MAS Consults on Changes to Regulatory Framework Governing Large Exposures for Singapore-incorporated Merchant Banks and Banks

On 15 July 2025, the Monetary Authority of Singapore (“MAS“) released the Consultation Paper on Proposed Amendments to Regulatory Framework for Large Exposures of Singapore-incorporated Merchant Banks and Singapore-incorporated Banks. The Consultation closes on 26 August 2025.

Proposed Updates to Regulatory Framework for Large Exposures – Merchant Banks

MAS proposes to update the regulatory framework for measuring and controlling large exposures of merchant banks incorporated in Singapore (“Merchant Banks“).

1. The proposed regulatory framework sets out a limit for exposures of Merchant Banks to any counterparty or group of counterparties (“Large Exposures Limit“) and seeks to ensure that the concentration risks in Merchant Banks are adequately measured and controlled.

2. The proposed regulatory framework is intended to replace the existing framework under MAS Notice 1012 on Credit Facilities to a Single Borrower or Group of Borrowers (“MAS Notice 1012“), which sets out the current requirements for Merchant Banks to limit their exposures to a single borrower or group of borrowers.

3. Some of the key changes under the proposed regulatory framework include:

• • Scope of facility exposure: Applying the Large Exposures Limit to all types of exposures of a Merchant Bank. This would capture the on and off-balance sheet exposures, including derivative transactions and equity investments, which are currently excluded from the scope of credit facilities captured under MAS Notice 1012.

• • Scope of currency exposure: Applying the Large Exposures Limit to exposures of a Merchant Bank denominated in any currency. This would serve to capture exposures denominated in foreign currencies, which comprise a significant proportion of Merchant Banks’ portfolios.

• • Scope of financial institution (“FI”) exposure: (i) Applying the Large Exposures Limit to exposures of a Merchant Bank to all banks and merchant banks (except for intraday interbank exposures), which are currently excluded under MAS Notice 1012; and (ii) requiring Merchant Banks to set internal limits for exposures to systemically important FIs, including exposures to domestic systemically important banks designated by MAS.

• • Aggregate exposure: Tightening the Large Exposures Limit from the current limit under MAS Notice 1012 of 30% of capital funds of a Merchant Bank’s aggregate of its credit facilities to any counterparty or group of counterparties, at both the solo level and the group level (with the potential to increase the credit facilities limit with MAS’ approval, subject to specific conditions), to 25% of Tier 1 capital for the aggregate of all exposures of a Merchant Bank to any counterparty or group of counterparties.

• • Breaches: Requiring a series of actions to be taken by a Merchant Bank in the event of breaches of the Large Exposures Limit, to ensure ongoing monitoring and compliance. For example, where a Merchant Bank becomes aware that its exposure to any single counterparty group has breached the Large Exposures Limit, it must: (i) notify MAS immediately; (ii) assess the effect of the breach in terms of the risks posed to itself; (iii) prepare a plan to rectify the situation and inform MAS of its plan; and (iv) undertake prompt corrective action in accordance with that plan.

• • Exempted related corporations exposure: Exempting exposures of a Merchant Bank to its related corporations that fall into any of the following categories: (i) a bank or merchant bank subsidiary of the Merchant Bank, with residual maturity not exceeding one year; (ii) a holding company of the Merchant Bank, which is itself a bank or is itself part of a group subject to minimum prudential standards and supervision on a consolidated basis by a bank regulatory agency; or (iii) a bank or merchant bank subsidiary of the holding company described at (ii). This change aims to facilitate intragroup funding arrangements, to recognise the role of bank prudential standards and consolidated supervision in mitigating contagion risks, and to ensure that longer term exposures to the Merchant Bank’s own subsidiaries will be subject to the Large Exposures Limit to address contagion risks.

4. In terms of the implementation timeline and transitional arrangements:

• • MAS aims for the proposed regulatory framework to be effective from 1 January 2027, or at least six months from the issuance of the final rules, whichever is the later. This is to provide Merchant Banks with sufficient time to prepare for compliance, given that the proposed regulatory framework represents a significant change from the current regulatory framework.

• • MAS also proposes that Merchant Banks which require a longer time to adjust their exposures to specific counterparties or groups of connected counterparties may write to MAS with justifications and a plan to work towards compliance within a period of up to one year from the date of implementation.

Proposed Amendments to Regulatory Framework for Large Exposures – Banks

MAS proposes to amend MAS Notice 656 on Exposures to Single Counterparty Groups for Banks Incorporated in Singapore (“MAS Notice 656“), which sets out the scope of Singapore-incorporated banks’ (“Banks’“) exposures to related corporations that are excluded from the Large Exposures Limit.

1. Currently, under MAS Notice 656, such Banks’ exposures to related corporations that are banks or merchant banks are exempted from the Large Exposures Limit (except for exposures to bank or merchant bank subsidiaries with residual maturity exceeding one year, and exposures to any parent bank or parent financial holding company of a Bank). These exemptions were provided to facilitate intragroup funding arrangements.

2. The proposed amendments seek to refine the scope of such Banks’ exempted exposures to related corporations. Under the proposed amendments: (i) a Bank’s exposures to its holding company would be exempted from the Large Exposures Limit only where the holding company is itself a bank or is itself part of a group subject to minimum prudential standards and supervision on a consolidated basis by a bank regulatory agency; and (ii) a Bank’s exposures to a bank or merchant bank subsidiary of its holding company would be exempted only where that holding company fulfils the same condition.

3. The proposed amendments seek to more adequately address the contagion risks arising from such Banks’ exposures to related counterparties who are not subject to minimum prudential standards, while taking into consideration the operating structures of such Banks.