responses by centralbanks in the advanced economies helpedto stabilise nancial conditions and triggereda rally in stock markets that carried overinto early 2013. Most notably, the EuropeanCentral Banks announcement o OutrightMonetary Transactions (OMTs), promising unlimitedsupport or vulnerable member states undercertain pre-conditions, reduced the tail risk o aEuro zone exit. The US Federal Reserve ollowed

up with a third round o quantitative easingmeasures, committing to purchase mortgage-backed securities until the labour market showsa substantial improvement. In November 2012,the newly-elected Japanese governmentannounced ambitious plans to refate the economythrough generous scal stimuli and bold monetaryeasing, giving a urther boost to condence.

The G3 Economies Underperormed as FiscalWithdrawals Intensied

The US economy expanded by 2.2% in 2012, withsignicant quarter-to-quarter volatility due to acombination o government spending cutbacks,natural disasters and rising uncertainty over scalpolicy. Private domestic demand turned out to be

relatively resilient, supported by stronger residentialinvestment and more moderate growth inconsumption spending, compared to the previous

year. However, alling ederal and stateexpenditures subtracted more than onepercentage point rom overall GDP growth in Q42012. At the turn o 2013, a last-minuteagreement by Congress helped to avert thescal cli, quelling worries o a recession inH1 2013, although across-the-board spendingcuts which were triggered by the budgetsequester dampened condence more recently.Despite this setback, US growth rebounded to1.8% q-o-q SAAR in Q1 2013 rom 0.4% in Q42012, as an ongoing labour market recoveryand continued lit in house prices supportedconsumer spending.

The Euro zone lapsed into a mild recessionin 2012, with an output contraction o 0.5%.Economic activity ell sharply in the peripheralcountries, as scal rectitude compounded adecline in private domestic demand. Growthin Germany also slowed as net exports,

which bolstered economic perormance in therst hal o the year, became a drag on theeconomy in the second hal. In H1 2012, earso a possible Greek exit and the revelation onancial ragilities in Spain led to an increasein risk aversion. The subsequent debt settlementin Greece and banking sector bailout in Spainrestored some calm to the markets, albeit atthe expense o increased scal austeritygoing orward. Amid lingering concerns about thepolitical situation in Italy and the repercussions

o the Cyprus bailout, Euro zone GDP continuedto contract, by 1.1% q-o-q SAAR in Q1 2013.

The Japanese economy rebounded rom the GreatEastern Earthquake with an expansion o 1.9%in 2012. Ater the spurt o public reconstruction

1 External GDP growth is weighted by country shares in Singapores NODX.


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spending seen in Q1 2012, however, waninggovernment stimulus measures pulled growth

down or the rest o the year. Weak overseasdemand, the strong yen and rising diplomatictensions with China also contributed to a slumpin exports and industrial production, culminatingin a technical recession in Q3. However, sincethe commitment by the new administration torevive growth late last year, the yen hasdepreciated against the major currencies. Theeconomy started 2013 on a solid ooting, withgrowth accelerating to 4.1% q-o-q SAAR in Q12013, driven by robust consumer spending and

higher net exports.

Growth in Asia ex-Japan Slowed amid SluggishExternal Demand

Growth in the Asia ex-Japan economies slackenedor the second consecutive year, alling to a post-crisis low o 5.1% in 2012 rom 5.9% in 2011.

The regions export perormance last year wasbueted by sluggish demand rom the advancedeconomies while an investment slowdown in

China weighed on intra-regional trade. The Chineseeconomy expanded by 7.8% in 2012, the slowestpace in 13 years, as tight monetary policy andproperty restrictions curtailed real estate sales andconstruction, which in turn had a cascadingeect on primary commodity exporters such asIndonesia and Malaysia.

Nevertheless, resilient domestic demand took upthe slack in exports and supported economicactivity in much o the region. In act, growth in

the ASEAN-4 economies accelerated to 6.1% in2012 rom 4.5% in 2011, as an investmentupswing, a step-up in public inrastructureprojects and increased government transersboosted spending. In the more externally-orientedNIEs, the knock-on eects o muted trade activityon corporate investment pulled GDP growth downto a three-year low in 2012. Towards the end o theyear, however, these economies started to recoveron the back o a turnaround in exports to China anda modest upturn in the global electronics cycle.

Immediate Risks in Financial Markets haveReceded

Strong policy actions by central banks o keyadvanced economies have boosted nancial

markets globally. From March 2012 to March2013, the S&P 500 rose by 11.4%, the DJ

Eurostoxx rose by 7.6%, the Nikkei 225 rose by23.0%, while the MSCI Asia ex-Japan Index roseby a more moderate 4.5%. While these policyactions have buoyed markets and eased nancingconditions considerably, they could also distortcredit allocation and weaken incentives torepair balance sheets. It is thus importantthat advanced countries maintain ocus oncorrecting longer-term nancial and economicimbalances.

Bank unding conditions in advanced economieshave generally improved with policy actionsto support unding markets, as well as continuedprogress in reorming nancial systems. InEurope, there are nascent signs that creditconditions and peripheral bank unding havestabilised. However, urther fare-ups in stressedsovereigns could again undermine condence andimpact nancial market conditions.

The banking systems o Asian countries have

generally maintained sound capital buers andunding proles. With potentially slower economicgrowth ahead, increased leverage in somesegments o corporate or household sectorsand the possibility o some oreign investorspulling out o Asian asset markets, there is aneed to be cautious and vigilant.

Global Infation was Subdued as CommodityPrices Eased

Global infation was subdued or much o 2012,as ood and energy prices declined orregistered smaller increases due to easing supplydisruptions. This exerted downward pressureon consumer prices in the G3, reinorced byslowing growth and excess capacity. As aresult, headline infation in the G3 ell rom2.4% y-o-y in Q1 2012 to 1.7% in Q4. In Asiaex-Japan, infation also declined markedly to4% in 2012 rom 5.6% in 2011, although coreinfation was more persistent due to tight labourmarkets and high resource utilisation.

In the rst three months o 2013, headline infationpicked up again in Asia ex-Japan, as severaleconomies were operating close to, or evenabove, their potential output levels and came up


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Chart 1: Singapores GDP Growth

2011 Q2 Q3 Q4 2012 Q2 Q3 Q4 2013 Q1

20

15

10

5

0

-5

PerCent

YOY

QOQ SAAR

against supply-side constraints. In response, someAsian countries increased inrastructure spending

to relieve supply bottlenecks and implementedmacroprudential measures to guard againstexcessive credit growth and asset bubbles.

