MAS proposes to amend laws to allow trade reporting of counterparty name

The Monetary Authority of Singapore (MAS) is proposing to amend laws to provide clarity on the ability for Singapore licensed banks to report over-the-counter derivative trades to trade repositories.

In a consultation paper released by MAS on June 26 on the reporting of derivative contracts, MAS said it is "considering legislative changes to allow banks to report client identity in OTC derivatives transactions without breaching banking confidentiality".

Singapore licensed banks are subject to the Singapore Banking Act. Section 47 on banking secrecy prevents a licensed bank from disclosing customer information except under very specific circumstances. Currently, banks are only able to disclose client information to a third party by obtaining prior written consent from the client.

But clients in Asia may be hesitant to give consent for their names to be disclosed. Therefore banks that do not have written consent from clients would not be able to report trades to repositories.

"What is significant is that this is the first time MAS has said it will be considering amending Section 47 of the Banking Act to allow for trade reporting of OTC derivative contracts," says Lena Ng, counsel at Clifford Chance in Singapore.

Once the amendments are introduced, banks cannot hide behind the banking secrecy provision to say they can't disclose the name of their counterparty

However, there is unlikely to be a change in legislation before the first phase of reporting for banks trading in interest rate and credit derivatives is set to be implemented in October.

"MAS has indicated that it will be giving a temporary exemption to banks so they don't have to disclose their counterparty identity, which is similar to the CFTC no-action relief on masking of counterparty information," says Kishore Ramakrishnan, executive director of financial services advisory at Ernst & Young in Hong Kong.

However once the amendments are passed, clients may reconsider executing a trade, given that the information will be made public, say market participants.

"For certain trades, particularly in the equity space, this may be sensitive and now with the disclosure, clients may think twice about executing that trade. Once the amendments are introduced, banks cannot rely on the banking secrecy provisions to say they can't disclose the name of their counterparty," says Ng.

MAS is also proposing to implement a reporting threshold of S$8 billion ($6.3 billion) for non-financial specified persons for all trades booked or traded in Singapore.

"This is unique to Singapore as there is not a reporting threshold for non-financial counterparties in other regimes including Dodd-Frank and Emir. Emir does have a clearing threshold but that is broken down into different buckets such as credit, foreign exchange and interest rates. If an entity does book a lot of business or trades in Singapore, the fact that this is not broken down into buckets means this can easily be triggered as it is measured against notional rather than net exposures," says Ng.

However, the proposed S$8 billion threshold is open for debate, says Eric Chan, head of financial services regulation at Drew & Napier in Singapore.

"In throwing up this initial figure of S$8 billion, MAS is giving both the financial industry and large non-financial entities active in the derivatives marketplace a chance to comment and help shape the final form of the reporting framework. There is no doubt that there will be a substantial amount of feedback from the industry on this figure – some will say it is too high while others will feel it is too low, and so it remains to be seen how MAS will handle the feedback and what the final threshold would be. In any case, the final reporting threshold will not be cast in stone as MAS will periodically review this to ensure that it remains meaningful," he says.

Additionally the regulator is proposing the reporting of collateral information for trades, in line with similar proposals from European and US regulators.

"The requirement by MAS to report on the level of collateral is not that surprising," says Swen Werner, JP Morgan's head of collateral management product in Hong Kong. "You have the same requirements under Dodd-Frank and Emir where you have to give an indication of the collateralisation as part of the reporting of economic terms. If you have similar requirements in the US and European regulations then in the interests of consistency of a global derivatives framework, Asian regulators would be looking at collateral reporting as well," says Swen Werner, JP Morgan's head of collateral management product in Hong Kong.

But there could be push-back from Singapore banks given that globally collateral reporting requirements have not yet been implemented.

"At this point in time, my understanding is that Emir and Dodd-Frank have not included collateral reporting requirements yet, so financial institutions will try to push back on having collateral included in the first phase of reporting until it is introduced by the European and US regulators. Singapore banks argue that they should not be reporting wider than in other regimes and that the data fields should be consistent in terms of what is being reported by the banks," says Ng.

Ramakrishnan at Ernst & Young agrees that the implementation of collateral reporting for banks in phase one of reporting is unlikely. "If you look at Europe, they have pushed all the reporting deadlines back from September 2013 to January 2014. Therefore, trying to enforce collateral reporting data in the first phase would be an uphill task for Singapore regulators," he says.