MAS Enforces “Operational Reflex” in New Liquidity Risk Guidelines for Banks 

The Monetary Authority of Singapore (MAS) has substantially overhauled its Guidelines on Liquidity Risk Management for banks, merchant banks, and finance companies, marking the first major revision since 2013. The updated framework, which focuses heavily on governance, rigorous stress testing, and the operational readiness of contingency plans, aims to fortify the banking sector against the rapid, digital-era deposit flight witnessed during recent global banking turmoil. 

 The move signals a paradigm shift from theoretical compliance to mandating an “operational reflex” within financial institutions (FIs). 

Emphasis on Intraday and Digital Stress 

The new guidelines incorporate critical lessons learned from the 2023 banking turbulence, where liquidity stresses materialized with unprecedented speed. 

A core change is the requirement for Enhanced Stress Testing and Scenario Analysis. Banks are now expected to conduct granular stress tests on a regular basis, covering a wider variety of short-term, protracted, and, critically, intraday stress scenarios. These tests must account for severe institution-specific events (like reputation damage or IT failure) combined with market-wide events, tested across all relevant currencies. 

Strengthening Governance and Accountability 

The MAS is elevating the role and responsibility of the Board of Directors and Senior Management. The new rules contain a significantly more detailed list of requirements for governance oversight, ensuring that liquidity management is treated as a strategic, not just a compliance, function. 

Key governance mandates include: 

• Detailed Oversight: The Board must now receive regular, comprehensive reports on the institution’s liquidity position, including the results and analysis of the rigorous new stress tests. 
• Non-Abrogation of Responsibility: While the Board can delegate implementation tasks, the MAS explicitly states that it “remains accountable and cannot abrogate its overall responsibility for the Bank.”
• Operationally Ready CFPs: The Contingency Funding Plan (CFP) must be operationally ready, requiring regular rehearsals and clear, pre-approved action triggers to ensure the bank can execute funding strategies immediately when a crisis hits.1

The Six-Month Transition Window 

The MAS launched a public consultation on the proposed guidelines, which recently closed. Following the finalization of the rules, financial institutions will be given a six-month transition period to align their policies, systems, and governance structures with the new, heightened expectations. 

The MAS press release emphasized that FIs should apply the expectations proportionately, based on their size, nature, and complexity. However, the comprehensive detail provided, including “good practices” observed across the banking sector, sets a definitive new standard for all institutions operating in the highly-regulated Singapore financial center. 

Industry analysts view the guidelines as a crucial step in maintaining Singapore’s reputation for financial stability and proactively mitigating systemic risk fueled by faster, digitally-driven financial flows. 

The Value of Market Transparency Data

This is where data on volume, flow, and trade becomes indispensable. This type of information is like a real-time health check on the market for a bank’s assets. 

•  Volume and Trade Data show how many shares or bonds are being bought and sold. A high volume of trades indicates a healthy, liquid market where assets can be bought and sold easily. A sudden drop in volume, however, can be a red flag that the market is becoming illiquid. 
• Trade and Flow Data can also reveal the bid-ask spread—the difference between the highest price a buyer is willing to pay and the lowest price a seller will accept. A wide gap here means it’s difficult to sell an asset for a fair price, signalling high market liquidity risk. 

By using this data, banks can move beyond traditional risk models and gain a clearer understanding of the hidden risks within their investment portfolios, proactively preparing for the next crisis before it unfolds. 

Parameta Solutions give you access to one of the deepest liquidity pools across Capital markets data. As the exclusive provider of TP ICAP data, one of the world’s largest inter dealer brokers, we can bring clarity to markets and help banks with stress-testing and scenario analysis.