Singapore Experienced a Slowdown amidExternal Vulnerabilities

Being a small and very open economy, Singaporewas not immune to the global headwinds. Thedomestic economy grew by a modest 1.3%or the whole o 2012, down rom 5.2% in the

previous year. Having started the year strongly,activity weakened in Q2 and Q3 2012, alongsidea pullback in global demand as tensions in theEuro zone mounted. However, prompt remedialaction rom the G3 central banks provided somereprieve to global nancial markets, and Asia ex-Japan economies staged a broad-based reboundthereater. Accordingly, the Singapore economyreturned to growth in Q4 last year. (Chart 1)

The lacklustre GDP outturn last year was largely

on account o a downshit in manuacturingactivity. In particular, Singapores electronicscluster recorded a double-digit contraction orthe second consecutive year, amid sluggishexternal demand and a global supply over-hang. The weakness in manuacturing, in turn,pulled down trade-related services. Growth innancial services likewise decelerated, as tepidinvestor interest led to a pullback in sentiment-sensitive activities. Nonetheless, domestic demandprovided some support to the economy. The

construction sector, or instance, turned in anotheryear o robust growth, buoyed by a steady rollout

o commercial and residential projects. Otherdomestic-acing sectors, such as real estate andproessional services, also expanded at arm pace.

Going into 2013, the Singapore economy hasmaintained a modest upward momentum in Q1.

The externally-reliant industries registered asetback due to a weaker perormance in thepharmaceuticals and transport engineeringsegments, although domestic demand provided

some support.

Looking ahead, GDP growth should pick up overthe course o this year amid an improving externalenvironment. The domestic-oriented sectors areexpected to remain the mainstay o growth,underpinned by ongoing supply-side expansions intransportation inrastructure and other majorbuilding works. Nonetheless, the recoverymomentum is expected to be gradual and uneven,capped by the challenges in the advanced

economies as well as resource constraintsassociated with domestic restructuring. TheSingapore economy is thereore projected toexpand by 13% this year. Over the medium term,growth is likely to reset to a more modest rangecompared to the 2000s. Resource constraintswill be increasingly brought to bear as thepopulation ages and oreign worker infowsease. The current restructuring drive to orient theeconomy towards higher value-added activitiesand productivity-led growth is thereore critical.


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Chart 2: Contribution to CPI-All Items Infation

2000-09

6

5

%P

ointContribution

4

3

2

1

0

-1

2010 2011 2012

OthersOil RelatedServicesPte Rd Trpt ex-Petrol FoodAccommodation

CPI-All Items infation

MONETARY POLICY

The Singapore economy saw a modest expansionin 2012, amid a sotening in global economicactivity. While the external-oriented sectors borethe brunt o the global downturn, domestic-

driven sectors, such as construction and related

nancing and real estate activities, remainedbroadly resilient. This kept the resource marketstight. Notably, the economy remained atull employment even as the level o outputcontinued to coverge to its underlying potential.

Domestic Factors Kept Infation Elevated

Singapores labour market remained tight in 2012,with the overall unemployment rate alling to 2%,the lowest since 1997. This was due to stronglabour demand to meet capacity expansion ininrastructure and essential services, as well as amore restrictive oreign labour policy. Whileresident wage growth was dampened by thegenerally sluggish economic environment itslowed to 2.3% last year, rom the 5.8% averagein the preceding two years the decline inlabour productivity led to a urther build-up

in business cost pressures.

MAS Core Infation, which excludes the costs oaccommodation and private road transport,averaged 2.5% in 2012, up rom 2.2% in 2011,as businesses continued to pass on some

o the cost increases to consumers. CPI-AllItems infation, while moderating rom 5.2% in

2011, remained elevated at 4.6% in 2012, due tohigher residential property rentals and car prices.These refect persistent tightness in the housingrental market and smaller COE supply,respectively. (Chart 2)

As the economy transits towards more sustainable,productivity-driven growth, the labour market willace continued constraints which will lead tourther increases in domestic business costs. Onthe other hand, imported infation will likely

be subdued, given avourable supply conditionsin the global commodity markets. Taking theseactors into account, both MAS Core Infationand CPI-All Items infation will be lower in 2013compared to last year.


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Chart 3: Key Macroeconomic Variables and the Monetary Policy Stance

Modest & Gradual Appreciation Modest & Gradual AppreciationNeutral Policy

Increase

SlopeSlightly

IncreaseSlope Slightly

&

Widen Band

IncreaseSlope Slightly

& Restore

Narrower Band

Re-centre

Re-centre

ReduceSlope

Maintain

Maintain

130

125

120

115

110

105

100

95

S$NEER

Output Gap

CPI All ItemsInfation

Real GDP Growth

8

6

4

2

0

-2

-4

-6

8

6

4

2

0

10

-2

20

15

10

5

0

-5

-10

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Q1

2013 Q1:4.0%

2013 Q1:0.2%

Index(Q12004=100)

%o

fPotentialGDP

%Y

OY

%Y

OY


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Against this backdrop, MAS tightened themonetary policy stance in April 2012 byincreasing slightly the slope o the S$ nominaleective exchange rate (S$NEER) policy band,with no change to the level at which it wascentred. This was a measured move to containinfationary pressures, anchor infation expectationsand keep growth on a sustainable pathwhile the economy restructures. The policyband was also restored to a narrower setting.Despite continued uncertainty about the outlookor the world economy, particularly with regardto Europe, the Singapore economy was projectedto grow at a moderate pace in 2013. With

persistent tightness in the labour market, thiscould exert some upward pressures on MAS CoreInfation. MAS thus maintained the April 2012policy stance in the subsequent reviews inOctober 2012 and April 2013.

Monetary policy in Singapore is ormulated with theobjective o promoting price stability as a basisor sustainable economic growth. Chart 3 tracesthe evolution o monetary policy, as indicatedby movements in the S$NEER, against the

backdrop o developments in growth and infation.Since April 2010, MAS has adopted a modestand gradual appreciation path or the S$NEERpolicy band, which has had a restraining eecton the economy and prices. At the same time,the monetary policy stance has been calibratedto acilitate the ongoing economic restructuringaimed at raising productivity over the longer term.While MAS recognises that infation could betemporarily higher, there is a need to guard againstan entrenchment o infationary pressures orbuild-up o infation expectations during thisperiod o transition.

LIQUIDITY MANAGEMENT

Enhancing Our Liquidity ManagementFramework

In 2012, MAS continued to extend our networko cross-border collateral arrangements (CBCAs)in Asia. The CBCA with the Bank o Thailand

(BOT) allows nancial institutions in Singapore topledge Thai Baht (THB) cash and THB-denominatedsovereign and central bank securities to obtainSingapore dollar (SGD) liquidity at the MASStanding Facility, and nancial institutions in

Thailand to obtain THB liquidity rom BOTs liquidity

acility using SGD cash, sovereign bonds andcentral bank securities. This brings the total

number o CBCAs that MAS has to seven.

MAS also continued to expand the MAS Billsprogramme by issuing 12-week MAS Billsin July 2012 and raising outstanding issuanceto S$37.2 billion in Financial Year 2011/12, uprom S$18.0 billion in Financial Year 2010/11.

