The large number of innovation labs, startups, traditional finance firms, and supportive regulators creates a truly diverse ecosystem for fintech in Singapore.
However, the regulations for starting your own online financial platform can be complex.
We joined Kim Kit Ow, from Bird & Bird ATMD, a leading legal experts to present this webinar aiming to explain the current laws and regulatory regime applicable to fintech players in Singapore.
By reading, you'll learn:
- Current Laws and Regulatory Regime applicable to Fintech players
- What license you need if you are dealing in securities
- Consolidation of regulations relating to payment systems
- Regulating e-wallets and intermediaries of virtual currencies
You can read the full transcript here:
Katipult: Welcome, thank you for joining us for this webinar about financial technology rules and regulations in Singapore. It is a pleasure to have you here. Maybe you can start out by giving us a short introduction about your background and what you do. After that we will jump in and talk about the presentation that you have created here.
Kim: Thank you for inviting me. I am a partner at the Bird & Bird ATMD Singapore office and my practice area is banking and finance. I also happen to do a bit of financial regulatory work and have worked with the regulators in Singapore, specifically the military of Singapore for five years. Currently I do financial regulatory work, I do credit and security work, some derivatives as well.
I am very happy to be able to share my observations and thoughts today, to see that there are people who are actually interested in a session like this, especially for a small, tiny country like Singapore. But, Singapore has in recent times been very much at the forefront of the fintech race.
I just want to make it clear that this session should not be about cryptocurrency or ICOs, but should focus more on using fintech for investments, as well as to clarify some of the regulatory framework around it.
Katipult: I think it was May last year that there was a conference in Copenhagen called Money 2020. I had the pleasure of listening to a session between one of the higher-ups from the MAS and from FCA in the UK and also a representative from a US regulatory entity. They were speaking about how this has evolved from the FCA to the MAS. It was really interesting and the MAS was actually put on the same level as it’s international counterparts, so they are doing a lot of good work for this industry here. That’s why I think this is a very interesting topic we are bringing up here.
Kim: Great, happy to hear that. So, would you like me to start?
Katipult: Yes, if you could start, that would be perfect.
Kim: What we intend to cover in this session you mentioned are the current trends, some observations in the fintech industry here in Singapore. To see what is in store, things to come, what is the current situation, what will become the situation in a few months or maybe next year and what will some of the implications be. Also, maybe try to correct some of the misconceptions that some people may have.
First, let’s cover some initiatives by the Monetary Authority of Singapore. I think it is not entirely fair to say that these initiatives are only the work of the MAS, because, as the de facto central bank of Singapore, the MAS certainly has a regulatory heart. But in terms of innovation, in terms of the entire sector coming together to innovate, I think that there are many other agencies spearheading initiatives and here you will see some of the various ones that have been listed. I want to mention the project UBIN, which is basically an exploratory initiative by the MAS.
Personally, my experience is with some very cutting edge technology, use of blockchain technology in other areas, not in cryptocurrency or ICOs at all. I have worked on an initiative that was basically a trade finance initiative regarding the use of the distributed ledger technology. For the purpose of this we put together a platform for clearing and settlement of payments and securities.
Beyond that we have created a FinTech Innovation Group, tasked with developing strategies to facilitate the use of technology as well as a FinTech regulatory sandbox, designed to encourage innovation via the relaxation of certain laws for a specified duration of time. Of course, some people misunderstand that sandbox means that you can continue to play forever but that’s not true because typically when you have an approval on the sandbox, you have to be licensed or approved by a certain timeframe.
Of course we have flocks of people coming to Singapore for our FinTech Festival, I think there will be a lot of people coming this year to take part in the festival, last two years have been fairly successful. It’s a whole buzz of activity, as you have probably gathered by now.
Katipult: Yes, Katipult will be part of that, I think, part of the Canadian booth there.
Kim: Perfect, it’s always good to have more people come here. Recently a lot people from North America, quite a bit of Europeans as well. I am very surprised myself how it caught on so quickly. I feel a lot of credit goes to my government for spearheading a lot of these initiatives, providing grounds that might not be available to some deserving industry players.
