Singapore: Update on FinTech

By Chia Ling Koh, Marcus Chow, Angelique Chan


Banking Industry Releases Industry Guidelines for Outsourced Service Providers

On 26 June 2015, the Association of Banks in Singapore (ABS) released a set of industry standards applicable to firms which provide services to the financial industry. The new ABS guidelines will apply to outsourced service providers that operate in Singapore and undertake material outsourcing arrangements for financial institutions or which involve the financial institution's customer information.

The ABS guidelines set out the baseline standards and controls in order to safeguard a baseline level of governance and controls whether a business function is out-sourced or performed in-house, for outsourced service providers and their sub-contractors employed by financial institutions.

Amongst other things, the ABS guidelines also provide for a standardised set of auditing requirements and an audit report template. By providing added clarity and certainty on compliance requirements for the industry, the ABS guidelines are intended to raise standards among outsourced service providers while reducing outsourced service providers' compliance costs.

ABS intends to work with the relevant outsourced service providers to ensure that outsourced service providers adopt the new guidelines within the next 12 months.

MAS Announces 'FinTech' Initiative

On 29 June 2015, the managing director of the Monetary Authority of Singapore (MAS), Mr Ravi Menon, announced that MAS will work with the industry to implement a fresh regulatory approach, as well as development initiatives, which are conducive to innovation.

As part of the new initiatives by MAS, under the new Financial Sector Technology & Innovation (FSTI) scheme, MAS has earmarked S$225 million to drive and develop new financial technology in Singapore's startup ecosystem over the next five years by funding the establishment of innovation labs, institutional-level projects, and industry-wide initiatives.

Mr Menon also clarified that financial institutions are permitted by MAS to introduce new digital products and services without seeking MAS's approval, as long as financial institutions are satisfied with their due diligence. The financial institutions' board and management must take responsibility to ensure that the risks associated with the new innovative offerings are well identified and managed. However, Mr Menon clarified that "MAS is not seeking a zero-risk regime", noting that "there will no doubt be some failures" along the way as part of the learning process.

As the financial system becomes increasingly complex and inter-connected, Mr Menon said that MAS envisions an "interactive, technology-enabled regulatory reporting framework which will reduce ongoing reporting costs through the use of common data standards and automation". MAS plans to work with the industry on how best to develop this reporting framework.

Given MAS' progressive and forward-looking regulatory philosophy towards FinTech, financial institutions will likely have greater opportunities to implement more innovative product and service offerings. Financial institutions' outsourced service providers may also find it opportune to seek funding for the research and development of new FinTech.

In this regard, MAS has set up a FinTech and Innovation Group with effect from 1 August 2015.  Within the Group, the Technology Innovation Lab will look out for cutting-edge technologies to test-bed innovative solutions with players within the financial industry.

MAS Publishes Consultation Paper on Proposed Enhancements to Resolution Regime for Financial Institutions in Singapore

The global financial crisis emphasized the importance of regulatory authorities having effective frameworks in place to manage the resolution of cross-border financial institutions. On 23 June 2015, MAS issued a consultation paper setting out various proposals to strengthen the existing resolution regime for financial institutions in Singapore. This consultation paper takes into account global developments, including the Key Attributes of Effective Resolution Regimes for Financial Institutions adopted by the Financial Stability Board.

MAS's main proposals in the consultation paper are set out in brief below:

  • Recovery and resolution plans: Financial institutions that have been notified by MAS must formulate Recovery and Resolution Plans (RRPs) and address any deficiencies in RRPs. In addition, a failure by the board and executive officers of the financial institution to maintain, update and improve a financial institution's RRP may constitute a criminal offence.
  • Termination rights in financial and non-financial contracts: For financial contracts entered into with a financial institution over which MAS may exercise its resolution powers, MAS will have statutory powers to temporarily stay early termination rights of counterparties in the event of resolution. For non-financial contracts, MAS will have the power to suspend the termination rights, or to require these contracts to continue to be performed on the same terms and conditions that were in place prior to the resolution.
  • Temporary suspensions and stays on insurance contracts: MAS will have statutory powers to suspend policy owner's rights to withdraw their insurance contracts, and stay the rights of reinsurers to terminate or not reinstate coverage after commencement of resolution.
  • Statutory bail-in regime: MAS may carry out bail-in of liabilities, in particular to Singapore-incorporated banks and bank holding companies for unsecured subordinated debt and unsecured subordinated loans.
  • Creditor safeguards & resolution funding: A framework will be established to compensate creditors who are worse off in resolution as compared to liquidation. Resolution funding arrangements may be used to support any costs incurred in implementing resolution measures, and may also be used to address creditor compensation claims.