Statute Details
- Title: Banking (Financial Penalties under Sections 38 and 39) Order 2024
- Act Code: BA1970-S1001-2024
- Legislation Type: Subsidiary Legislation (SL)
- Enacting / Authorising Act: Banking Act 1970
- Authorising Provisions: Banking Act 1970, sections 38(7) and 39(7)
- Citation: No. S 1001
- Commencement: 26 December 2024
- Made Date: 16 December 2024
- Current Version Status: Current version as at 26 March 2026
- Key Provisions:
- Section 1: Citation and commencement
- Section 2: Definitions (including “daily minimum cash balance”, “average minimum cash balance”, “liquid assets requirement”, “SORA”)
- Section 3: Prescribed financial penalty formula for failures to comply with liquid assets requirements (s 38)
- Section 4: Prescribed financial penalty formula for failures to maintain daily and average minimum cash balances (s 39)
- Section 5: Revocation of the 2007 Order
What Is This Legislation About?
The Banking (Financial Penalties under Sections 38 and 39) Order 2024 (“the Order”) is a Singapore subsidiary legislation that sets out the mathematical formulae for calculating financial penalties payable by a bank when it breaches certain liquidity and cash balance requirements under the Banking Act 1970.
In plain terms, the Banking Act 1970 empowers the Monetary Authority of Singapore (the “Authority”) to impose requirements on banks relating to (i) the amount of liquid assets a bank must hold and (ii) the amount of cash a bank must maintain on a daily basis and over a rolling period. If a bank fails to comply, the Act provides for financial penalties. This Order supplies the detailed “how much” by prescribing the penalty formulas.
The Order is also important because it updates the penalty regime. It revokes the earlier Banking (Financial Penalties under sections 38 and 39) Order 2007 (G.N. No. S 241/2007), replacing it with a new framework that is tailored to the current regulatory approach and market benchmarks, including the use of the Singapore Overnight Rate Average (SORA).
What Are the Key Provisions?
1. Commencement and scope (Section 1)
Section 1 provides that the Order is cited as the Banking (Financial Penalties under Sections 38 and 39) Order 2024 and comes into operation on 26 December 2024. This matters for compliance and enforcement because the penalty calculations for failures occurring after commencement will follow the new formulas.
2. Definitions that drive the calculations (Section 2)
Section 2 defines the key variables used in the penalty formulas. The definitions are not merely interpretive; they determine the inputs to the calculation and therefore the quantum of penalties.
Key defined terms include:
- “liquid assets requirement”: any requirement imposed by the Authority on a bank under section 38(1) of the Banking Act 1970.
- “daily minimum cash balance”: the minimum cash balance required under section 39(1), measured at the close of business for business days, and at the close of business of the last business day immediately before for non-business days.
- “average minimum cash balance”: the average of daily minimum cash balances over a 2-week period specified by the Authority in a written notice under section 39(1).
- “SORA”: the volume-weighted average rate of unsecured overnight interbank Singapore dollar borrowing transactions in Singapore between 8 a.m. and 6.15 p.m., published by the Authority on the next business day (or otherwise publicly accessible if the website is unavailable).
3. Penalty for failure to comply with liquid assets requirements (Section 3)
Section 3 prescribes the formula for the financial penalty (F) that a bank is liable to pay for every day or part of a day that it fails to comply with any liquid assets requirement.
The formula is expressed in terms of:
- P: a multiplier reflecting the bank’s compliance history over a continuous 90-day period immediately before the day of failure.
- P = 5 where the bank complied with all liquid assets requirements throughout the 90-day period.
- P = 7 where the bank failed on only one occasion during the 90-day period.
- P = 9 where the bank failed on more than one occasion during the 90-day period.
- A: the deficiency in the amount of liquid assets necessary to comply.
- r: the relevant SORA (for the day of failure if it is a business day; otherwise the last business day immediately before).
- m: a timing factor that distinguishes whether the bank cures the deficiency by a specified deadline.
- m = 0.5 if the bank fails on a business day but complies before close of business on that day, or if it fails on a non-business day but complies by 11.59 p.m. of that day.
- m = 1 in any other case.