PBC-MAS Bilateral Swap Arrangement

In March 2013, MAS renewed and enhanced

the bilateral currency swap arrangement withthe Peoples Bank o China (PBC). The newarrangement doubles the size o the previousswap acility and enables both central banksto provide oreign currency liquidity to stabilisenancial markets. Under the arrangement, upto RMB300 billion in Chinese Yuan (CNY)liquidity will be available to eligible nancialinstitutions operating in Singapore, and up toS$60 billion in Singapore dollar liquidity willbe available to eligible nancial institutions

operating in China. The arrangement will expirein 2016 and may be extended urther by mutualagreement. The existing MAS CNY acility wassubsequently enhanced to allow MAS to provideshort-term liquidity or market stability, in additionto trade purposes.

MACROPRUDENTIAL POLICIES

Property Measures to Maintain a Stable andSustainable Property Market

MAS introduced two rounds o property marketmeasures in 2012 and early 2013, to oster longterm stability in the property market. InOctober 2012, MAS restricted the tenure o loansgranted by nancial institutions or the purchaseo residential properties. We imposed a cap o35 years on the tenure o housing loans grantedby nancial institutions. In addition, loans exceeding30 years would ace signicantly tighter loan-to-value (LTV) limits. For housing loans granted bynancial institutions to non-individuals, the LTVlimit was lowered rom 50% to 40%.

In January 2013, MAS lowered the LTV limits orproperty purchases by individuals with one


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outstanding housing loan rom 60% to 50%,and by individuals with two or more outstanding

housing loans rom 60% to 40%. Loans withlonger tenure would ace even tighter LTV limits.We also increased the minimum cash downpayment requirement rom 10% to 25% orproperty purchases by individuals with at leastone outstanding housing loan. In addition, the LTVlimit or housing loans to non-individuals wasurther lowered to 20%. To moderate the demandor HDB fats and instil greater nancialprudence among buyers, MAS introduced amortgage servicing ratio requirement o 30% on

loans granted by nancial institutions or thepurchase o HDB fats.

Financing Restrictions on Motor Vehicle Loans

In February 2013, MAS introduced nancingrestrictions on motor vehicle loans granted bynancial institutions. The tenure o motor vehicleloans was capped at ve years while the loan-to-value was limited to a maximum o 50% or60% depending on the open market value o

the motor vehicle. The restrictions were put inplace to encourage nancial prudence amongconsumers and moderate demand or motorvehicles. In consideration o eedback rom industryparticipants and members o the public, anexemption was made or the physically disabledand their caregivers. A 60-day exemption was alsogranted to motor vehicles that were part o theused car industrys inventory and that wereacquired prior to the introduction o nancingrestrictions.

INDUSTRY STRESS TEST

Industry Wide Stress Test / Financial SectorAssessment Programme Stress Test

In 2012, MAS conducted an industry-widestress test o nancial institutions in Singapore.Banks were stress tested on solvency andliquidity risks, well ahead o Basel III requirements.On the whole, the key nancial institutionswere ound to be resilient to the projectedscenario, which included stressed conditions inthe Eurozone, refecting the generally smallexposures that Singapores banking system hadto the Euro zone. MAS is also working with the

nancial sector on stress tests in preparation orthe International Monetary Funds Financial Sector

Assessment Programme (FSAP) in 2013.

SINGAPORE GOVERNMENT SECURITIES

(SGS)

Developing the SGS market Introduction o30-year SGS

In April 2012, MAS marked a major milestonein the development o the SGD bond market byintroducing the 30Y SGS. The instrument was

well-received by the market and demand atprimary auctions was high.The 30Y SGS enabledMAS to extend the SGS yield curve andprovided an additional benchmark or the pricingo corporate bonds. It was also vital insatisying the growing demand or longer-datedsecurities by banks, insurers and othernancial institutions.

CAPITAL MARKET DEVELOPMENT

Broadening and Deepening Singapores DebtCapital Market

MAS continues to strengthen the SGD debt market,implementing initiatives aimed at urther improvingthe eciency and liquidity o the SGD corporatedebt market. First, the provision o swap liquidityto primary dealer banks handling SGD debtissuance or corporations is now ully operational.MAS will now be able to support swaptransactions at market determined rates to

minimise uncertainties in the bond pricingprocess.

Second, MAS has been developing a acility toallow market makers to borrow SGD corporatebonds. The acility will improve liquidity inthe secondary market and is expected to beoperationally ready this year.

Third, the price discovery initiative to improvetransparency or SGD corporate bonds wassuccessully completed in mid 2012.Complementing this is an industry-led initiativeto create a SGD corporate bond index whichmarket participants could use as a benchmarkor investment management. The bond indexwas launched in June 2013.


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ROBUST,

TRUSTED

AND

PURPOSEFUL

FINANCIALCENTRE

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Strengthening Capital Requirements orSingapore-incorporated Banks

MAS is committed to ensuring ull, timely andconsistent implementation o Basel III, issued bythe Basel Committee on Banking Supervision(BCBS) to strengthen the resilience o the bankingsystem. In September 2012, MAS issued a revisedMAS Notice 637 to implement the Basel IIIcapital ramework in Singapore with eect rom1 January 2013. The revised Notice requiresSingapore-incorporated banks to meet capitaladequacy standards that are higher than theBasel capital standards, and also implements the

Basel III capital reorms on raising the qualityo capital, enhancing risk coverage, requiringcapital buers and monitoring o the leverageratio. For Common Equity Tier 1 capital,Singapore-incorporated banks are required tomaintain a ratio o at least 9%, inclusive o acapital conservation buer requirement o 2.5%,compared to the Basel III requirement o 7%.

This will urther strengthen the ability o Singapore-incorporated banks to operate under stressconditions, and help saeguard nancial stability.

MAS amended MAS Notice 637 urther in Q42012 to implement BCBS requirements issuedin 2012 as part o Basel III on capitalrequirements or bank exposures to centralcounterparties and disclosure requirements oncomposition o capital. The capital requirementsor bank exposures to central counterpartiesenhance incentives or banks to use centralcounterparties while ensuring that such exposures

remain adequately capitalised. The disclosurerequirements enhance the transparency andcomparability o disclosures on the compositiono regulatory capital.

Our Basel III implementation eorts werevalidated by the BCBS under itsRegulatory Consistency Assessment Programme

rom July 2012 to March 2013. In itsassessment report o Singapore published inMarch 2013, the BCBS concluded thatSingapore has put in place national regulationsin accordance with the capital standards underthe Basel ramework, and assessed Singaporeas being compliant.

