New Bills

Banking (Amendment) Bill 2001 (B21/2001)
The Banking (Amendment) Bill 2001 (the 'Bill') was introduced in Parliament on 19 April 2001. Many of the proposed changes will give legislative effect to the various regulatory policies and measures which the Monetary Authority of Singapore has introduced in the last year.

The key changes which will be introduced are as follows:

1. Separation of financial and non-financial activities of local banking groups

The Bill introduces new provisions to achieve the following:

1. Prohibit banks from undertaking businesses other than banking business and businesses authorised by MAS; 
2. prohibit banks from acquiring a major stake in a company (defined essentially as a stake exceeding 10% of the share capital of the company or any interest which gives the bank significant influence over the management of the company) unless approved by MAS;
3. prohibit any company not engaged in financial business from using any name, logo or trademark in a manner that would associate it with a bank incorporated in Singapore or its subsidiaries carrying on financial business;
4. limit the portfolio equity investment of a bank in a single company to a maximum of 2% of the capital funds of the bank;
5. limit holdings of immovable property to 20% of a bank's capital funds; and
6. enable MAS to secure compliance with the above restrictions on a group basis.

The proposed amendments provide for a three-year grace period, beginning from the commencement date of the Bill before the restrictions take effect.

2. Revision of ownership rules for local banks following the lifting of the aggregate foreign shareholding limit

In May 1999, MAS lifted the 40% foreign shareholding limit for Singapore-incorporated banks as part of its measures to liberalise the local banking industry. The provisions in the Banking Act relating to the control and ownership of Singapore-incorporated banks will be revised to ensure that, consequent to the lifting of the aggregate foreign shareholding limit, control of locally-incorporated banks rests with parties whose interests are aligned with the long-term interests of the Singapore economy.

Currently, Section 15 of the Banking Act imposes an obligation to obtain MAS' approval before a single shareholder may increase shareholdings in a local bank above the 5% (referred to as a 'substantial shareholder') and 20% thresholds. The Bill introduces an additional 12% threshold, as announced in May 1999, at which MAS' approval is also required.

3. Revision of Methodology for Monitoring Property-Related Exposure

MAS will be empowered to make regulations for limiting banks' exposure to the property sector through credit facilities or financial instruments.

MAS has said that it will implement an improved methodology incorporating the following refinements:

• redefining property loans to include all loans and debt instruments, whether secured or unsecured, for the purpose of property development or investment, regardless of the type of security for the loans;
• excluding owner-occupied housing loans from the relevant provision in recognition of their lower risk of default (MAS will subject banks to supervisory limits on such loans); and
• limiting property loans to a proportion of the bank's total non-bank loans and debt instruments so as to encourage diversification in the bank's loan portfolio. (The present rules limit property loans as a proportion of banks' deposits.) The limit will be stipulated in regulations, and set at 35% initially.

4. Prohibition of Unlicensed Offering of Deposit- Taking Services

The Bill introduces new provisions to clarify the prohibition against the conduct of deposit-taking business targeted at the Singapore market by entities that are not licensed by MAS. The prohibition will apply whether the deposit is to be made in Singapore or elsewhere. Such business would include advertising and/or offering deposit-taking services through the internet or other channels.

5. Introduction of Flexibility for MAS to Prescribe Capital Adequacy Requirements on a Supervisory Basis

MAS will be given flexibility in imposing capital requirements on banks having regard to the risks arising from the activities of the bank. The capital requirements may be imposed on an individual or a class basis.

Presently, Section 10(2) of the Banking Act requires local banks to maintain a minimum capital adequacy ratio (CAR) of 12% or any other ratio prescribed by MAS. The Bill will amend the Banking Act to give MAS authority to set, in the case of any bank and having regard to the risks arising from the activities of the bank, capital adequacy requirements above the minimum regulatory CAR that would apply to all banks.

6. Reduction of Paid-Up Capital Requirements for Local Banking Subsidiaries

In July 2000, MAS issued an internet Banking Policy Statement. To facilitate banks' adoption of new business models, such as internet-only banking, MAS will award new full banking licences to Singapore-incorporated banks to establish banking subsidiaries with such new models. These new banking subsidiaries may be established in alliance with joint venture partners as long as the parent Singapore-incorporated bank retains control.

The Bill introduces a new section to provide for a reduced minimum paid-up capital requirement of S$100 million for these banking subsidiaries. The Banking Act currently requires a Singapore-incorporated bank to have paid-up capital of at least S$1.5 billion, whether or not it is a subsidiary.

7. Redefinition of Capital for Foreign Banks

Presently, Section 9(1)(c)(i) of the Banking Act requires a bank with its head office outside Singapore to have a paid-up capital of not less than S$200 million. To accommodate foreign banks whose home jurisdiction do not apply the concept of issued and paid-up capital, the Bill amends the Act to allow for the equivalent of paid-up capital applicable under the laws of that jurisdiction. It will also allow the bank's reserves to be included for the purpose of satisfying the S$200 million capital requirement. This will allow financially strong foreign banks with significant capital existing in a form other than issued and paid-up capital (eg reserves) to establish branches in Singapore.

8. Revision of Banking Secrecy Provisions

MAS intends to give banks greater operational flexibility in handling client information while putting in place sufficient safeguards to ensure that the confidentiality of customer information is not compromised.

Section 47 will be re-enacted to provide for a revised banking secrecy regime. The new section 47 will address certain operational issues arising under the current regime while ensuring the confidentiality of customer information. The secrecy obligation will extend to all banks and officers of banks in Singapore. The obligations will also apply to merchant banks and their officers, subject to such modifications as may be prescribed by MAS.

