DE-REGULATION OF FINANCIAL SECTOR

Mr Low Thia Khiang asked the Minister for Finance whether the Government plans to de-regularise the financial sector and, if so, how the de-regulation will affect the economy of Singapore.

Dr Richard Hu Tsu Tau: Singapore operates a two-tier financial services sector. The first tier is the domestic banking sector in which the currency of transaction is the Singapore dollar. The second tier is the offshore banking sector which transacts in foreign currencies, principally the US dollar, Japanese Yen and the Deutsche Mark.

The financial system in Singapore is governed by the Monetary Authority of Singapore Act, the Banking Act, the Securities Industry Act, the Futures Trading Act, Finance Companies Act, Insurance Companies Act and subsidiary legislation. The MAS issues regulations setting out operational requirements and prudential standards for all financial institutions. The MAS also regulates the international usage of the Singapore dollar.

At the present time, 34 banks hold full licences to operate in the domestic banking sector, comprising 12 Singapore controlled banks and 22 foreign bank branches. In addition, there are 13 restricted and 107 offshore licensed foreign bank branches in Singapore which are able to undertake wholesale Singapore dollar business. Singapore practises universal banking, whereby banks are able to transact in all aspects of financial services, including commercial banking, securities/futures trading, insurance and other ancillary activities. Because the domestic banking sector is already over-banked, no new full and restricted banking licences have been issued, whether to local or foreign entities.

The offshore banking sector is still open and new foreign financial institutions which meet MAS standards will continue to be admitted. Entry is generally based on an assessment of the adequacy of home supervision, and the quality of the parent banks' international reputation and capital and asset status. MAS actively promotes this sector to enhance the status of Singapore as an international financial centre.

In recent years, Singapore has come under increasing pressure to further liberalise and open up the domestic financial sector to foreign participation. A WTO agreement on the liberalisation of financial services is under active discussion and there is pressure to complete the negotiations by December this year. Furthermore, globalization and IT are sweeping the financial industry worldwide, causing radical changes, including mergers, new products, and new risks. Our approach to supervising and promoting the financial sector, both offshore and domestic, must take these worldwide trends into account. It is against this background that the Government has set up the Competitiveness Committee and the Financial Services Review Group. This is an exercise to build on our strengths, identify new approaches and develop promising new areas to ensure we remain competitive as a financial centre. The Committees are expected to issue their preliminary reports towards the end of this year.

Our financial sector has considerable strengths - high standards of regulation and supervision, sound banks and financial institutions, a transparent, open environment giving all participants maximum protection against fraud and sharp practice. Any policy changes will build upon these strengths, while making the sector more productive and competitive. This will translate into stronger growth and increased profitability. It will also generate greater demand for legal, accountancy and other ancillary services. The overall impact on our economy will therefore be positive.