Bank of England News Release - Closure of Cyprus Popular Bank Public Co Ltd (Laiki Bank UK) and Transfer of All Deposits to Bank of Cyprus UK

Cyprus Popular Bank Public Co Ltd operating in the UK under the trading name ‘Laiki Bank UK’ has today reached an agreement with Bank of Cyprus UK Ltd to transfer all deposits to Bank of Cyprus UK, a UK subsidiary fully regulated by the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) and covered by the UK Financial Services Compensation Scheme (FSCS) up to £85,000 per depositor.

The agreement does not affect access to bank accounts and therefore all customers who had an account with Laiki Bank UK will be able to access funds as normal and do not need to do anything.

Under the legal decree setting out the arrangements put in place by the Cypriot authorities a number of customers whose accounts are in overdraft will not be transferred to Bank of Cyprus UK. These accounts are now frozen at Laiki Bank UK and customers in overdraft will no longer have banking facilities at Laiki Bank UK. Customers in overdraft will need to contact Laiki Bank UK if they have any questions about what this means for them. Customers who had an overdraft facility but were in credit need to be aware that this facility has been cancelled. They will need to contact Bank of Cyprus UK if they want to apply for a new overdraft facility.

Additionally, mortgages and loans that customers have will not be transferred to Bank of Cyprus UK. These services have been transferred to the Bank of Cyprus, Cyprus and customers will be contacted directly in due course. However, customers should continue to make repayments as normal.

 

All other deposits, such as current accounts, will transfer to Bank of Cyprus UK. For further information customers should contact Bank of Cyprus UK.

 

Existing customers of Bank of Cyprus UK have not been impacted by the measures outlined above and the firm continues to operate as normal.  

 

Notes

1.  Until today, there were two Cypriot banks operating in the UK:

a)     Cyprus Popular Bank Public Co Ltd (CPB) which operated in the UK under the trading name ‘Laiki Bank UK’ as the UK branch of an EEA bank under the European Banking Consolidation Directive.  The Central Bank of Cyprus was the home state regulator of this firm, not the UK authorities.  As is the case with other EEA operations customers were covered by the home state deposit guarantee scheme up to 100,000 Euros per eligible depositor.

b)    Bank of Cyprus Public Limited Company operates in the UK through its subsidiary  Bank of Cyprus UK Limited (Bank of Cyprus UK) which is incorporated in the UK and fully regulated by the PRA and FCA.  Eligible deposits with the Bank of Cyprus UK are covered by the Financial Services Compensation Scheme (FSCS) up to £85,000 per eligible depositor and £170,000 for joint accounts.

 

2.  Details regarding the UK Financial Services Compensation Scheme (FSCS) are available on the FSCS website

 

3.  On 1 April 2013 the Prudential Regulation Authority (PRA) became responsible for the prudential regulation and supervision of banks, building societies, credit unions, insurers and major investment firms. In total the PRA regulates around 1,700 financial firms.

 

The PRA’s role is defined in terms of two statutory objectives to promote the safety and soundness of these firms and, specifically for insurers, to contribute to the securing of an appropriate degree of protection for policyholders.

 

The PRA was created by the Financial Services Act (2012) and will be part of the Bank of England.

4.  On the 1 April 2013 the Financial Conduct Authority (FCA) became responsible for the conduct supervision of 26,000 financial firms. The FCA is responsible for promoting effective competition, ensuring that relevant markets function well, and for the conduct regulation of all financial services firms. This includes acting to prevent market abuse and ensuring that consumers get a fair deal from financial firms. The FCA operates the prudential regulation of those financial services firms not supervised by the PRA, such as asset managers and independent financial advisers.

The FCA was created by the Financial Services Act (2012).

Reserve Bank of India states Core Investment Companies – Guidelines on Investment in Insurance

At present NBFCs venturing into insurance are guided by the circular DNBS(PD).CC.No.13/02.01/99-2000 dated June 30, 2000 on amendment to NBFC Regulations which contains the ‘Guidelines for entry of NBFCs into Insurance’. In view of the unique business model of Core Investment Companies (CICs), Reserve Bank of India (RBI) has decided to issue a separate set of guidelines for their entry into insurance business.

