Amidst a worldwide pandemic that most of the global population had never experienced before, we are living through a period of significant change. We have had to adapt to a life of remote interaction, transacting with parties from the comfort of our own homes, and trusting our payments and information to the vast and limitless world of the internet.
All this is only possible due to the wave of innovation in the Fintech space, and Singapore, as the central financial and business hub of the region, has seen its fair share of Fintech innovation and activity. This is in part due to the presence of dependable digital and physical infrastructure, its strong financial industry, and government initiatives and regulations which provide stability while encouraging growth and innovation.
In this article, we will be exploring some of the initiatives introduced by the Singapore government to develop and boost the Fintech scene in Singapore, together with laws which apply, and were introduced, to create a reliable and dependable industry environment for both operators and consumers.
The Singapore government, through the Monetary Authority of Singapore (MAS), Enterprise Singapore and various other bodies, has been highly supportive of the sector, having organised various events and initiatives, and introduced incentive schemes and grants to encourage and attract innovators and entrepreneurs in the space.
Singapore Fintech Festival
The Singapore Fintech Festival is an annual flagship event organised by MAS for the fintech community, which aims to foster an open dialogue between the public and private sectors to advance Fintech in the digital economy. The Singapore Fintech Festival 2021 attracted more than 60,000 attendees, drawing over 2 million views on local and international television networks and social media. (1)
In addition, Enterprise Singapore and MAS also jointly organised Deal Friday, which comprises a series of year-long events between investors and start-ups that lead up to the Singapore Fintech Festival. The participants who are shortlisted will be provided with assistance such as pitching workshops and access to financiers.
Fintech Regulatory Sandbox
MAS first launched the Fintech Regulatory Sandbox in November 2016 to encourage and enable experimentation of technology innovation to deliver financial products and services, by relaxing specific legal and regulatory requirements to allow applicants to experiment on innovative products within a controlled environment for a limited period of time. Upon successful experimentation and exit of the sandbox, the applicant will then resume full compliance with the relevant legal and regulatory requirements.
In August 2019, MAS introduced the Sandbox Express to enable insurance brokers and market operators a faster option to bring innovative financial services and products to the market for testing in pre-defined environments, which was then followed by the Sandbox Plus in November 2021, comprising three enhancements to its existing Fintech Regulatory Sandbox framework. These enhancements were:
- expansion of eligibility criteria to include early adopters of technology innovation;
- streamlined application with financial grant for first movers of technology innovation(2); and
- participation in Deal Fridays,
which aimed to provide a more effective one-stop assistance for firms looking to introduce innovative financial services or products.
API Exchange (APIX)
APIX is a not-for-profit initiative of the ASEAN Financial Innovation Network (AFIN), that was jointly formed by MAS, the World Bank Group's International Financial Corporation and the ASEAN Bankers Association which was launched in November 2018 to help market players connect with one another, design experiments collaboratively and deploy new digital solutions.
On APIX, financial institutions are able to discover Fintech solution providers and products from a global marketplace, while Fintech firms have the opportunity and access to engage financial institutions across multiple jurisdictions, get discovered, build their profile to facilitate commercial discussions and pitching to investors and access to ecosystem support including grants, hackathons, investors and other services.
Grants for Innovation
MAS has also partnered up with various organisations such as Startup SG, Singapore Fintech Association, AMTD Foundation, Enterprise Singapore, GoBusiness Singapore to provide financial institutions, start-ups, or Fintech firms with grants for innovation, help defray the costs to hire talent, and adopt digital solutions or AI/data analytics technology, amongst others.
The MAS Financial Sector Technology and Innovation (FSTI) POC scheme provides funding support for experimentation, development and dissemination of nascent innovative technologies in the financial services sector. The grant covers up to 70% of the qualifying costs and up to a cap of S$400,000 and is eligible for MAS-regulated financial institutions or technology/solution providers working with MAS-regulated institutions for the early-stage development of novel solutions to problems in the financial industry.
On 8 April 2020, MAS announced a S$125 million support package for the financial and Fintech sectors to deal with the immediate challenges from COVID-19 and position strongly for the recovery and future growth. This support package comprises:
- Training Allowance Grant to provide training allowances (S$10-15 per hour) for completing training in courses accredited by the Institute of Banking and Finance (IBF);
- 90% course fee subsidies for Singapore citizens or permanent residents attending IBF courses;
- Wage support for financial institutions to hire Singapore citizen fresh graduates or workers from other sectors and place them in talent development programmes under the Finance Associate Management Scheme;
- Digital Acceleration Grant to support digitalisation in smaller financial institutions and Fintech firms;
- Six months' free access to APIX available to all Singapore-based Fintech firms; and
- Free digital self-assessment framework to help Fintech firms provide a first-level assurance about the quality of their solutions.
In addition, MAS on 13 July 2020 also launched a S$6 million MAS-SFA-AMTD Fintech Solidarity Grant to support Singapore-based Fintech firms amid the challenging business climate caused by COVID-19 pandemic, comprising:
- Business Sustenance Grant which provides (i) wage support of up to S$2,000 a month per local staff and S$1,000 per month per local intern for up to 6 months; and (ii) rent support of up to S$4,000 for up to 6 months of office scape, with an overall cap of S$20,000; and
- Business Growth Grant which supports 70% of the qualifying costs related to the POC on APIX, with an overall cap of S$80,000 (up to S$40,000 for first application and up to S$10,000 each for the subsequent applications), and 100% internship funding (where the interns are involved in the development and implementation of the POCs) capped at S$1,000 per intern.