The exceptions to the secrecy obligation are set out in a new Sixth Schedule. Some of these exceptions are existing exceptions which have been revised. At the same time, new important exceptions have also been introduced. Where the exceptions apply, disclosure may only be made to the parties specified in the Sixth Schedule and, in some cases, subject to conditions.

Banks, however, will not be prohibited from contracting with its customers to assume a higher standard of confidentiality.

9. Revision of Penalties for Contravention of the Banking Act

The penalties in the Act will be revised to reinforce the importance of sound prudential standards and practices and to signal that any breach of these standards must be dealt with commensurately. The Bill will amend the current penalties as follows:

• maximum fines will be increased by a factor of five (the maximum fine for the most serious offences will be $250,000 whilst the lowes maximum fine for less serious offences will be $25,000);
• in the case of continuing breaches after conviction, the fine per day will be fixed at one-tenth of the maximum fine;
• penalties imposed on corporates will be distinguished from those imposed on individuals by setting the fine for individuals at half the quantum for corporate offenders.

New Acts

Gas Act 2001 (A11/2001)
The Gas Act 2001 provides for a competitive market framework for the gas industry and the safety, technical and economic regulation of the transportation and retail of gas. The provisions of the Act are administered by the Energy Market Authority of Singapore. The scope of the Act includes the following areas:

1. licensing of activities relating to gas;
2. modification and enforcement of gas licences;
3. gas transporters;
4. gas retailers and general provisions;
5. codes of practice;
6. safety;
7. competition; and
8. the Appeal Panel.

Changes to Subsidiary Legislation

Property Tax (Rates) Order 2001 (S205/2001)
With effect from 1 July 2001, the property tax payable in respect of each year shall be at the rate of 10% upon the annual value of every property in the Valuation List. This enactment gives legislative effect to the cut in the property tax rate from 12% to 10% which was first announced in the Budget Statement 2001. The cut will apply to all commercial, industrial and residential properties.

Factories (Safety Training Courses) Order 2001 (S207/2001)
With effect from 1 June 2001, the occupier of a factory shall ensure that the following classes or description of persons employed in the factory attend the relevant safety training courses conducted by the Occupational Safety and Health Training and Promotion Centre:

1. Construction workers: any worker employed in manual labour to carry out construction work in building and engineering construction worksites.
2. Manhole workers: any worker who is carrying out work in manholes or confined spaces in building and engineering construction worksites.
3. Manhole supervisors: any person who is appointed as a manhole supervisor to supervise work carried out in manholes or confined spaces in building and engineering construction worksites.
4. Formwork supervisors: any person who is appointed as a formwork supervisor to supervise the construction, erection, alteration or dismantling of formwork structures in building and engineering construction worksites.
5. Project managers: any person who is appointed as a project manager to be in charge of all construction activities in building and engineering construction worksites of a contract sum of $10 million or more.
6. Oil and petrochemical industry workers: any worker who is carrying out work in a factory of the oil and petrochemical industry.
7. Oil and petrochemical industry supervisors: any person who supervises any process or work carried out in a factory of the oil and petrochemical industry.
8. Forklift operators: any person who drives or operates a forklift truck in a factory.

Children Development Co-Savings Regulations 2001 (S233/2001)
The Children Development Co-Savings Regulations 2001 implements the Children Development Co-Savings Scheme which was first announced in the Prime Minister's National Day Rally 2000 Speech. The Regulations are effective from 26 April 2001.

Under the scheme, a Children Development Account may be opened for every second or third child of a family provided the following conditions are satisfied:

1. he is a citizen of Singapore at the time of his birth or attains such citizenship within 6 years of his birth;
2. he is born alive on or after 1 April 2001; and
3. the child's mother is lawfully married to his natural father at the time of his birth, or becomes lawfully married to his natural father after he is conceived but before his birth, whether or not such marriage remains subsisting at the time of his birth.

When the Children Development Account is opened, the Government will pay each year into the account a co-payment sum equivalent to the co-investment sum contributed by the child's parents. Such co-investment sums will be made until the child is six years old.

In the case of the second child, the co-investment sum contributed by the Government will be subject to a maximum of $1,000 per year. In the case of the third child, the maximum is $2,000 per year.

The moneys in a child's Children Development Account may be withdrawn to defray the expenses incurred by for the child or his siblings in relation to approved child care centres, kindergartens, or special education schools.

Property Tax (Exemption of Land under Development) Order 2001 (S243/2001)
With effect from 1 May 2001, an owner of vacant land may apply in the prescribed form to the Minister for Finance for a building project on that land to be approved for the purposes of the Property Tax (Exemption of Land under Development) Order 2001 (the 'Order').

This Order shall apply to vacant land (a) on which an approved building project is being or is to be constructed, and where the date of commencement of foundation works of that approved building project is on or after 1 May 2001.

Any vacant land to which this Order applies shall be exempt from tax for the period commencing on the date of commencement of the foundation works until the earlier of:

1. the date of expiry of a period of 3 years from the date of commencement of the foundation works; or
2. the date of issue of the TOP for the building or, where TOP is not issued, the date of the CSC.

Where vacant land that is exempt from tax under this Order is sold, assigned or transferred, the purchaser, assignee or transferee of the land will only be entitled to the benefits of the exemption for the period of exemption remaining at the date of the agreement of sale, assignment or transfer.

Elizabeth Wong
Allen & Gledhill