Singapore regulator aims to support 'fintech experiments' through regulatory sandbox

Out-Law News | 07 Jun 2016 | 3:17 pm | 2 min. read

Financial services firms, technology companies and other "non-financial players" in Singapore will have the chance to test new financial technology products and services in an environment where some regulatory requirements are relaxed under new plans announced by the country's financial regulator.

The Monetary Authority of Singapore (MAS) said the 'regulatory sandbox' will enable businesses to "experiment with financial technology (fintech) solutions".

Many businesses operating in Singapore will be eager to participate in the sandbox initiative, said technology law expert Bryan Tan of Pinsent Masons MPillay, the Singapore joint venture partner of Pinsent Masons, the law firm behind Out-Law.com.

"The Singapore government has a strong record in supporting innovation by businesses and this is also reflected in the work of MAS in the area of fintech," Tan said. "Singapore is one of the world's main financial hubs and there is a recognition that to maintain and grow that position the country must embrace the fintech revolution. The recent promotion of the use of APIs in banking in Singapore highlights the importance being put on supporting fintech developments."

"There are already a number of innovative firms operating in Singapore and it is likely that crowdfunding and crowdsourcing start-ups will be among the first to seek to take advantage of the regulatory sandbox testing environment. Crowdfunding and crowdsourcing is the most lucrative area of fintech in Singapore but it remains among the most challenging from a regulatory perspective. It is likely that firms developing new payment technologies or robo-advice tools will also be eager to participate in the testing," he said.

"The announcement by MAS of plans for a regulatory sandbox comes hot on the heels of the recently announced tie-up between Singapore and the UK on fintech," Tan said. "The UK's Financial Conduct Authority (FCA) has already opened its own regulatory sandbox to applications from firms keen to test innovative products, services, business models and mechanisms of delivery under a light-touch regulatory framework. The MAS consultation on its proposed sandbox initiative closes on the same date as the deadline for applications for the first wave of participants in the FCA's sandbox."

According to the MAS proposals, which are open to consultation until 8 July, companies will have to apply to participate in regulatory sandbox testing. Applications will be considered against specific criteria, such as the innovativeness of the fintech product or service that has been developed, whether the company behind the solution intends to launch it widely in Singapore, and whether the innovation would deliver benefits to consumers and/or businesses.

"Against the backdrop of a fast evolving financial technology landscape where fintech solutions are becoming more common and sophisticated, a responsive and forward-looking regulatory approach will further enhance the ability of promising fintech innovations to develop and flourish," MAS said. "MAS believes that a regulatory sandbox approach can be used to carve out a safe and conducive space to experiment with fintech solutions, and where the consequences of failure can be contained."

"The sandbox cannot remove all risks, as failure is an inherent characteristic of innovation. In this regard, the sandbox aims to provide an environment where if an experiment fails, its impact on consumers and on financial stability will be limited," it said.

In its consultation paper MAS gave examples of the regulatory requirements sandbox firms would have to maintain compliance with and the other obligations that it could relax. It said requirements to keep customer data confidential and combat money laundering are among the measures that would be maintained. Requirements on credit rating, financial soundness, liquidity and management experience are among those that MAS could drop, it said.