Enhancing Regulatory Capital Framework orCapital Market Services Licensees

In April 2013, MAS issued revisions to thecapital requirements or capital markets serviceslicensees (CMSLs) to enhance the risk-sensitivityo the capital ramework and strengthen thequality o capital o CMSLs. The revision olloweda public consultation, and quantitative impactstudies to assess the impact o the proposalson the industry. The enhanced capital requirementswill urther strengthen the ability o CMSLs towithstand the risks to which their business issubject.

A Regulatory Framework or Financial HoldingCompanies

In April 2013, the Financial Holding CompaniesAct (FHC Act) was enacted to extend MASregulatory powers to non-operating holdingcompanies that hold bank or insurancesubsidiaries in Singapore. This new legislativeinitiative supports the established concept o

group supervision. Under the FHC Act, MAScan designate an FHC or regulation wherethe FHC is an ultimate holding company o anancial group headquartered in Singapore orwhere doing so will strengthen its supervision othe Singapore bank or insurance subsidiary. The

A ROBUST FINANCIAL CENTRE

ROBUST, TRUSTED AND

PURPOSEFUL FINANCIAL CENTRE


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regulations are aimed at mitigating intra-groupcontagion risk, preventing the multiple use o

capital within the group, and limiting groupconcentration risk exposures. The FHC regulatoryramework is in line with international regulatorydevelopments, where there is growing recognitionamong international regulators o the role o FHCsand the need to include FHCs in their scope ogroup-wide supervision.

Changes to the Qualiying Full Bank Programme

As part o MAS eorts to encourage oreign

banks to deepen their roots in Singaporewhile strengthening Singapores nancial stability,MAS announced changes to the Qualiying FullBank (QFB) programme.

In June 2012, MAS announced its intention togrant a very small number o signicantly rootedQFBs, an additional 25 places o business,o which up to 10 may be branches, as parto an overall package negotiated under reetrade agreements (FTAs) with these QFBs

home countries. In determining whether a QFBis signicantly rooted, MAS will considera range o quantitative and qualitative attributesthat demonstrates the QFBs ability and willingnessto support Singapores nancial stability anddevelopment. Some o these attributes includewhether the bank is locally incorporated withmajority Singaporean/PRBoard representation,and what types o businesses are conductedby the locally incorporated entity; and iSingapore is one o the banks major markets,

constituting a substantial part o group protsand assets.

In addition, MAS will require existing QFBs thatare important to the domestic market, as wellas new QFBs oered under uture FTAs, tolocally incorporate, at minimum, their retailoperations so as to enhance depositor protection.

Enhance Supervision o Insurers

MAS enhanced its insurance regulatory andsupervisory ramework on a number o rontsater several public consultations over the lastew years. This included amendments to theInsurance Act (IA) to take into account global

supervisory and market developments since itslast major amendment in 2004. The amendments

enhanced MAS powers to achieve its supervisoryobjectives, improved the clarity o existing policypositions, and aligned the IA with other MAS-administered Acts.

In April 2013, MAS extended the CorporateGovernance Regulations beyond the signicantlie insurers to all locally incorporated directinsurers and reinsurers. In addition, the CorporateGovernance Guidelines, which were previouslyapplicable to only locally incorporated direct

insurers, were extended to the locally incorporatedreinsurers and captives.

To strengthen the standard o risk managementamongst insurers, MAS issued a new Noticeon Enterprise Risk Management (ERM) in

April 2013. Under the ERM Notice, insurers arerequired to identiy and manage theinterdependencies between key risks, and tomore eectively link these to theirstrategic management and capital planning

within a ramework guided by an explicit risktolerance statement.

A new Notice on Public Disclosure requirementswas also issued in April 2013. This Noticerequires insurers to publicly disclose morecomprehensive inormation on a timely basis.

This will help members o the public,including policyholders, to obtain a clear viewo an insurers business activities, perormanceand nancial position.

MAS commenced a review o its Risk BasedCapital (RBC) ramework or insurance companiesto keep pace with the evolving marketpracticesand global regulatory developments. The reviewaims to improve the comprehensiveness o thetypes o risks covered and the risk sensitivityo the ramework, as well as to redene thesolvency control levels. MAS is working inconsultation with the industry to nalise thekey components o the proposals by end 2013.


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Amendments to the Monetary Authority of Singapore Act

MAS embarked on a review o its regulatory ramework or nancial institutions, with a viewto strengthening the ramework or nancial stability and ensuring robust protection odepositors, insurance policy holders and consumers o nancial services. As part o the review,MAS took into account the Financial Stability Boards principles on Key Attributes oEective Resolution Regimes or Financial Institutions where relevant to Singapore.

The Monetary Authority o Singapore Act (MAS Act) was then amended to enhance

and expand MAS suite o powers or resolving distressed nancial institutions.The amendments also strengthen the current ramework or the issuance o MASbook-entry securities and regulation o primary dealers.

Enhanced regulatory ramework or resolution o fnancial institutions

The Monetary Authority o Singapore (Amendment) Bill 2013 (the Bill), seeks to vest MASwith a broader range o regulatory options in dealing with ailed nancial institutions.

The Bill extends resolution powers o MAS which previously exists only or banks andinsurance companies, to over a wider range o nancial institutions, including nancecompanies, merchant banks, operators and settlement institutions o designated payment

systems, approved exchanges, and designated nancial holding companies. These additionalresolution powers mean that:

(a) MAS will be able to issue directions to a non-regulated entity that is incorporatedor established in Singapore, where the entity belongs to a group o companieso which a nancial institution regulated by MAS is part o and is signicantto the business o such a group;

(b) MAS may apply to the Court to claw back the salary, remuneration or benets givento a director or executive ocer under certain circumstances, or example, when thedirector or executive ocer has ailed to discharge his or her duties; and

(c) MAS may share inormation with a oreign resolution authority i the inormation isnecessary in the resolution o a nancial institution.

Framework or issuing MAS book-entry securities and regulating primary dealers

The ramework or the issuance o book-entry securities by MAS and the appointment oprimary dealers enables MAS to issue securities in its name, and to purchase, repurchase,sell and redeem these securities as appropriate. These amendments serve to strengthenthe legal and regulatory ramework or MAS monetary policy operations and the marketor MAS book-entry securities.

The Bill was passed in Parliament in March 2013, and became eective in April 2013.

Box 1


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2 FMIs reer to systemically important payment systems, central counterparties, securities settlement systems, central depositories andtrade repositories.

Monograph on Supervision o Financial MarketInrastructures in Singapore

In January 2013, MAS published the Monographon Supervision o Financial Market Inrastructuresin Singapore. This monograph describes MASapproach in supervising Financial MarketInrastructures2 (FMIs) in Singapore to ostertheir saety and eciency. It updates and replacesthe 2004 monograph on MAS Roles andResponsibilities in Relation to Securities Clearingand Settlement Systems in Singapore. Thismonograph also explains MAS application o

the Committee on Payment and SettlementSystems (CPSS) and the InternationalOrganization o Securities Commissions (IOSCO)Principles or FMIs (PFMI). The PFMI sets outinternational standards designed to ensure thatthe inrastructure supporting global nancialmarkets is robust and well-placed to withstandnancialshocks. It provides guidance on theidentication, monitoring, mitigation andmanagement o the ull range o risks thatarise in or are transmitted by FMIs.

