Tuesday, 21 May 2024

MAS: Equity holders to absorb losses before holders of AT1 bonds

5 min read

The Monetary Authority of Singapore (MAS) said in exercising its powers to resolve a financial institution (FI), it intends to abide by the hierarchy of claims in liquidation.

This means that equity holders will absorb losses before holders of Additional Tier 1 (AT1) and Tier 2 capital instruments.

Creditors who receive less in a resolution compared to what they would have received had the FI been liquidated would be able to claim the difference from a resolution fund that would be funded by the financial industry.

The creditor compensation framework will also apply in the exceptional situation where MAS departs from the creditor hierarchy in order to contain the potential systemic impact of the FI’s failure or to maximise the value of the FI for the benefit of all creditors as a whole.

MAS’ resolution framework is in line with the Financial Stability Board’s Key Attributes of Effective Resolution Regimes for Financial Institutions.

AT1 bonds in Singapore are offered in the wholesale market, which is only for institutional investors, accredited investors, or transactions in denominations of at least SGD200,000 ($150,557). No prospectus for the offering of AT1 bonds to retail investors has been registered with MAS.

As with other investment products, FIs that offer or distribute AT1 bonds are expected to make accurate and clear disclosures of key product features and risks to investors. Investors should understand the risks and rewards, and exercise due care in their selection of investment products.

Re-disseminated by The Asian Banker

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