Singapore vows to create pro-fintech regulatory framework while curbing money laundering, cyber-risks

Singapore at night

14 November 2017. By Tsering Namgyal.

As Singapore hosts the world’s biggest fintech festival* for the second year running, it has vowed to create sensitive and nuanced regulations that will spur disruptive ideas while also protecting the rights of existing businesses and consumers.

“We must get conducive fintech regulations while ensuring that the system remains stable, key players are sound, and consumers’ interests are safeguarded,” said Ravi Menon, managing director of the Monetary Authority of Singapore, in a keynote speech at the festival.

As Singapore moves to carve out a niche as a home for fintech, regulators there plan to continue calibrating the regulatory framework in response to the shake-up wrought on the banking sector by technology start-ups, Menon said.

“If fintech is unbundling financial services, regulators need to think hard how to handle the unbundling of regulations,” the central banker said.

He said such a regulatory balancing act was evident in the handling of digital currencies, for instance. Singapore does not regulate digital or virtual currencies, but it regulates intermediaries handling those currencies to curb potential money-laundering and terrorist-financing risks.

Despite the promise of virtual currencies for lowering remittance costs, the anonymous nature of transactions makes them prone to fraudulent activities such as money laundering, for which they require monitoring.

Digital tokens and initial coin offerings, through which blockchain-based firms raise capital, can also bring risks to consumers who end up owning those tokens.

If digital tokens “look very much like shares or bonds,” the MAS will regulate them just as it would any other securities under Singapore’s Securities and Futures Act, Menon said.

He said one way of regulating new fintech products and practices would be to regulate “activities rather than entities” and to take a risk-based approach to regulation that would impose rules proportionate to risks, including regulations that would kick in whenever activities crossed certain risk thresholds.

However, Menon said that if Singapore wanted to remain a global financial center, it had to learn to live with risk. The key would be to create an environment sufficiently resilient to accommodate failures without collapsing.

Singapore’s recipe for success as a fintech hub includes three key ingredients: an environment in which a diverse group of players are competing and collaborating at the same time, an open architecture, and a well-developed international network.

The city has so far signed 16 fintech collaboration agreements with regulators elsewhere, Menon said. Those agreements allow regulators to share information and trends with one another, and even include an inter-jurisdiction referral system for start-ups.

Singapore and Thailand, for instance, have moved a step further by integrating mobile remittance platforms cross-border, allowing Singaporeans and Thais to remit money to each other instantly using their mobile phones.

Singapore is also working with the Association of Southeast Asian Nations, with the key goal of promoting inclusive finance with a joint sandbox for the entire bloc.

Menon said the work of creating a state-backed digital currency was ongoing, with trials at the domestic level having been completed, including the wiring of money between banks without central bank involvement.

He said, however, that setting up a cross-border digital currency backed by states was not easy, adding he would invite “other regulators to take a crack at this problem.” Singapore has already signed an agreement with the Bank of Canada on future collaboration in that area, Menon said.

Overall, operating in an environment of slower growth and tighter regulation, most banks are keen on harnessing the power of technology to create profit opportunities, lower costs and manage risks, which is helping fintech to go mainstream.

In regulatory compliance, fintech help reduces “cut and paste” work that goes on both at banks and regulators, Menon said, adding: “We have our own inefficiencies, [including] collecting information more than once.”

Data analytics and artificial intelligence are areas in which the MAS is working with the Massachusetts Institute of Technology on applications by banks in their daily work. Singapore’s government will be announcing a S$27 million ($19.8 million) grant for the integration of AI by financial institutions in the city-state.  

Meanwhile, the potential of blockchain in trade finance is being showcased in a recent deal inked between the Hong Kong Monetary Authority and the MAS to create a centralized platform. It is expected to go live sometime in 2018, Menon said.

The week-long Singapore Fintech Festival, now in its second year, is expected to attract nearly 20,000 participants from more than 100 countries, nearly double the number of attendees it drew last year.

The event is organized by the MAS in partnership with the Association of Banks in Singapore.

*Singapore Fintech Festival, Nov. 13-17, 2017