While the eligibility criteria, in general, are similar to that for other NBFCs, no ceiling is being stipulated for CICs in their investment in an insurance joint venture. Further it is clarified that CICs cannot undertake insurance agency business. The Guidelines are enclosed for meticulous compliance.

CICs exempted from registration with RBI do not require prior approval provided they fulfil all the necessary conditions of exemption as provided under/ in CC No.206 dated January 05, 2011. Their investment in insurance joint venture would be guided by IRDA norms.

Guidelines for Entry of CICs into Insurance

1. Any Core Investment Company (CIC) registered with RBI which satisfies the eligibility criteria given below will be permitted to set up a joint venture company for undertaking insurance business with risk participation, subject to safeguards. The maximum equity contribution such a CIC can hold in the joint venture company will be as per IRDA approval.

2. The eligibility criteria for joint venture participant will be as under, as per the latest available audited balance sheet.

1. The owned funds of the CICshall not be less than Rs. 500 crore;
   
2. The level of net non-performing assets shall be not more than 1% of the total advances;
   
3. TheCIC should have registered netprofit continuously for three consecutive years;
   
4. The track record of the performance of the subsidiaries, if any, of the concerned CIC should be satisfactory;
   
5. The CIC shall comply with all applicable regulations including CIC Directions, 2011. Thus CICs-ND-SI are required to maintain adjusted net worth which shall be not less than 30% of aggregate risk weighted assets on balance sheet and risk adjusted value of off-balance sheet items.
   

3. No CIC would be allowed to conduct such business departmentally. Further, an NBFC (in its group / outside the group) would normally not be allowed to join an insurance company on risk participation basis and hence should not provide direct or indirect financial support to the insurance venture.

4. Within the group, CICs may be permitted to invest up to 100% of the equity of the insurance company either on a solo basis or in joint venture with other non-financial entities in the group. This would ensure that only the CIC either on a solo basis or in a joint venture with the group company is exposed to insurance risk and the NBFC within the group is ring-fenced from such risk.

5.In case where a foreign partner contributes 26 per cent of the equity with the approval of insurance Regulatory and Development Authority/Foreign Investment Promotion Board, more than one CIC may be allowed to participate in the equity of the insurance joint venture. As such participants will also assume insurance risk, onlythose CICs which satisfy the criteria given in paragraph 2 above, would be eligible.

6. CICs cannot enter into insurance business as agents. CICs that wish to participate in insurance business as investors or on risk participation basis will be required to obtain prior approval of the Reserve Bank. The Reserve Bank will give permission on case to case basis keeping in view all relevant factors. It should be ensured that risks involved in insurance business do not get transferred to the CIC.

Notes:

1. Holding of equity by a promoter CIC in an insurance company or investment in insurance business will be subject to compliance with any rules and regulations laid down by the IRDA/Central Government. This will include compliance with Section 6AA of the Insurance Act as amended by the IRDA Act, 1999, for divestment of equity in excess of 26 per cent of the paid up capital within a prescribed period of time.
   
2. CICs exempted from registration with RBI in terms of the Core Investment Companies(Reserve Bank) Directions, 2011 do not require prior approval provided they fulfil all the necessary conditions of exemption.

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Reserve Bank of India Clarifies Rules for Overseas Direct Investment

Attention of the Authorised Dealers (AD) is invited to Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004 notified by the Reserve Bank vide Notification No. FEMA 120/RB-2004 dated July 07, 2004 and as amended from time to time.

