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Payments & FinTech Lawyer

Singapore to relax rules to allow banks to conduct complementary non-financial businesses

Singapore’s Minister for Finance Heng Swee Keat announced in a speech on 27 June 2017 at the 44th Annual Dinner of the Association of Banks in Singapore that “banks are facing increasing competition from online and non-financial players that have leveraged their large user base to provide digital wallets, payments and remittance services” and as such to enable banks to remain competitive and to embed banking services into the everyday activities of the consumer, the Monetary Authority of Singapore (‘MAS’) will streamline the regulatory requirements for banks seeking to conduct or invest in non-financial businesses that are complementary to their core financial businesses and allow banks to operate digital platforms that match buyers and sellers of consumer good or services, as well as to conduct the online sale of such goods or services themselves.

Banks in Singapore are currently prohibited from selling consumer goods and banks seeking to conduct or invest in non-financial businesses must comply with specific conditions and obtain approval from the relevant supervisory authority. Going forward MAS will not require banks to seek prior regulatory approval before conducting or acquiring major equity stakes in permissible non-financial businesses. MAS will also remove requirements such as the need to conduct regular stress tests or external audits.

“These changes arise out of a long standing prohibition on banks entering into non-core businesses since 2000 when banks were required to separate their core businesses from the non-core businesses in order to limit contagion risk from affecting the banks. This limited relaxation of that prohibition allows banks to enter into complementary non-core businesses that reflects a trend not only seen of banks in other jurisdictions but also of non-banks entering into banking services (such as those of WePay and AliPay),” explains Bryan Tan, Partner at Pinsent Masons MPillay LLP. “Banks in Singapore are in pretty good positions as some of them have multi-jurisdictional reach (UOB has affiliates in Thailand and Indonesia, OCBC in Hong Kong and Myanmar and DBS in Hong Kong and India) and can seek to use technology to further expand into these and other markets.”

Regarding the complementary services that will be deemed permissible for banks to enter into, Tan comments that it will be interesting to see how this is structured. “A white list of permitted areas would be tricky given the fact that disruptors sometimes create their own industries, a blacklist would be similarly tricky or there is perhaps the sandbox approach that is not unfamiliar to FinTechs,” adds Tan. MAS is due to provide the operational details of these policy changes in a consultation paper to be released by the end of September 2017.

Heng Swee Keat’s announcement coincided with the official launch of PayNow, which he described as the most significant development in Singapore’s e-payments journey. PayNow makes use of Singapore’s real-time 24x7 Fast and Secure Transfers (‘FAST’) payment system to allow users to transfer funds using just the recipient’s mobile or NRIC numbers. The Government is said to be looking into using PayNow to make payments directly to citizens’ bank accounts.

“The announcement is further evidence of MAS’s commitment to developing regulation to allow FinTech to thrive in Singapore. The proposed regulatory changes offer opportunities for both the incumbent banks and startup FinTechs, as we believe it is likely that the incumbents will increase their investment in startups as a result. Providing banks with greater flexibility to invest in new technology will help Singapore to stay ahead in financial services innovation,” concludes Niranjan Arasaratnam, Partner at Linklaters Singapore.

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