Also I think there are a lot of people who came to Singapore wanting to start startups or develop existing systems in order to become more relevant in this new fintech world. I’m sure that there are other jurisdictions in the world that also have great plans, initiatives and incentives which encourage growth in their space, but I think you will see that both the MAS and the Singapore government have been working very hard to develop the fintech space, not just from regulatory perspective but also from developmental perspective.
But it is always a very awkward situation when the regulator or the government tries to match the developmental agenda together with the regulatory one. I think we can all appreciate that there will be some difficulties or conundrums that we will run into. I think they have done fairly well in this part because despite being very active in the developmental space we have also figured out how to try and regulate, to ensure that the concept of growth does not get out of hand.
Currently there is no single piece of consolidated, international regulatory framework fintech organizations can rely on. It may actually be disadvantageous for the global fintech because if you are always using piecemeal regulations to deal with innovation or new things that would sprout from fintech space, then clearly that is not going to be good for growth. It is my opinion that it would be beneficial if you were to have a consolidated or some kind of cohesive regulation to ensure that fintech will be here to stay rather then having to keep referring to piecemeal guidelines and regulation depending on the jurisdiction you’re in. Of course, I invite comments and questions on that.
The benefits of fintech, obviously, as I mentioned, Singapore became a little bit of a hub bringing in a lot of interest and business, entities, startups and we have actually reacted to that by welcoming such entities and as well as. Obviously this has turned out to be a good idea and one that the MAS has helped develop.
At this point it is maybe good for me to bring up a little bit of laws and regulations. Let’s not talk about fintech for a moment. Currently, the regime we have in Singapore, the current regulatory infrastructure as such, regulates securities under the Securities and Futures Act and financial advisories services as well as hedge fund management under Financial Advisers Act.
Some of these provisions have evolved with the creation of new technologies that require unique regulation and both of these acts are currently under revision Regulations will be revised and finalized version will be in effect by the end of this year, because early consultations for these changes started way back in 2015. There will be a lot changes of provisions at the FFA and the FFU and this is something that many of the fintech players, especially if you are going to or are dealing with securities, should be aware of.
Obviously there could be a use of fintech platforms to open providing financial advising services. For example, they are all properly licensed and properly approved by the MAS here in Singapore, so if you are looking at dealing with this area of work, you should be concerned about regulations as well as how they are going to impact you after the new regulations come into effect.
In respect to tokens, digital tokens, cryptocurrency and payment systems, you should also be aware that we also have what we call payment systems oversight app, which we commonly call the PSOA.
If your fintech platform deals in specific services such as money changing or remittance business, you also have to be concerned with the money-changing and remittance business act, the MCRBA.
The new proposed payments system act is something that has already been drafted and gone for confirmation. That is something I will cover in next few slides and I think that is something that fintech players need to be specifically aware and be concerned about because not only will this payments system alter existing regulation, it will also include new provisions that will affect current intermediaries in cryptocurrency such as providers of services like digital wallets and other forms of similar services.
More on the concept of intermediaries. If you are an intermediary that is a charity, you already have to be regulated. In time to come, if you are an intermediary of cryptocurrency or other similar token, a digital token, you will also be regulated.
For those who are curious about the upcoming regulatory changes, what they are about and what they could potentially mean and how they can have an impact on business as well as how to adjust to operate in Singapore, I would strongly advise you to go to the MAS website and read up on the consultations and available draft letters. As we mentioned, for intermediaries of digital tokens, they are going to be specific provisions that will impact you, that is something that you need to consider.
Another point, if you are a market operator on an exchange then you will also have to get approved by the MAS. This is also something that might impact some fintech firms. Obviously if you have any doubts about local legislation you might want to contact a lawyer or other professional advisors who might give you a more thorough assessment about your current and future business activities.