It has been observed that eligible Indian parties are using overseas direct investments (ODI) automatic route to set up certain structures facilitating trading in currencies, securities and commodities. It has come to the notice of the Reserve Bank that such structures having equity participation of Indian parties have also started offering financial products linked to Indian Rupee (e.g. non-deliverable trades involving foreign currency, rupee exchange rates, stock indices linked to Indian market, etc.). It is clarified that any overseas entity having equity participation directly / indirectly shall not offer such products without the specific approval of the Reserve Bank of India given that currently Indian Rupee is not fully convertible and such products could have implications for the exchange rate management of the country. Any incidence of such product facilitation would be treated as a contravention of the extant FEMA regulations and would consequently attract action under the relevant provisions of FEMA, 1999.

AD - Category I banks may bring the contents of this circular to the notice of their constituents and customers concerned.

Thailand Regulator Lays Down New rules for Multi-Class Structure For Existing Mutual Funds

The Securities and Exchange Commission (SEC), Hong Kong allows existing mutual funds to offer multiple classes of investment units to investors and allows classification of investment units by currency.

SEC Secretary-General Vorapol Socatiyanurak said: the SEC has allowed mutual funds to offer multiple classes of investment units either they are existing or newly-established mutual funds while only the latter are permitted under existing regulations. In addition, asset management companies could offer multiple classes of investment units classified by currency to investors. The revision aims to facilitate more flexibility for asset management business; broaden business opportunities; and provide a wider variety of investment choices for investors which contribute the development in Thai capital market.

In this regard, the multi-class structure offered by existing mutual funds must not prejudice the right of existing unit holders.  Details of the proposed structure must be defined in the amended investment fund scheme, such as classes of investment units, right and return of each class, fees or other expenses payable by unit holders of each class, which must conform to each class of investment units.

Due to the fact to Thai investors are not allowed to invest in foreign-currency investment units offered in Thailand. The asset management companies, therefore, must clearly clarify that the products are offered only to foreign investors.

“The SEC promotes private sector’s operational flexibility and expansion of business opportunity amidst the dynamic financial environment. This will help serving investors’ demands,” concluded Mr. Vorapol.

Hong Kong Regulator Concludes Consultation on Proposals to Enhance Regulation of Non-Corporate Listed Entities

The Securities and Futures Commission (SFC) has published conclusions on proposals to enhance the regulatory regime for non-corporate entities that are listed on The Stock Exchange of Hong Kong Ltd (SEHK). 

Respondents in general supported the proposals, with comments on technical issues. They agreed that the proposals would help enhance investor protection as well as market transparency for all listed entities, whether they are companies or other types of business organisation.

The SFC will proceed with the proposals and make appropriate recommendations on the legislative amendments to the Government.

The main points of the consultation conclusions are as follows:

• extend the SFC’s supervision and investigation powers under Parts VIII and X of the Securities and Futures Ordinance (SFO), the market misconduct provisions under Parts XIII and XIV of the SFO, the requirement to disclose price sensitive information under Part XIVA of the SFO and the disclosure of interests provisions under Part XV of the SFO to expressly cover non-corporate listed entities (Note 1);
• clarify that, for listed depositary receipts, the overseas issuer whose shares/units are the underlying shares/units (and not the relevant depositary bank) is the “issuer”; and
• exclude entities whose only listed securities are debentures from the Part XV disclosure of interests regime.

Hong Kong Regulator Releases Consultation Conclusions on Regulation of Electronic Trading

The Securities and Futures Commission (SFC), Hong Kong published a consultation conclusions paper on proposals to enhance the regulatory framework for electronic trading (Note 1).

The SFC received 34 written submissions from industry associations, brokerage firms, investment banks and individuals in response to the proposals contained in the consultation paper.  Respondents generally supported the proposals.  Most of the initiatives have been adopted in the conclusions. 

“The initiatives are intended to provide clarity to intermediaries on the standards that they are expected to meet when they conduct electronic trading.  They must have appropriate policies, procedures and controls in place to ensure their electronic trading activities will not pose undue risks to the market,” the SFC’s Chief Executive Officer Mr Ashley Alder said.