Technology Risk Management Notice andGuidelines

In June 2013, MAS issued the Technology RiskManagement Guidelines and Notice to strengthentechnology risk management capabilities innancial institutions. The Guidelines wereenhanced rom the existing Internet Bankingand Technology Risk Management Guidelines(IBTRM) to address existing and emerging

technology trends as well as security concernsin the nancial industry. The Notice denes aset o legal requirements relating to technologyrisk management or nancial institutions.Under the Notice, nancial institutions arerequired to maintain a high level o reliability,availability and recoverability o critical ITsystems and to implement IT controls to protectcustomer inormation rom unauthorised accessor disclosure. In addition, nancial institutionsare required to report major system malunctionsand IT security incidents promptly to MAS.

Enhancing Corporate Governance Standards

To enhance the corporate governance standardsin listed companies, MAS accepted therecommendations o the Corporate GovernanceCouncil and issued the revised Code oCorporate Governance (Code) on 2 May 2012.

The key changes to the Code were in the areaso director independence, board composition,director training, multiple directorships, alternatedirectors, remuneration practices and disclosures,risk management, as well as shareholder rightsand roles. The revised Code took eect or listed

companies in respect o annual reports or nancialyears commencing rom 1 November 2012.

Following the issuance o the revised Codeo Corporate Governance, the CorporateGovernance Council released its Risk GovernanceGuidance or Listed Boards (Guidance) on10 May 2012. The Guidance is intended toprovide key inormation on risk governance to allBoard members. This includes actors which theBoard should collectively consider when overseeing

the companys risk management ramework andpolicies, and the Boards and Managementsrespective responsibilities in managing thecompanys risks.

MAS also sought to enhance corporategovernance in banks by issuing MAS Notice643 which details MAS requirements relating tobanks transactions with their related parties. Therequirements seek to minimise the risk o abusesarising rom conficts o interest, and to align

banks procedures on related party transactionswith international best practices. Among otherthings, MAS Notice 643 requires banks toensure that every related party transactionis conducted ree o conficts o interest andon no more avourable terms than similartransactions with non-related parties undersimilar circumstances. Bank boards andmanagement are also required to exerciseadequate oversight and control over all relatedparty transactions.


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Develop and Implement a RegulatoryFramework or OTC Derivatives

MAS is working towards implementing therecommendations o the Financial StabilityBoard (FSB) on strengthening regulation o over-the-counter (OTC) derivatives.

In February 2012, MAS consulted on policyproposals to: (a) mandate the reporting andclearing o OTC derivatives; (b) extend thecurrent regulatory regimes or market operators,clearing acilities and capital market

intermediaries to include OTC derivatives; and(c) introduce a new regulatory regime or traderepositories. MAS also sought public eedbackon whether it is appropriate to require trading ostandardised OTC derivative contracts onexchanges or electronic trading platorms atthis stage, taking into account the natureo the derivatives markets in Singapore.

MAS will implement the OTC regulations inphases. Amendments to the Securities and

Futures Act (Cap. 289) or phase 1, which include(i) mandating the reporting and clearing o OTCderivatives; (ii) extending the current regulatoryregimes or clearing acilities to includeOTC derivatives and; (iii) introducing a newregulatory regime or trade repositories, werepassed by the Singapore Parliament inNovember 2012. Mandatory reporting o OTCderivatives is expected to begin in H2 2013,and mandatory clearing to begin in H1 2014.

MAS intends to implement ully the global OTCderivatives reorm agenda, taking into accountthe characteristics o Singapores markets. Wewill continue to participate in and contributeactively at international discussions on OTCderivatives reorms, such as the FSB OTCDerivatives Working Group, OTC DerivativesRegulators Group, BCBS-IOSCO WorkingGroup on Margin Requirements and theCPSS-IOSCO Working Group on access totrade repositories data.

Implementation o Enhanced Regulatory Regimeor Fund Management Companies

Following a series o policy and legislativeconsultations, MAS implemented the enhancedund management regulatory regime on7 August 2012. The enhanced regime aimsto raise regulatory standards and supervisoryoversight o the und management industry.Smaller und managers that were previouslyexempt as they serve restricted numbers oqualied investors now have to apply orregistration or licensing and more than 400

o them had done so by February 2013. Toqualiy or a licence or registration, they haveto meet admission criteria such as capitaland competency requirements. In addition,enhanced business conduct requirements applyto all und managers under the enhanced regime.

To ensure a smooth transition to the enhancedregime, MAS conducted a series o industrybriengs in August 2012 to amiliarise theindustry with the new requirements. MAS also

launched a new Corporate E-Lodgment systemto acilitate the admission process or registeredand licensed und management companies,and or the submission o certain ongoingregulatory returns.

Oers and Prospectuses Electronic Repositoryand Access (OPERA)

In April 2012, MAS began rolling outenhancements to our on-line database that

hosted prospectuses or oers o shares,debentures, units in business trusts and collectiveinvestment schemes. The Oers and ProspectusesElectronic Repository and Access (OPERA)platorm was progressively upgraded to acilitatethe electronic lodgment o prospectuses as wellas oer documents in respect o mergers andacquisitions under the Singapore Code on

Take-overs and Mergers. OPERA now also allowsusers to submit on-line applications or registrationo business trusts.


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Payment System (MEPS+)

MAS rereshed the system and applicationsotware used by the MAS Electronic PaymentSystem (MEPS+), Singapores real-time grosssettlement system in May 2012. In November2012, MEPS+ was upgraded to support theSociety or Worldwide Interbank Financial

Telecommunications (SWIFT) new messageormat and new business requirements toachieve better risk management and eciency.MEPS+ handled an average o 18,800 transactions(S$70 billion) per day in 2012, an increase

o 8% compared with 2011.

MAS conducts regular contingency exercises withthe MEPS+ participants, CLS Bank and SWIFT toensure that the national payment system remainsstable and resilient, to minimise market disruption.

A TRUSTED FINANCIAL CENTRE

Rates Review

In July 2012, MAS directed banks tocomprehensively review their rate settingprocesses or the Singapore Interbank OeredRate (SIBOR), Swap Oer Rate (SOR) and NonDeliverable Forward (NDF) oreign exchangecontracts. This was in line with similar reviewsconducted by regulatory authorities in other

jurisdictions on key market interest ratebenchmarks.

Following the conclusion o the review, MAS tooksupervisory actions against twenty banks ordeciencies in the governance, risk management,internal controls, and surveillance systems relatingto their involvement in benchmark submissions.