As I mentioned earlier, if you are providing financial advisory services, whether it is through a fintech platform or otherwise, you will also need to be concerned about providing such a service that would require you to have a license under the financial advisory act. So, I mentioned the Payment Systems Oversight Act of Singapore (PSOA), apart from SFA and FAA, this is another key piece of legislation that FinTech companies raising funds or dealing with digital tokens are likely to be concerned with. This is due to the fact that certain methods or facilities offered by FinTech companies may potentially be considered a stored value facility. Holders of stored value exceeding S$30 million in stored value need to be approved by the MAS. If you are a regulated entity, you have to have your own set of guidelines, compliance manuals, operations and risk aspects are also integrated into AML and KYC.
Next up is the payment Service Act, or currently called the Payment Services Bill. The proposed bill aims at consolidating the two current legislations under one new act. What it hopes to do, what it will do is to combine the Money-Changing and Remittance Act and the Payments Systems Oversight Act into a unified, robust regulatory framework.
I realize this is probably not something a lot of people want to hear because we are already in a very regulated environment and new technologies are only increasing its scope. However, I do think it’s necessary on the part of Singapore to continue to work on sufficiently regulating the space. This is not uncommon, other jurisdictions such as US and Hong Kong are also stepping up with enhanced legislations and regulations based on developments in this payments industry, as well as digital tokens, cryptocurrency and fundraising throughout ICO space.
After these two acts collapse into the new Payment Services Act, there will be a new licensing regime, under the same Payments Services Act that will deal with payment institutions as well as money changing, also intermediaries that deal in cryptocurrencies as well as digital tokens. We see in this chart that shows the types of regulated activities under the proposed payment services bill. It’s going to become that one stop regulation for all these activities. It would take care not just for repayments, the payment service, but also money changing services and also, as I mentioned, intermediaries in the digital token space.
So, on the right hand column are providers of any of these services. I would strongly encourage you to seek independent legal advice for your current operations and business activities that might be impacted by the new Payment Services Act.
So, what is the expectation? The new PSA will require new payment service providers to provide all these mentioned services to either licensed, or if you are not licensed, if you can avail yourself any of the exemptions, than you would not need to be licensed. As I said, it really depends on the actual business activity that you carry out.
Really, as you might appreciate, it is still in the early stage, especially in the Asian market. In the more developed countries such as the US and even in Singapore, I think they are beginning to start to pigeonhole certain products.
Let’s talk about the concept of digital tokens, cryptocurrency and virtual currency for a minute. People have said that a token can either be classified as a commodity or a security or a utility. To me, it might be too simplistic, but my understanding is that if you have these three clear pots, then if you fall clearly within each pot then you know exactly how to deal with it, right?
If you fall within purely utility, for example you can use this token to buy something or exchange it for a service or a product, if you can argue that it does nothing else but that, then it might be possible to treat it as a utility. But then, it is never so simple, because if that particular token can appreciate in that value, the question then becomes: would you not then think that this might be possible for it to become a security?
We took a lot of guidance. I believe the US SEC has actually come up to speak about this a little bit more in recent times. In Singapore at the moment we are still falling back on the current legislation. Until PSA comes into effect we are still looking at these financial currencies in this same manner that I would probably see at the moment. So, you are either a security, utility or a commodity. I don’t think we have a lot of clarity on the this because I don’t think the current regulators have come up with saying that you can classify this as easily as I’ve just said, right? It’s not so easy.
Personally I wanted to encourage the regulators to say “Look, why not try to be as clear as possible”. As it turns out, I think that the industry is perhaps not ready. Maybe, I am not sure whether the operators here at the moment, I know of some who are very established and very sophisticated, in fact want to be regulated, want to be completely compliant as well as wanting to market themselves as a regulated entity. This is the current state of things.
I am not sure if the new PSA is going to be able to assist with the clarifications because, at the moment, I think that a lot of operators in Singapore gone to various advisors and I think they also came back with different opinions, so that is a challenge.
Katipult: Yes, I think that’s a challenge basically everywhere in the world. I had a webinar a few days ago with some US lawyers that we are working with. That was also they sent as well. They need clear guidance in how they can advise their clients. Hopefully the Proposed Services Bill could be a step forward.