“These standards, which are in line with regulations in major international markets and the principles published by the International Organization of Securities Commissions, will help maintain integrity as well as confidence in the market,” he added.

Key aspects of the regulatory regime include:

• Management and supervision- The responsibility to ensure compliance rests with the responsible officers or executive officers and the management of the intermediaries. 
• Adequacy of system- Intermediaries should ensure their electronic trading systems are subject to testing and meet regulatory standards with respect to reliability, controls, security and capacity and that contingency measures in place.  
• Record keeping- Intermediaries should keep, or cause to be kept, proper records on the design, development, deployment and operation of their electronic trading systems.
• Risk management - Intermediaries should put in place risk management and supervisory controls to monitor orders and trades, including automated pre-trade controls and regular post-trade monitoring. 

The new regime which includes amendments to the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission and the Fund Manager Code of Conduct will come into effect on 1 January 2014.  The Guidance Note on Internet Regulation issued in March 1999 will be repealed on the same date.

"The Financial Holding Companies Bill 2013" - Second Reading Speech by Mr Tharman Shanmugaratnam, Deputy Prime Minister, Minister in charge of MAS

This is an official speech published on Monetary Authority of Singapore website.

The Financial Holding Companies Bill introduces a regulatory framework for the Monetary Authority of Singapore (MAS) to regulate financial holding companies (FHCs) and their financial groups. For the purpose of the Bill, an FHC is a non-operating holding company which is incorporated in Singapore and holds a Singapore bank or insurance subsidiary, or both.

The FHC Bill will provide greater clarity to the industry and other stakeholders on the rules and standards applicable to financial groups organised under FHCs in Singapore. It is common for internationally active financial groups to be organised under holding companies. As Singapore develops as an international financial centre, more global banks and insurance companies are locating parts of their global operations in Singapore. At the same time, our domestic financial institutions are growing regionally and some may find a holding company structure more suited to their purpose.  

The Bill will clarify and ensure appropriate MAS’ prudential oversight of financial groups in Singapore. Group-wide supervision allows MAS to assess the impact that a financial institution’s relationships with other entities in the group may have on its safety and soundness. The concept of group supervision is of course not new. Financial groups in Singapore are mostly headed by banks, and are already subject to group-wide supervision by MAS. The Bill extends group-wide supervision by MAS to an FHC and its financial group. It is aimed at mitigating intra-group contagion risks, preventing the multiple use of capital within the group, and limiting concentration risks at the group level.

The FHC Bill is in line with international regulatory developments. Key international supervisory committees such as the Joint Forum have called for greater oversight of unregulated entities in financial groups, in particular the parent FHC.² The IMF has also cited the limited legal authority over FHCs of cross-sector financial groups as a weakness in some financial systems. Many regulators are therefore widening their scope of group-wide supervision to include FHCs, either directly through an FHC regulatory framework or indirectly through a regulated entity like a bank or insurance subsidiary. Australia, Canada and the US are among the countries that have established legal frameworks for FHCs. The EU is moving in the same direction of strengthening regulatory authority over FHCs. 

However, the introduction of this Bill does not mean that MAS is advocating a holding company structure for financial institutions in Singapore. Whether a financial group organises itself under an FHC or is held directly by a bank or insurance company is a business decision. MAS, as the financial regulator, needs to ensure that all financial groups in Singapore, regardless of their holding structure, can be effectively regulated and supervised under an appropriate regulatory framework.

MAS has consulted the industry on the FHC regulatory framework. The first consultation in February 2012 sought views on the broad policy and regulatory principles underpinning the framework. The second consultation in October 2012 invited comments on the draft FHC Bill. MAS has considered the views and feedback received and taken them into account in refining the FHC Bill, where appropriate. 

Mdm Speaker, let me expand on the key provisions of the Bill.

KEY PROVISIONS IN THE FHC BILL

FHC Bill Complements Banking and Insurance Acts

The FHC Bill draws upon the same regulatory toolkit as in the Banking Act (BA) and Insurance Act (IA). These tools will include requiring regulatory approval for acquiring or holding of major shareholdings in an FHC; putting in place limits on an FHC’s credit and investment exposures, and giving MAS powers relating to key appointments, supervision, and inspection.