Fintech laws & regulations
While the developments in the Fintech industry are encouraging and exciting, it is a vast and limitless space that contains as much risk as there is promise. In the present market, the Fintech industry offers digital tokens/cryptocurrencies, cryptocurrency exchanges, cashless and contactless payment service or fund transfer solutions, digital banking services, artificial intelligence solutions, and more, many of which are made available to the general public. It is therefore crucial to ensure these services or products are subject to appropriate regulatory regimes and/or supervision by the local authories.
The provision of Fintech services and products is predominantly regulated by MAS along with other regulatory authorities. Nevertheless, there is currently no one single legislation regulating Fintech space. Depending on the nature and scope of Fintech services or products offered, the following legislations may be relevant:
- Securities and Futures Act 2001 (SFA)
- Financial Advisers Act 2001
- Banking Act 1970
- Insurance Act 1966
- Payment Services Act 2019 (PSA)
- Moneylenders Act 2008
- Companies Act 1967
- Currency Act 1967
- Commodity Trading Act 1992
Before venturing into Fintech space, the following matters should be considered having regard to the Fintech services or products offered:
- Regulatory and compliance matters – including any prospectus registration requirements for offering capital market products; the type of license, registration and/or exemption required from certain authorities, as well as on-going compliance matters that may be applicable to such service or product.
- Intellectual property – including registration and protection of intellectual property rights.
- Data protection – including implementing systems that handle personal data in compliance with the Personal Data Protection Act 2012.
- Financings – including planning for venture capital investments and/or various series of fundraising exercises for future growth.
Under the SFA, ‘dealing in capital markets products' is a regulated activity which, generally speaking, requires a CMS license. A cryptocurrency may, depending on its features, fall within the definition of a capital markets product, and if cryptocurrencies offered on a cryptocurrency exchange are so characterised, then the cryptocurrency exchange will be regulated as an approved exchange or recognised market operator under the SFA, and subject to MAS licensing requirements. The cryptocurrency exchange may also require a capital markets services licence for dealing in capital markets products under the SFA and should comply with prospectus registration requirements for offering of securities.
If, however, the cryptocurrencies offered are characterised as digital payment tokens (including the buying and selling or facilitating exchanges of cryptocurrencies as a means of payment for the provision of goods and services), then the service provider will be regulated as a standard or major payment institution providing digital payment token (DPT) services under the PSA, depending on the value of payment transactions processed by the cryptocurrency exchange.
One of the notable Fintech disruptions is the introduction of mobile/cashless or contactless payment service and fund transfer, a service which is subject to the regulatory requirements under the PSA.
There are 7 types of regulated payment services under PSA:
Regulated Payment Service
|(i) account issuance||e-wallets (including certain multi-purpose stored value cards) or non-bank issued credit card|
|(ii) domestic money transfer||payment gateway services, payment kiosk services or other local funds transfer, in any case neither payer nor payee is a financial institution|
|(iii) cross-border money transfer||remittance agent|
|(iv) merchant acquisition||process payment transactions for merchants including point-of-sale terminal or online payment gateways|
|(v) electronic money issuance||issuing e-money for consumers to pay merchants or others|
|(vi) digital payment token||cryptocurrency which is not a capital markets product, or platform that allow exchange of DPTs|
For regulated payment services (other than money changing services), the service provider is required to hold either:
- a major payment institution license for providing payment services which exceed certain prescribed thresholds (including, where the monthly average of all payment transactions exceeds S$3 million for one payment service, or S$6 million for two or more payment services); or
- a standard payment institution license to provide one or more payment services which do not fall under the prescribed thresholds mentioned above.
The licensing requirements, including the type of legal entity, minimum directorship, minimum base capital requirements, annual licensing fees and security deposit, vary depending on the type of license and payment services applied for.
Once the Fintech player obtains a license under the PSA, it is subject to ongoing compliance obligations, including complying with audit, cyber hygiene and Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) requirements.
There are however carve-outs from licensing under the PSA for services that do not warrant regulation – for examples, payment transactions performed by authorised commercial agent in respect of the sale or purchase of goods or services on behalf of payer or payee.
On top of the above licensing requirements, if the services or products offered cross the line of undertaking banking business, for instances taking deposit or receiving money on current or deposit accounts, such services are subject to licensing and regulatory regimes under the Banking Act 1970. Likewise, if the Fintech player carries on the business of lending money, it would also require a license under the Moneylenders Act 2008.
As one of the priorities for MAS, Fintech industry players are subject to the relevant AML/CFT laws and requirements in carrying out their businesses. Generally, they would have to adhere to the notices and guidelines issued by MAS relating to money laundering and terrorism financing risks, and implementing procedures and controls for the effective management of these risks.
Furthermore, among all regulated payment services, MAS considers DPT transactions to carry higher money laundering and terrorism financing risks owing to the anonymity, speed and cross-border nature of the transactions. DPT service providers are required to put in place robust controls to detect and deter the flow of illicit funds and adhere to Notice PSN02 on Prevention of Money Laundering and Countering the Financing of Terrorism – Digital Payment Token Service and its Guidelines.
On the whole, MAS takes a neutral approach in administering and enforcing legislation with respect to Fintech, while managing risks appropriately. As long as any Fintech service or product falls within the scope of existing regulated activities, be it the SFA, PSA or otherwise, it would need to comply with the applicable legislation and regulatory regimes.
Overall, the Fintech scene in Singapore represents an exciting prospect as the government, having recognised its potential, introduced various initiatives to augment the industry, while at the same time putting in place various safeguards to ensure that everyone can participate in a stable and predictable environment. Over the course of the next few months, we will be rolling out a series of articles, each exploring these considerations in more detail in respect the various elements of Fintech, such as cryptocurrency, digital banks, insurance tech, and ESG Fintech.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.