Kim: It is definitely a step forward from the regulatory perspective. The only question I have is, is that going to necessarily address the problems or the issues that I’ve just spoken about, the classification. I don’t know, I am not sure whether that is going to fully address it.
I hope that we will have more clarity, especially in Singapore and also, to be very honest with you, we have heard various industry players who came to Singapore, set up shop in Singapore and have been misguided. They have received wrong information and I think that is something very dangerous because the new regulatory regime, I am not so sure whether the regulators will be as merciful in that sense and may decide to prevent organizations from continuing operations, because they are not suitable or they are not prepared to be regulated. That’s something, as I said, from operational perspective the businesses might be facing that challenge.
Basically the newly proposed Payment Services Bill (PSB), if you can avail yourself of some exclusions, then you don’t need to be licensed. These are quite limited in scope, but then again this is something which at the moment has not been cast in stone. Yes, the draft legislation is there and I encourage you to keep a keen eye on how this develops in the coming months.
I hope that the new PSA will come into effect in the next year. I am hoping that that would be the situation, but as I said, it usually takes a long time for new legislation to come into place, because there will be additional legislations, regulations notices, guidelines, FAQ etc…If you are a provider of such services you need to keep a keen eye.
So, let me come back to businesses that deal with lending, obviously if you are an equity based crowdfunding platform you are already regulated from before. More recently, last year, lending based crowdfunding platforms became similarly licensed under the capital markets regime in Singapore. If you do run a lending based crowdfunding platform you have to have a license in Singapore and it is the capital market of real estate. I think I’ll just cover this quickly and then we can basically move on to talk about some of the implications and effects on the industry.
I take the position that the new PSA is a good step forward, not just with addressing regulatory work but also providing a little bit more certainty. I also mentioned the AML and the fundraising financing activities are something which always at the forefront of every regulator, especially now with compliance initiatives. All that is something which we want to take into account.
So, the fintech companies, what are some of the challenges that you have to deal with? Sorry to burst the bubble, but in the regulatory regime you can call us a fintech company or any entity, but if you fall within the regulations there is no difference. As long as you are regulated, it doesn’t mean that just because you are a fintech company that the regulation will be applied differently, unless of course specific provisions allow you to be treated differently.
For example, the sandbox is a good one, because they were trying to encourage more of these fintech companies, as a testbit for new initiatives that was something that they clearly said that there will be a little bit of a relaxed application of some of the relevant regulation. More recently in the front management space, Singapore is also given a more relaxed approach in terms of the licensing process for the VC.
So, if you are a VC fund manager in Singapore you have basically a slightly more accelerated route to get regulated here and get your license a little bit faster than the normal progression. In this case, if you are a fintech company and you are doing fund management for example, you still have to obtain your licence as any other regulated entity.
It doesn’t matter that you are considering your service as a fintech company in the eyes of the regulators you will still be treated as a fundraiser in that sense, or if you are dealing in securities you will be treated for example, brokers, if you are dealing in securities or intermediaries which deal in securities, you still have to be regulated accordingly. It does not matter if you operate electronically or if you are a fintech company. Those are basic things to be concerned about. Alongside with the licensing regime, the minute you become regulated, if you fall under regulations, the whole agenda of other regulations will also bind you for example.
Again I go back to AML, KYC, the guidelines, the guidance, regulations, all that will similarly bind you if you are licensed. It does not matter if you are a fintech company. So, again like I said, this is something you need to be concerned about so please be careful. Of course, with all the buzz of activity come all the regulations and operational challenges. Of course there will be benefits but I have always said that new regulations increase credibility, as I mentioned, some of the players are clamoring to be licensed.
They tell me “We can’t wait for the regulation to come into effect”, because they know that they have the backing of perhaps the funders and also the government. Regulations give them credibility and accountability. They are hoping to push this out to more investors in that sense.
There is certainly risk associated with this. Definitely it will spur additional investments and fintech innovations in Singapore, which we hope will become a very immediate benefit and certainly we are going to see a boost to this industry sector.