Practical meaning: the penalty is not simply proportional to the size of the shortfall. It is also sensitive to (i) the bank’s recent compliance record (through P) and (ii) whether the bank rectifies the breach quickly (through m). This structure incentivises both sustained compliance and prompt remediation.
4. Penalty for failure to maintain daily and average minimum cash balances (Section 4)
Section 4 prescribes two related penalty calculations under section 39(7) of the Banking Act 1970.
Section 4(1): daily minimum cash balance
For each day or part of a day that a bank fails to maintain the daily minimum cash balance, the penalty formula uses:
- B: the deficiency in the cash balance necessary to maintain the daily minimum cash balance.
- r: 3 percentage points above SORA for the relevant day (or the last business day immediately before, if the failure day is not a business day).
Section 4(2): average minimum cash balance over a 2-week period
For failures to maintain the average minimum cash balance over any 2-week period specified by the Authority starting on or after 26 December 2024, the penalty formula uses:
- C: the deficiency in the amount of cash balance necessary to maintain the average minimum cash balance.
- r: 3 percentage points above the highest SORA for a day during the 2-week period.
Practical meaning: daily failures are penalised using the SORA relevant to the day of failure, while average-period failures are penalised using the highest SORA during the relevant 2-week window. This can increase penalties where market rates spike during the measurement period.
5. Revocation (Section 5)
Section 5 revokes the Banking (Financial Penalties under sections 38 and 39) Order 2007. From commencement, the 2024 Order becomes the operative instrument for prescribing penalty formulas under sections 38 and 39 of the Banking Act 1970.
How Is This Legislation Structured?
The Order is concise and structured as a five-section instrument:
- Section 1 sets out the citation and commencement date.
- Section 2 provides definitions for all variables used in penalty calculations, including market-rate benchmarks and the measurement concepts for cash balances.
- Section 3 prescribes the formula for penalties for liquid assets requirement breaches under section 38.
- Section 4 prescribes the formula for penalties for daily and average minimum cash balance breaches under section 39.
- Section 5 revokes the 2007 Order.
Notably, the Order does not itself impose the underlying liquidity or cash requirements; those are imposed under the Banking Act 1970 and related Authority notices. Instead, it focuses on the quantification of penalties once a breach occurs.
Who Does This Legislation Apply To?
The Order applies to banks subject to the Banking Act 1970 and to the Authority’s requirements under sections 38(1) and 39(1). In practice, this means banks that are required to maintain specified levels of liquid assets and minimum cash balances as determined by the Authority.
Because the penalty formulas are triggered by specific types of non-compliance (liquid assets requirement breaches; daily minimum cash balance breaches; and average minimum cash balance breaches over a specified 2-week period), the Order’s practical impact is felt by banks’ treasury, liquidity risk management, and compliance functions. It also affects how banks document compliance and how they respond to shortfalls on business days versus non-business days.
Why Is This Legislation Important?
This Order is significant because it translates regulatory liquidity requirements into a clear financial consequence. For practitioners, the key value of the instrument lies in its predictability and auditability: it prescribes the variables and benchmarks that determine penalty amounts, including the use of SORA and defined deficiency measures.
From an enforcement and compliance perspective, the Order’s design encourages robust liquidity management. The inclusion of a 90-day compliance history multiplier (P) for liquid assets breaches means that repeated failures lead to higher penalties. Similarly, the timing factor (m) rewards prompt cure—reducing the penalty where the bank rectifies the shortfall within specified deadlines.
For cash balance breaches, the Order’s use of “3 percentage points above SORA” (and, for average-period breaches, above the highest SORA during the measurement window) links penalties to prevailing market conditions. This can materially affect penalty quantum during periods of volatility, making it essential for banks to model liquidity buffers with reference to expected SORA movements.
Related Legislation
- Banking Act 1970 (especially sections 38 and 39, including subsections 38(7) and 39(7))
- Banking (Financial Penalties under sections 38 and 39) Order 2007 (G.N. No. S 241/2007) — revoked by Section 5 of the 2024 Order
Source Documents
This article provides an overview of the Banking (Financial Penalties under Sections 38 and 39) Order 2024 for legal research and educational purposes. It does not constitute legal advice. Readers should consult the official text for authoritative provisions.