Financial stability, as I have suggested on several occasions, can be achieved only by the interaction of three basic necessities: sound leadership at the firm level, strong prudential regulation and supervision, and effective market discipline. These three elements provide the foundation for the health and soundness of the financial system as a whole. Sound leadership at the firm level is the first bulwark against financial system instability. It begins with good corporate governance: capable and experienced directors and management, a coherent strategy and business plan, and clear lines of responsibility and accountability. Boards of directors are meant to oversee the development of the overall strategy of the organization and the decisions made by senior management in pursuit of those strategic objectives. This means that individuals with skills and competencies consistent with the institution's strategic focus must be represented. In addition, boards should establish clear guidelines regarding the independence of their directors. The Senior management is meant to set the business strategy, oversee day-to-day decisions, and ensure that these decisions support the long-term objectives and policies as determined by the board. To ensure financial stability, execution of the overall objectives of the firm must be supported by rigorous internal controls and effective risk management. An effective internal control apparatus is critical to provide reasonable assurance that the information produced by the organization is timely and reliable and that errors and irregularities are discovered and corrected promptly.
16 On the supply side, we too have seen healthy interest from Asia-Pacific issuers in the development of an APAC market for catastrophe bond issuances, due to the proximity to and better understanding of the underlying risks. 17 Given the above, the MAS has thus taken progressive strides towards developing the catastrophe bond market in Singapore. 18 As a first step, we have formed an alternative risk transfer work-group comprising industry experts in the ILS space. Chaired by Jon Paradine of Renaissance Re, the work-group advises the MAS on specific initiatives that will support the development of Singapore as an ILS hub. 19 Today, I am happy to announce one such initiative – the newly created ILS grant scheme. To catalyse the development of Singapore’s ILS market, the MAS will fund 100% of the upfront costs incurred in issuing catastrophe bonds out of Singapore. This grant will run from 1 January 2018 and will be applicable to ILS bonds covering all forms of risks beyond just natural catastrophe risks. 20 It is my hope that this grant scheme will encourage insurers and reinsurers to consider issuing a catastrophe bond here. In fact, MAS is already working with key industry players such as IAG Re Singapore with a view to issuing a catastrophe bond in Singapore. This is but the first step of a longer journey, as we look forward to working more closely with the industry to further deepen our ILS ecosystem here.