This article is produced by CMS Holborn Asia, a Formal Law Alliance between CMS Singapore and Holborn Law LLC.
Introduction
The Monetary Authority of Singapore (“MAS”) has announced that it will raise insurance coverage on bank deposits from S$75,000 to S$100,000 from 1 April 2024[1]. In this update, we set out the position on deposit insurance and provide an appraisal of the change.
The Scheme
The insurance scheme is administered by the Singapore Deposit Insurance Corporation Limited (“SDIC”) with the purpose of providing “prompt and efficient compensation to depositors and insurance policy owners and beneficiaries”.[2] Under the current terms of the scheme, when a scheme member goes bankrupt, the SDIC provides compensation of up to S$75,000 per depositor per scheme member. All scheme members pay annual premiums into a fund and compensation will be drawn from that fund. All full banks and finance companies operating in Singapore are members of the scheme, except for institutions exempted by the MAS.
The scheme only covers Singapore-dollar deposits placed by individuals and non-bank depositors in savings accounts, fixed deposit accounts and current accounts, amongst others. With the intention of protecting small depositors, the scheme does not extend to deposits in foreign currencies or other types of deposits carrying higher risk.
The Change
With the increase in the maximum deposit insurance (“Maximum DI”) amount, Singapore-dollar deposits will be insured for up to S$100,000. MAS noted that the increase means a restoration of the percentage of fully covered insured depositors to 91% - this had fallen to 89% (also from 91%) since the Maximum DI amount was last raised in April 2019[3].
Although some stakeholders called for a higher ceiling on the amount insured, the MAS said the change strikes an adequate balance between protecting customers while not increasing costs which may be passed on to customers. On suggestions that the scope of the scheme should be expanded to cover more types of deposits, the MAS declined to extend the insurance scheme to deposits in foreign currencies. It noted that the scheme’s primary objective is to protect small depositors, and these deposits predominantly keep their savings in Singapore dollars. Moreover, since the amount of foreign currency deposits held for these small depositors remain insignificant, such an extension of the scheme would be unnecessary at this point of time. Nonetheless, the MAS committed to continuing to monitor the issue and revisit the possibility if the situation progresses.
Conclusions
The increase in the Maximum DI amount demonstrates MAS’ commitment to upholding confidence in the Singapore banking system . With the recent high-profile collapses of ‘too big to fail’ and reputable financial institutions like Credit Suisse Group AG and Silicon Valley Bank that had disastrous effects for smaller businesses and retail customers, the increase is a clear step towards greater protection for smaller depositors and should further enhance the reputation of Singapore’s banking sector.
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