Singapore moves closer to having new digital banks

Out-Law News | 02 Sep 2019 | 8:30 am | 1 min. read

Technology companies or retailers seeking to become digital banks in Singapore will need to demonstrate they have a sustainable business model to obtain a licence to operate, the city state's central bank has confirmed.

The business model test is one of a number of criteria that the Monetary Authority of Singapore (MAS) has outlined must be fulfilled by new digital bank licence applicants. The announcement of the criteria came as MAS invited "non-bank players" to begin submitting their applications for a digital bank licence.

To be eligible to apply for a digital bank licence, banks must meet other criteria concerning their business track record, fit and proper shareholders, directors and management, capital commitment and clear value proposition, and they must also be "anchored in Singapore, controlled by Singaporeans and headquartered in Singapore", MAS said.

If all those criteria are met, MAS will then conduct a deeper assessment of each applicants' value proposition, including how they use technology to meet customer needs and reach under-served parts of the market, and their "ability to manage a prudent and sustainable digital banking business". That assessment will involve looking into the level of would-be licensees' understanding of "key risks in a banking business" and how they plan to manage those risks, as well as the strength of their regulatory compliance programmes.

Applicants will be further assessed on their growth prospects and other contributions to Singapore as a financial centre, MAS said. The regulator confirmed that, as part of its checks, it will evaluate what jobs the applicants will bring to Singapore, their commitment to developing local skills and their technological capabilities.

Businesses have until 31 December 2019 to submit their case to operate as a digital bank in Singapore. MAS said it expects to announce the successful applicants in mid-2020, and that those businesses are then likely to be operational as digital banks by mid-2021.

"Each announcement generates a lot of buzz on the ground as there has been a lot of interest and discussions between interested parties in obtaining one of these digital bank licenses," said technology law expert Bryan Tan of Pinsent Masons MPillay, the Singapore joint law venture between MPillay and Pinsent Masons, said.

It was confirmed earlier this year that MAS would issue up to two digital full bank licences and three digital wholesale bank licences to businesses that do not currently operate as banks in the country. Traditional banks already have scope to operate as digital banks under Singapore's regulatory framework.

"Digital full banks will be allowed to take deposits from and provide a wide range of financial services to retail and non-retail customer segments, while digital wholesale banks will be permitted to serve SMEs and other non-retail segments," MAS said, explaining the difference between the two different licences provided for.