18 July, 2019
In a move that the Monetary Authority of Singapore (MAS) describes as new phase in the country's banking system, MAS announced it intends to issue up to five new bank licences to digital players1. This will be in addition to any internet-only bank services offered by local banking groups.
The five new bank licences will comprise two digital full bank licences and three digital wholesale bank licences, and application (targeted for August 2019) will be open to players of non-bank parentage. In addition to their technology and e- commerce business, the successful applicants will be licensed to provide:
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savings accounts;
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loans; and
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simple credit and investment products.
To ensure this measure to liberalise Singapore’s banking sector does not negatively affect the country's long-term financial system stability, the following will be part of MAS's new digital bank regime:
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prudent baseline requirements on track record and sustainability of business models;
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safeguards to protect depositors, mitigate the risk of untested business models, and minimise costs to the financial system in the event of a failure; and
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business requirements for licensees to ensure a level playing field for both the new digital banks and the incumbents.
MAS has released frameworks containing the eligibility criteria, requirements and safeguards, for digital full banks2 and digital wholesale banks3.
We summarise below both the general eligibility criteria for both types of digital banks below, as well as the permissible activities and business restrictions specific to each class of digital bank.
General eligibility criteria
Applicants for digital full bank licences and digital wholesale bank licences must meet the following criteria and comply with the following regulations:
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Digital Full Bank |
Digital Wholesale Bank |
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Headquarters |
Incorporate company in Singapore and controlled by Singaporeans. Foreign companies to joint venture with a local company, and the joint venture vehicle is to be headquartered in Singapore and controlled by Singaporeans. |
Digital wholesale bank to be locally incorporated. |
Past expertise |
Have a track record operating an existing technology, e- commerce business. |
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Business model |
Demonstrate:
o no engagement in value-destructive competition to gain market share; and o a reasonable business plan and financial projection such as cost-to-income ratio and net interest margin. |
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Regulations |
Be subject to same regulatory and supervisory oversight as incumbent banks:
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Be subject to same capital and liquidity rules as existing wholesale banks. |
Digital full bank framework
MAS intends to apply a two-stage process for digital full banks with permissible activities and business restrictions applicable to each stage, summarised below.
MAS will not prescribe a time period within which graduation to a digital full bank must be achieved.
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First Stage: Restricted Digital Full Bank |
Second Stage: Digital Full Bank |
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Minimum paid-up capital |
SGD 15 million (reflecting initial limited scope of activities). |
SGD 1.5 billion. |
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Deposit caps |
Individual’s deposits: SGD 75,000. Aggregate deposits from limited scope of depositors: SGD 50 million. |
Deposit cap removed. |
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Capital and liquidity rules |
Capital: 6.5% CET1 Capital Adequacy Ratio, 10% Total CAR, 2.5% capital conservation buffer, up to 2.5% countercyclical capital buffer (same as local banks). Liquidity: 16% minimum liquid assets. |
Capital: same as local banks. Liquidity: 100% net stable funding ratio, 100% liquidity coverage ratio (same as local banks). |
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Business restrictions |
Simple credit and investment products. Banking operations in not more than 2 overseas markets. |
Full functioning bank. No access to automated teller machines and cash deposit machines network. |
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1 physical place of business only. No access to automated teller machines and cash deposit machines network. |
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Permissible activities |
Accounts with no minimum balance and fall below fees. Can offer credit card and charge card in compliance with Unsecured Credit Facilities to Individuals and Banking (Credit Card and Charge Card) Regulations 2013. Allowed to offer cashback services through electronic funds transfer at point of sale terminals at retail merchants. |
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Digital wholesale bank framework
The permissible activities and business restrictions applicable to digital wholesale banks are summarised below:
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First Stage: Restricted Digital Full Bank |
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Minimum paid-up capital |
SGD 100 million. |
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Capital and liquidity rules |
Same as existing wholesale banks. |
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Business restrictions |
Not allowed to take Singapore dollar deposits from individuals, except for fixed deposits of at least SGD 250,000. 1 physical place of business. |
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Permissible activities |
To only conduct activities within the proposed business scope. To operate business deposit accounts for small and medium-sized enterprises, corporates and other non- retail segments. |
Timeline
MAS expects to invite applications in August 2019, and will provide more details on the eligibility and admission criteria at that time.
The digital wholesale banks will be introduced as a pilot, and MAS will review whether to grant more such licences in the future.
For further information, please contact:
Stephanie Magnus, Principal, Baker & McKenzie.Wong & Leow
stephanie.magnus@bakermckenzie.com
1 see: https://www.mas.gov.sg/news/media-releases/2019/mas-to-issue-up-to-five-digital-bank- licences
2 see: https://www.mas.gov.sg/-/media/Annex-A-Digital-Full-Bank-Framework.pdf
3 see: https://www.mas.gov.sg/-/media/Annex-B-Digital-Wholesale-Bank-Framework.pdf