These actions include imposing additionalstatutory reserves, and directing banks to adoptmeasures to address their deciencies andconduct an independent review to ensure therobustness o their remedial measures.Separately, MAS issued a consultation paper ona proposed regulatory ramework or nancialbenchmarks. The proposed ramework tookinto account relevant international developmentson nancial benchmarks, including the reviewsconducted by the Bank o International

Settlements (BIS) and International Organisationo Securities Commissions (IOSCO).

The Association o Banks in Singapore (ABS)and the Singapore Foreign Exchange MarketsCommittee (SFEMC) had also submitted theirrecommendation to MAS on measures tostrengthen the governance and design obenchmark rates setting processes in Singaporeor SIBOR, SOR, and NDF oreign exchangecontracts. Changes to the ABS benchmarkrate setting processes will be rolled outprogressively over the course o H2 2013.

Strengthen Anti-Money Laundering / Counteringthe Financing o Terrorism Requirements orFinancial Institutions

Singapore participates actively in global eortsto combat money laundering, terrorism nancingand prolieration nancing. As a member o theFinancial Action Task Force (FATF), Singapore isully committed to enhancing our regulatoryregime to be in line with the revised FATF

Standards. Financial institutions operating inSingapore are required to comply with MASrequirements, which include the MAS Noticeon the Prevention o Money Laundering andCountering the Financing o Terrorism (AML/CFT). Financial institutions are required toidentiy and know their customers, includingbenecial owners, to conduct regular accountreviews, and to monitor and report any suspicioustransactions. We will continue to work inpartnership with the industry to protect our nancial

sector against threats rom cross-border crimes.

In line with the revised FATFs recommendations,Singapore will criminalise the laundering oproceeds rom serious tax crimes rom 1 July2013. A public consultation exercise was carriedout to gather industry views and eedback onthe proposal. MAS has responded to the eedbackreceived and has also issued urther guidanceto the industry to acilitate eective implementationo this new FATF requirement.

In addition to meeting the existing internationalAML/CFT requirements on suspicious transactionsreporting, MAS also issued new notices requiringnancial institutions to report to MAS suspicious


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activities and incidents o raud where suchactivities/incidents are material to the saety,

soundness or reputation o the nancialinstitution. Financial institution board membersare also required to attend training on AML/CFT.

Enorcement o Anti-Money Laundering/Countering the Financing o TerrorismRegulations

Over the last three years, MAS conducted atotal o 108 AML/CFT inspections coveringbanks, insurance companies, money changers,

remittance agents, capital markets serviceslicensees, licensed trust companies, licensednancial advisers and registered insurancebrokers. MAS noted that most institutions had inplace the necessary policies, procedures andcontrols, congruent to the nature, size andcomplexity o their activities, to combat moneylaundering and terrorism nancing. In addition,the institutions had invested in systems andpeople over the years to strengthen their

AML/CFT measures.

There is, however, room or improvement inseveral areas. The rameworks and policies orthe identication and classication o high-riskaccounts, and the perormance o enhanced duediligence measures or such accounts need to bestrengthened. MAS also noted instances wherethe rigour with which customer due diligencemeasures were perormed could be strengthened,such as the screening o customer names andthe determination o customers source o wealth.

Such inadequacies in the execution o controlshindered the eective application o customerdue diligence measures necessary to gain areasonable understanding o customers, theintended nature o business relations, andexpected account activity.

MAS takes a serious view o breaches oAML/CFT regulations and ailure by nancialinstitutions to institute a robust AML/CFTcontrol ramework. Sanctions are imposed oninstitutions or regulatory contraventions anddeciencies in AML/CFT measures. These includeormal warnings, reprimands, restrictions onoperations, nancial penalties and revocation olicences. Over the last three years, MAS hasissued a total o 47 warnings and reprimands,

restricted the operations o seven institutions, andimposed nancial penalties on 22 institutions.

MAS has also revoked or did not renewthe licences o 13 money changers / remittanceagents. MAS requires the senior management onancial institutions to set the right tone and ostera strong AML/CFT control culture to preventSingapores nancial system rom being used toharbour or as a conduit or illegitimate unds.

Industry Sound Practices to Further SaeguardSingapores Wealth Management Sector

On 28 March 2013, the private banking industryin Singapore launched a set o sound practices.Its objective is to saeguard the industry rombeing used as a platorm to harbour proceedsrom serious tax crimes. It comes on the back onew FATF recommendations on the designationo serious tax oences as money launderingpredicate oences.

These sound practices set out standardsor private banks to detect and deter unds

where there is suspicion that they are proceedsrom serious tax crimes. These include guidanceon implementing client acceptance policies,transactions monitoring and perorming criticalreviews o existing client pools.

A PURPOSEFUL FINANCIAL CENTRE

Anchor and Grow the Core Industry Pillars oSingapores Financial Centre: Foreign Exchangeand Derivatives Markets, Corporate Debt

Market, Asian Dollar Market, Asset Management,Inrastructure Finance

Foreign Exchange (FX)

Singapores FX market registered slight growthwith total average daily trading volume inOctober 2012 at US$361 billion according to thebiannual Singapore Foreign Exchange MarketCommittee (SFEMC) survey results. This was a2.6% increase rom April 2012 volumes.

Trading o listed nancial and commodityderivatives on domestic platorms, such asSingapore Exchange (SGX), Singapore MercantileExchange (SMX) and Cleartrade Exchange,continued to register stable growth. In particular,


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the number o utures and options traded onSGX in 2012 increased 16% y-o-y to hit a new

high o 76 million contracts, boosted by recordgrowth o its fagship China A50 utures contract.

Developments in OTC Derivatives Markets

Following global regulatory reorms o the OTCderivatives market, MAS has been working closelywith the industry to respond to the new regulatoryenvironment.

In September 2012, the Singapore Foreign

Exchange Market Committee (SFEMC) issueda public statement to commit to meet highstandards or electronic execution andconrmation o OTC interest rate derivativetransactions by 30 June 2013. This refectsthe industrys commitment to increase thelevel o standardisation o the OTC derivativesmarket, and towards transparency and moreeective risk management.

In the aspect o OTC derivatives clearing,

total clearing volume and product oeringhave increased over the past year. Forcommodities derivatives, SGX AsiaClearreported a healthy 77% y-o-y increase in totalclearing volume or energy, reight and drybulk-related derivatives in 2012. SGX AsiaClearcontinued to anchor itsel as the leading clearinghouse globally or iron ore derivatives withthe launch o iron ore options clearing inSeptember 2012 and a record year o109.7 million metric tonnes o iron ore swaps and

options cleared. It also expanded its productoering with the introduction o a uturescontract suite called AsiaClear Futures,providing customers the continuity to tap onthe ast-growing liquidity pool in iron oreswapsand other Asian commodities. In OTCnancial derivatives clearing, SGX Asiaclearcontinued to witness steady growth since itslaunch in November 2010. As at end o Q12013, SGX cleared over S$340 billion in notionalvalue o SGD and USD Interest Rate swaps,as well as Asian FX Forwards.