Scope of Regulation

The Bill does not require every FHC in Singapore to be regulated by MAS. Unlike banks and insurance companies, an FHC is a non-operating holding company, and will not engage in financial transactions directly with the public. It may also not be exposed to the same risks that a bank or insurance company may encounter in the course of business. In deciding which FHCs to regulate, MAS will consider how the regulation of the FHC and its financial group can enhance the effectiveness of prudential oversight of the financial group. 

The FHC Bill sets out the following criteria by which MAS will assess whether an FHC should be designated for regulation.  

(a) Ultimate parent of Singapore financial groups MAS will regulate an FHC if it is the ultimate parent of a financial group with a bank or insurance subsidiary in Singapore. In such cases, MAS is the home supervisor of the financial group and has responsibility for group-wide supervision of the financial group.

(b) Intermediate FHCs within financial groupsThere are FHCs that are themselves subsidiaries of a parent FHC or financial institution. For these intermediate FHCs, MAS will assess the importance of the FHC’s bank or insurance subsidiary to Singapore’s financial system, or to the intermediate FHC group, when deciding whether to regulate the FHC. For foreign-owned FHCs, an additional consideration will be the extent to which the parent holding company incorporated overseas is subject to effective group-wide supervision by its home supervisor.

MAS will list the names of FHCs designated for regulation in an order published in the Gazette. 

While FHCs that are not designated will not be regulated under the FHC Bill, MAS may require these FHCs to provide information necessary for MAS’ surveillance and supervision functions. 

Control of Shareholdings

Major shareholders of an FHC may be in a position to exercise indirect influence or control over its bank or insurance subsidiaries through their shareholding interests in the FHC. Hence it is necessary to require shareholders with substantial or controlling interests in designated FHCs to obtain approval for their shareholding interests, just as the BA and IA currently require for significant stakes in Singapore-incorporated banks and insurance companies. The shareholding and control thresholds at which approval will be required will be consistent with existing thresholds under the BA and the IA. MAS will consider whether the shareholders are “fit-and-proper” and the nature of their likely influence over the conduct of the FHC when assessing applications for approval.  

It is also vital that the directors and senior management of the designated FHC carry out their functions in a responsible and prudent manner. The FHC Bill provides for the application of corporate governance regulations on the FHC.

Regulation and Supervision of FHC Groups

Besides regulatory requirements on the designated FHC itself, the FHC Bill sets out requirements at the FHC group level. To achieve alignment in the regulatory approach towards financial groups, whether they are held under a bank, an insurance company or a designated FHC, regulatory requirements under the BA and IA will be mirrored in the FHC Bill, where appropriate. The FHC’s bank and insurance subsidiaries in Singapore will continue to be regulated under the BA and IA, respectively. 

The FHC Bill empowers MAS to prescribe rules to support the safety and soundness of the FHC group. Several of these rules are also present in the BA and IA and will be extended to designated FHCs. The FHC Bill also provides for MAS to conduct on-site inspections and investigations of the FHC and its subsidiaries. 

Administrative Provisions

Further, to support MAS’ administration of the FHC regulatory and supervisory framework, the FHC Bill contains administrative provisions, including powers to:

• make regulations, and issue directions and notices to designated FHCs;
• require the submission of annual audited accounts of the FHC and FHC group; and
• impose penalties on the FHC and individuals for the contravention of FHC regulations.

CONCLUSION

Mdm Speaker, let me conclude. Singapore’s financial system has held up well amid the turbulence of the global financial crisis of the past few years. It is important that MAS continues to have the appropriate and necessary regulatory tools to discharge its responsibilities as the financial landscape evolves. The introduction of the FHC Bill represents the continuous effort by MAS to ensure its regulations stay relevant to developments and challenges in the financial system.