Singapore: MAS updates Guidelines for Liquidity Risk Management for Banks

The MAS is seeking feedback on proposed revisions to its Guidelines on Liquidity Risk Management for banks, merchant banks and finance companies in Singapore. These Guidelines will apply to all banks in Singapore, including Singapore bank branches of foreign banks and so they will be important guidelines for the banking industry as a whole in Singapore.

The key motivation for the update is that MAS wants to provide “clarity on [its] supervisory expectations”, particularly given the banking turmoil in 2023 which underscored the importance of sound liquidity risk management.

The Guidelines draw from the previous 2013 guidelines and also the Principles for Sound Liquidity Risk Management and Supervision issued by the Basel Committee on Banking Supervision (BCBS) in 2008 – so the themes are broadly as expected. However, the revised Guidelines contain much more granular expectations on liquidity management, and they also include MAS’s lists of “good practices” in liquidity risk management (which MAS will likely expect banks to take into account in their own frameworks). So it will be crucial for banks to digest the impact on the proposed amendments and consider whether they need to start preparing for the implementation of the updated Guidelines, particularly given the tight timing.

Key proposed amendments

1. Strengthened governance oversight

• The 2013 guidelines required that the board approves policies and processes for managing liquidity risk including the institution’s overall liquidity risk appetite. However, the new Guidelines contain a much more detailed list of requirements for the board to fulfil, such as receiving regular reports on its liquidity position (e.g., stress test results) and overseeing senior management’s implementation. MAS expects the board to have a strong and detailed oversight of liquidity management, particularly emphasising that the board may delegate some of its responsibility however, “it remains accountable and cannot abrogate its overall responsibility for the Bank.”
• In addition, the Guidelines contain a long list of responsibilities of senior management (not included in the 2013 guidelines), such as communicating liquidity strategy to relevant parties for implementation, implementing adequate internal controls to maintain the risk management process, overseeing the stress testing process and establishing adequate training programmes for staff. Banks will need to work through these responsibilities methodically to ensure they can demonstrate the compliance of senior management.

2. Enhanced stress testing and scenario analysis requirements

• The 2013 guidelines require that banks should perform stress tests, the results of which should be used to adjust liquidity management strategies, policies and positions.
• The proposed Guidelines contain significantly more detail and granular requirements for stress testing. Banks are expected to conduct stress tests and scenario analyses on a regular basis using a variety of short-term (including intraday) and protracted institution-specific and market-wide stress scenarios, both individually and in combination. Stress tests must be performed for all currencies in aggregate as well as separately.
• The Guidelines contain a list of severe scenarios which stress tests must cover (e.g., a market-wide stress scenario, an institution-specific stress scenario, etc.) and the results of stress tests for various risk types must be considered when stress testing its liquidity position. The Guidelines also detail how banks should set the assumptions for their stress tests, including the differences between dealing with on-balance sheet and off-balance sheet assets.
• Notably, the Guidelines state that if a Singapore branch/subsidiary is relying on stress testing scenarios/assumptions which are developed centrally at the parent/head office, banks still need to ensure that those scenarios/assumptions are suitable for the local context. In contrast, locally-incorporated banks are required to perform stress tests at individual legal entity, overseas bank and group levels.
• The Guidelines are helpful because they note that the frequency and extent of stress testing should be commensurate with the bank’s size, complexity, and systemic importance. However, banks will need to work through the significantly more detailed requirements to ensure that they can evidence they are all being met in practice.

3. Other key changes

• Liquidity strategy: the 2013 guidelines did require institutions to have a liquidity strategy which was approved by the board and reviewed regularly. However, the Guidelines contain a detailed section on the requirements of the liquidity strategy. It must cover topics such as the composition and maturity of assets and liabilities, the diversity and stability of funding sources, and funding for business targets. The funding plan (required to implement the strategy) must contain detailed financial information, showing MAS expects banks to consider liquidity risk management as part of the institution’s overall business targets.
• Identification of risks: the 2013 guidelines required institutions to maintain information systems to enable identification of risks. However, the Guidelines contain a breakdown of good practices in identifying liquidity risk drivers, and the MAS has emphasised regular reviews of risk are essential. The MAS will likely expect institutions to take into account these good practices going forwards.
• Risk measurement and evaluation: the Guidelines contain a breakdown of metrics which institutions should use to quantify liquidity risk. In particular, the Guidelines contain a lot of detail on how to use cash flow projections, taking into account the impact of correspondent, custody and settlement activities, currencies in which a bank is active and other considerations. MAS provides specific notes on how to consider SPVs, financial derivatives, guarantees and commitments as part of any cash flow projections, which banks will need to ensure they consider as part of their risk measurement frameworks.
• Other key areas: the Guidelines contain additional requirements in the areas of: (i) maintenance of liquid assets; (ii) intraday liquidity risk management; (iii) diversification and management of market access; (iv) asset encumbrance and collateral management; and (v) contingency funding plans. 

Next steps

The public consultation closes on 29 September 2025. MAS proposes that following the conclusion of the consultation, the Guidelines will come into effect six months after the final Guidelines are published. So, banks have fairly little time to prepare for the revised Guidelines and should consider beginning to uplift their frameworks to meet the proposals.

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