To help the region meet impending OTCderivatives trade reporting obligations, theDepository Trust & Clearing Corporation (DTCC)

opened its Asia Pacic global data centreand oce headquartered in Singapore in

December 2012. DTCC was selected byinternational industry associations as the preerredglobal trade repository across the asset classes.

The Singapore-based data centre is DTCCsrst in Asia and part o its global triangulatedinrastructure designed to support DTCCs Global

Trade Repository services. This development willcontribute to increased transparency in theOTC derivatives market.

Asset Management

Based on the 2012 Singapore Asset ManagementIndustry Survey, assets managed by undmanagers in Singapore stood at S$1.63 trillion.

Asset under management (AUM) grew by 21.5 %y-o-y as a result o strong infows and highermarket valuations. Approximately 80% o the

AUM was sourced rom outside Singaporeand more than 70% o the total assets wereinvested in the Asia-Pacic region, refectingSingapores role as an asset management hub

serving both regional and international investors.

Corporate Debt Market

The Singapore corporate debt market wasbuoyant in 2012, encouraged by a low interestrate environment and investors seeking relativestability in the xed income markets. Outstandingvolumes grew by 14% y-o-y to S$231 billion asat end o 2012. Issuance activity was alsoat its highest since 2007, with S$134 billion

o debt securities issued in all currencies duringthe year.

In the Singapore Dollar (SGD) bond market, arecord S$30.5 billion o bonds were issued, wellsurpassing the previous high o S$24.2 billionachieved in 2010. In addition, the weightedaverage maturity o SGD bond issuances in2012 increased by to 12.9 years rom 7.5 yearsin 2011. Singapore remains an attractive issuancevenue or several oreign entities. In 2012, non-Singaporean rms accounted or 22% o allSGD debt issuances.


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Islamic nancial services continued to grow.The year also saw renewed interest in sukukissuances in Singapore. Two SGD sukuktotalling S$130 million were issued in 2012 bylocal entities including the rst convertible sukukin Singapore. The rst hal o 2013 saw a urthertwo sukuk issues amounting to S$100 millionand the launch o a S$500 million multi-currencycorporate sukuk programme by a local entity.

Inrastructure Finance

Inrastructure nancing continues to be a keysector in Singapores nancial markets in

supporting regional growth and nancing needs.Together with other government agencies, weare bringing together expertise rom across theinrastructure value chain, rom project developersto Engineering, Procurement and Construction(EPC) players and multilateral development banks,to leverage on Singapores status as a nancialcentre to acilitate investments into Asias immenseinrastructural needs. For example, the WorldBanks investment arm, the International FinanceCorporation (IFC), will be setting up in Singapore

its rst Asset Management Company (AMC) oceoutside Washington DC, to invest in inrastructureprojects in emerging markets. The AMC managesthe IFC Global Inrastructure Fund, which willinvest equity into inrastructure projects on acommercial basis. In addition, national exportcredit agencies such as JBIC and KW have setup oces in Singapore to serve corporates thatwish to tap on inrastructure opportunities inthe region.

Insurance

The non-lie insurance industrys growth moderatedin 2012, growing at 4.8% to $9.3 billion. Thiswas due to a decline in reinsurance underwritingactivity ollowing the 2011 natural catastropheevents in Asia-Pacic. The 2011 events testedSingapores ability to handle the burden o claimsin the atermath o the major catastrophes.However the reinsurers responded stronglyby recapitalising and even strengthening theircapital position to handle the claims. The

experience strengthened Singapores resilience,and also built up its reputation as a rstresponder to these major events in Asia.Concurrently, re/insurers also strengthened theircapabilities on underwriting natural disastersrisk by enhancing the quality o their data

and risk modelling through partnerships withresearch institutes such as Nanyang TechnologicalUniversitys Institute Catastrophe RiskManagement (on Maritime Risk, Urban Risk),

Asia Risk Centre (Agriculture Risk and FoodSecurity Research); as well as commercialmodelling agencies.

Enhancing the RMB inrastructure in Singapore

On 2 April 2013, PBC and MAS signed aMemorandum o Understanding (MOU) onRMB Business Cooperation, while PBCand Industrial and Commercial Bank o

China (ICBC) Singapore branch signed a RMBclearing agreement to ormalise the clearingarrangements. On 27 May 2013, ICBC Singaporecommenced its RMB clearing services inSingapore. Having a RMB clearing bank inSingapore is a signicant milestone or Singaporeas it provides nancial institutions in Singaporethe opportunity to play a greater role inintermediating the growing trade and investmentfows between China and the rest o the world.With the build-up o RMB liquidity in Singapore,

a wider range o RMB products and services willbe oered by nancial institutions in Singaporeto better meet the nancing, investment andrisk management needs o the market. MAS willcontinue to work with the industry and our partnersto develop the broader RMB ecosystem, ensuringa sound and vibrant growth o this new market.

Asian Dollar Market

The Asian Dollar Market posted robust growth in2012. Total oreign currency lending in Singaporeincreased by 7.4% y-o-y. In particular, non-bankloans to East Asia grew strongly at 8.3%,underpinned by economic perormance in Chinaand Hong Kong. Non-bank lending to ASEANalso grew at a healthy 5%. Going orward, weexpect growth in the Asian Dollar Market to besustained on the back o steady growth o the

Asian region. With the launch o the oshoreRMB market in Singapore in May 2013, the

Asian Dollar Market is also well positioned tocapture growing RMB fows in the region.


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Promote Local Talent and Leadership Pipeline

As Singapores nancial centre remains open toglobal talent, MAS is making concerted eortsto put in place initiatives to develop a strongcore o Singaporean nancial sector proessionals.

This includes eorts to raise the competencyo Singaporean proessionals through trainingprogrammes, allowing Singaporeans to undertakeand excel in roles in important growth segments.MAS will also be providing more scholarshipsto enable Singaporeans to develop specialistskills through post-graduate programmes in such

areas as quantitative nance, risk management,actuarial science and specialty insurance.

MAS will work closely with nancial institutionsto nurture Singaporeans or leadership roles,through training and dierent jobs and countryexposures. To raise nancial sector productivity,MAS will work with the industry to encouragereview o work processes to enhance ecienciesin specic segments o nancial activity. Thesewould include developing shared inrastructure,

promoting automation and exploiting datasynergies.


