Regulators can now require a foreign bank branch to locally incorporate all or part of its banking business if it is deemed to be systemically important.
In retail banking, in particular, a bank with significant retail presence will be required to subsidiarise its retail operations.
A significant retail presence is defined as having more than 3 per cent of deposits held by Singapore residents, and more than 150,000 deposit accounts with balances below $250,000.
The new rule is set out in a Banking (Amendment) Bill that was passed in Parliament yesterday.
The Bill will also empower the Monetary Authority of Singapore (MAS) to impose prudential requirements that cap banks' debt levels and ensure that they maintain sufficient liquidity.
In order to strengthen corporate governance of banks here, the MAS will now have the power to direct a bank to remove key appointment holders, including its chief executive officer and deputy chief executive officer, if they are found to be not fit and proper.
"The grounds of removal will be aligned with the criteria for approving their appointments," said National Development Minister Lawrence Wong.
Mr Wong, who also sits on the MAS board, tabled the Bill for a second reading in Parliament yesterday.
The Bill, however, will repeal a provision that made bank directors liable for any bank losses arising from credit facilities or exposures to the directors and their related parties.
This provision discouraged candidates from taking up bank directorships and was not an effective oversight tool, Mr Wong said.
To reinforce banks' risk management controls, the Bill formalises MAS' expectation that banks establish risk management systems and controls that are commensurate with their business profiles and operations. That is, MAS will now be able to impose penalties on banks that fail to do so.
The Bill will also require banks to seek MAS' approval to establish new places of businesses where certain non-banking activities, such as money-changing and remittance business, are conducted.
"This will allow MAS to exercise better oversight of banks' activities at such locations ," Mr Wong said.
"For example, MAS will be able to require a bank to institute adequate safeguards against money laundering and terrorism financing before it can commence money-changing and remittance businesses at new locations," he added.
The Bill also introduces a requirement for banks to immediately inform MAS of adverse developments that may materially affect them, so that MAS can take supervisory action in a timely manner.
MAS will also have the power to inspect the local and overseas subsidiaries of a bank incorporated in Singapore.
And the Bill will allow the parent supervisory authority of a foreign bank or merchant bank to inspect all financial activities of the bank or merchant bank in Singapore, upon MAS' approval.
Non- Constituency MP Leon Perera urged the regulator to ensure that it maintained a balance between placing sufficient safeguards to protect the financial system and maintaining the competitiveness of Singapore's finance sector. Increased regulatory requirements meant higher compliance costs for banks, he said.
Mr Wong said the addition of 3,600 new jobs in the finance sector in the first nine months of last year showed that the industry remained competitive.
Even while global banks are making significant cost and job cuts, the impact in Singapore has been contained, he added.
This article was first published on March 1, 2016.
Get a copy of The Straits Times or go to straitstimes.com for more stories.