As I mentioned, the final point is that with certainty and with regulations it will also weed out those who are not who are not credible, scams, shams etc. Those who are not particularly mindful of the regulations will have to be weeded out because they are not credible. Of course, this is controversial because many of the people who started out with cryptocurrency were never really hoping to be in a regulated space. This might be a spanner in the works for those people who are thinking that way. But come on guys, seriously. We have so much activity. People will come to accept the fact that it’s not going to be an unregulated world.
My personal view about regulations and the cryptocurrency space… I feel that it is a good thing for accountability and credibility. I’m not saying that you need to go out and regulate it the way we would have traditionally regulate something like the banking industry but I think that starting with certainty, maybe even a slightly more light touch of approach, moving slowly, evolving with the space and then coming up with a very solid set of regulations, rather domestically, or whether any brave international agency would dare to come out and say “Hey, let’s try to bring this all together for the rest of the world”, that would also be something that I hope to see in the future. Hopefully in my life. I am not so sure.
Katipult: We have an audience question. And I want to introduce my colleague in Business Development. He is located in Asia, that’s Kien Diep. Welcome Kien.
Kien (Katipult): Hi Kim, how are you? I just have a question here. For the audience, there are a lot of companies in the audience that are raising capital from private offerings and some of them are online and some of them are not. If they are looking to setup a platform and go through the licencing process in Singapore, can you give any sort of advice or tips on getting through that process?
And more specifically for firms that are looking to act as an intermediary, looking to get a CMS license, do you have anything to say in terms of the easiest ways and best practices of getting through that process?
Kim: Actually that is the first bullet point in this particular slide that you are looking at this moment. Dealing with regulators and licensing regime is something which I think many people are fearful of navigating, especially if you are in jurisdiction you are not familiar with. For certain people there will always be some difficulty in understanding some of our rules. Maybe it is because they come from different background of law, there can be civil law countries, common law countries and obviously Singapore operates in the common law system. We have certain rules, but in terms of filing for licenses and applications for licenses, the truth of the matter is you don’t really need professional hand holding if you are confident enough.
You don’t have to pay a lot of money to professional advisors like myself or others. The regulators typically would prefer to deal with who know the system, what kind of documents go in, the kind of granularity that goes in how to prepare your business plan, do you know what is your economic and your headcount projection, what goes into the strategy, do you have business continuity plan, what are your operational risks, your administrative considerations, who are you going to use as counterparts, who are the people you are going to deal with here in Singapore…, these are the things which people typically forget to put inside the application. Then it becomes extraordinarily difficult for the regulators to even consider the application, which is why a lot of people get rejected and they wonder why.
I’ll give you an example. A strategic business plan that comes with every CMS license application where I’m preparing for my client is typically 20 or 30 pages and I am not talking about double spacing, I am talking just about single line type of situations. They want to know who are the people behind the business, who are the shareholders or the other beneficial owners, who are the people they are going to hire as investment professionals… It has to have a certain level of granularity. The more detail you have, the better.
The MAS really is good in terms wanting to welcome deserving entities to be here, but I think that some level of professional hand holding would be useful, but if you don’t want to and want go at it yourself, I would certainly say that you should be thorough and try to ask around what should go into the application. Otherwise you would just be disappointed.
Kien (Katipult): Thank you very much. I’m just going to ask you one more and I am going to lead on that one. In Asia we work with a lot of types of firms. Not just in Asia, but all around the world, but particularly in Asia, what we see is that the Singapore framework for setting up these platforms has been very defined and they’ve been very advanced in terms of how the rules and the guidelines on getting set up and we are seeing a lot of companies from other parts of Asia go to Singapore to set up their entity to go through the licensing process in Singapore, even if they are from another country.
Do you have any comments on that? I think Singapore is a really great place to start and I thought maybe you can elaborate further on that.
Kim: I shouldn’t blow my own trumpet, right? But I will. I think in terms of the value proposition and why people want to come to Singapore, I know I sound like a broken record but indeed we have a good rule of law and very efficient infrastructure. The financial institutions are always here, our economic, political stability is obviously something that is good, value proposition that many people like.