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VALUED

PARTNER

ON THE

INTERNATIONAL

FRONT

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International Engagements

Promote Consolidated Supervision and

Cooperation with Foreign Regulators

In 2012, MAS hosted supervisory collegemeetings or the three Singapore banking groupsand Great Eastern Holdings Limited. Thesecollege meetings provided a orum or MAS andhost supervisors o these institutions to exchangeviews and assessments o the institutionscross-border activities. The discussions enhancedMAS supervisory oversight o these nancialgroups and helped oster closer ties with hostsupervisors in the cross-border supervision o thegroups. In addition, MAS continues to participatein supervisory college meetings o international andregional banks and insurers as host supervisor.

This allows MAS to cooperate more closelywith the home supervisors o oreign banks andinsurers and strengthen our understanding odevelopments in other parts o the group that mayhave an impact on the Singapore operations.

Crisis Management Group Meetings

MAS is a member o the Crisis ManagementGroup (CMG) o six globally systemically-important banks and continues to participate inthe CMG meetings. The meetings acilitateinormation exchanges between home and hostsupervisors and the establishment o institution-specic cross-border cooperation agreementsto support recovery and resolution planning. Thisenhances preparedness and cross-border

coordination or crisis management, includingrecovery and resolution planning, or theseinstitutions.

Islamic Financial Services Board

MAS is a ull member o the Islamic Financial

Services Board (IFSB), a multilateral standardsetting and developmental agency or the Islamicnance industry. We sit on the governing Counciland are also represented on its TechnicalCommittee (TC), the deputies-level decision-making body or the organisation. The TCoversees the work on standard setting andprovides guidance to the IFSB Secretariat onIslamic nance developmental initiativesapproved by the Council. MAS has supportedand contributed to the work o the IFSB throughour participation in the various standard settingWorking Groups and Task Force, as well ashelped to urther raise industry awarenessthrough the hosting o 6th IFSB Summit in2009 and seminars on Takaul and IslamicCapital Market Development. In the continuationo these eorts, MAS hosted the 26th Meetingo the TC in Singapore in February 2012.

Singapores Participation in the

International Monetary FundsFinancial Sector Assessment Programme

The Financial Sector Assessment Programme(FSAP), which was established in 1999, is acomprehensive and in-depth external assessmento a countrys nancial sector. The assessmentcontributes to a deeper understanding o thestability and resilience o the nancial sector.

As an international nancial centre, Singaporeis committed to undergoing periodic nancial

stability assessments.

In 2013, MAS participated in an FSAP, conductedby the International Monetary Fund (IMF). TheFSAP involved two onsite missions toSingapore or the standards and nancialstability assessment. During the rst mission,

COMMITTED TOWARDS INTERNATIONAL

EFFORTS ON FINANCIAL STABILITY AND

FINANCIAL REGULATORY REFORM

VALUED PARTNER ON

THE INTERNATIONAL FRONT


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3 As o May 2013

the FSAP Assessors met with MAS and othergovernment agencies, as well as nancial sector

industry players and industry associations, tostudy Singapores observance o newly revisedinternational standards on banking, insuranceand securities. The assessment process wasrigorous and MAS beneted rom the productivediscussions with the FSAP Assessors.

The second onsite mission will take place inH2 2013 covering an assessment o nancialstability o the system, including stress tests.

The mission will also cover Singapores

observance o the new Principles or FinancialMarket Inrastructures.

Strengthening the International Monetary FundsResources

The International Monetary and Financial Committee(IMFC), chaired by Deputy Prime Minister andMAS Chairman Tharman Shanmugaratnam,together with the G20, undertook eorts toenhance the International Monetary Funds (IMF)

resources or global crisis prevention andresolution in April 2012. These eorts by theinternational community strengthened the IMFresources by US$461 billion3, with the rst batcho bilateral borrowing agreements signed by theOctober 2012 meeting o the IMFC. Singaporeplayed a key role in this international eort byworking closely with the IMF and its members, aswell as the G20 to galvanise contributions at theG20 Los Cabos Leaders Summit in June 2012.

In October 2012, the IMFC expressed supportor the strengthening o the IMFs surveillanceramework through the adoption o a newIntegrated Surveillance Decision, a FinancialSurveillance Strategy and the launch o a pilotExternal Sector Report. The IMFC providedguidance to the Executive Board o the IMF inits comprehensive review o the quota ormula,which was completed in January 2013. Thisreview built on inputs rom the IMFC Deputies,which is chaired by Singapore.

At the April 2013 Meeting o the IMFC, the IMFC,among others, advanced discussions on nurturinga sustainable recovery in the world economy andon dealing with nancial stability risks arising romlarge and volatile capital fows.

Singapore is Committed Toward InternationalEorts or Financial Regulatory Reorm

As a member o the main committees and multipleworking groups o the Financial Stability Board(FSB), Basel Committee on Banking Supervision(BCBS), International Association o InsuranceSupervisors (IAIS), International Organisation oSecurities Commissions (IOSCO), and Committeeon Payment and Settlement Systems (CPSS),MAS continues to contribute to the developmentand implementation o international regulatorystandards and the enhancement o global

nancial stability.

MAS co-chaired the BCBS Core Principles Groupwhich delivered the revised Core Principlesor Eective Banking Supervision in September2012. The Core Principles are the globalstandard or sound prudential regulation andsupervision o banks and banking system. Therevisions incorporate key lessons rom the lastnancial crisis to strengthen supervisory practicesand risk management, with particular emphasis

on a more orward-looking and eectiverisk-based approach to supervision. MAS alsoco-chairs the BCBS working group that analysesbanks risk weighting o assets held in thebanking book. This work is part o the BCBSRegulatory Consistency Assessment Programmeto ensure consistent implementation o theBasel ramework. In addition, we are a membero the BCBS Working Group on Liquiditythat developed the nal text o the revisedLiquidity Coverage Ratio (LCR) in January

2013. The LCR is an essential element o theBasel III reorms to promote the short-termresilience o banks liquidity risk proles andimprove the banking sectors ability to absorbshocks arising rom nancial and economicstress.

At the FSB, MAS chaired the FSB working groupon Risk Governance that completed thethematic peer review on risk governance inFebruary 2013 to take stock o risk governancepractices at both national authorities and rms.

The peer review identied sound practicesand sets out recommendations that will helpraise the bar on supervisory expectations or riskgovernance. MAS also participated actively


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in the discussions which help shape internationalregulatory proposals on resolving ailing nancial

institutions, addressing the systemic and moralhazard risks associated with systemically importantnancial institutions, implementing over-the-counter derivatives reorms, as well asstrengthening the oversight and regulation oshadow banking.

MD, MAS has also been appointed Chair othe FSB Standing Committee on StandardsImplementation (SCSI), and will serve a two-yearterm rom 2013 to 2015. The SCSI is one o

our FSB Standing Committees, and is taskedwith ensuring comprehensive and rigorousmonitoring o agreed G20/FSB nancial reormsin consultation and coordination with relevantstandard setters. Under MAS chairmanship,SCSI will coordinate and drive implementationmonito

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