Also, because of the fact that our central bank, as well as our government are taking a step forward in trying to ensure that there is certainty in the regulation, this removes a lot of uncertainty.
For many of these fintech players are actually startups. It is good to have startups but the difficulty with startups is that you have only one shot. If you have raised that amount of money or you only have that number of investors, and for some of these investors it could very well be your grandparents, your parents or friends, you don’t really want to disappoint them and for many of them they only have one choice.
I think what Singapore has to offer is beyond, I mentioned the value proposition, we are also moving to wanting more certainty, the liberal openness of how we want to accept these new entities…, the ease of doing business is very attractive to them. Compared to other countries or jurisdictions in and around the region here, they could very well be very developed in other aspects but they may be little lacking in some things that I’ve just mentioned. Perhaps that is why they are coming here. That’s just a good guess on my part, but also I think because you have quite a lot of good professional service providers in Singapore who are able to provide timely and good advice to them in terms of how to deal with the business, how to operate here.
Katipult: I just have an audience question. George is asking about Binance. Are you familiar with that it has formed a JV with the Malta Stock Exchange to create the first “regulated and decentralized global stock exchange for listing and trading tokenized securities alongside crypto-assets”. Is this something that is on agenda for the MAS or SGX?
Kim: Honestly, I have no answer to that. I really don’t know what they are thinking at the moment. Partly because the question is in relation to tokens. The regulations, as I have said, have not yet been finalized. I really don’t know what the ultimate decision of the legislators will be.
Katipult: Yes, I would say that probably say that they are probably thinking about it, but as with everything else, you need to do it in the correct way and just jumping on the bandwagon is not always the best idea.
Kim: Yes. Singapore has traditionally always been, we were never a lagger, however I don’t see us creating regulation that would necessarily react to any single jurisdiction’s action.
Katipult: Thanks. I hope that answered your question George. Kien do you have any more questions?
Kien (Katipult): I don’t, go ahead Brian.
Katipult: I think this was a question from the audience. Is there anything you want to tell the audience today, besides that you are going to a party afterwards? Any advice, anything that they simply can’t go on with the day without knowing?
Kim: In closing I would like to say that the future in Singapore and also in the world is very bright. I really believe that the concepts such as digital ledgers, blockchain technology, they have been around for a long time. It is just that this particular area suddenly became very sexy in the last few years, but I think this has been the best one in the long time and only reason I feel that for longevity we need certainty and certainty might just well have to come from conviction.
If you are intending to come to Singapore to set up shop in the fintech space I would strongly encourage you to read up obviously, to find out more from people who have had more experience from setting up here and also to find good professional advisors. Not necessarily just the lawyers. Of course you talk to the lawyers, but also the tax advisors. There could be certain implications as well that you want to be concerned about.
Listen to the professional advisors and don’t go running on your own because this is still very much in the in the mix here. You do not want to make that one mistake that you can’t afford to make and then you might not have the opportunity to make another start.
Katipult: Wise words. I think we are going to take it from here then and we will be talking some more and hopefully set up a new webinar as well. Let’s just find a topic if you are up for it and we’ll schedule something more.
Kien (Katipult): There seems to be one last question: are there any changes in crowdfunding regulation in Singapore?
Kim: No. At the moment the regulations, as I mentioned before, is that MAS has really clarified that you need a license. Previously there has always been a misconception that if you are running a lending based crowdfunding platform you don’t need a license. That is not true.
The MAS has recently clarified in their FAQs that you do need their license to run, basically if you are an operator of a lending based crowdfunding platform.
If you are securities based crowdfunding platform you already have to be licensed anyway, I do not expect any changes in that regard at all.
Katipult: OK, perfect. Is the MAS restricting licenses at the moment?
Kim: I don’t think there is a restriction per se, but I think they’ve always been very strict and stringent on only accepting and licensing good entities that will be able to contribute to our financial space in Singapore. I do not know of any licensing restrictions in the number of licenses that are issued.
If you know that you have a good business and intend to set up here, just do It properly. Do the applications properly and if you meet all the conditions there should be no problem.
Katipult: OK, thanks.
