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4 September, 2019
The Monetary Authority of Singapore (the “MAS”) announced on 29 August 2019 that it has opened applications for digital bank licences in Singapore. This marks a new chapter in Singapore’s banking liberalisation journey, and ensures the continued resilience, vibrancy and competitiveness of its banking sector.
Under the framework, the MAS will issue up to 2 digital full bank licences and up to 3 digital wholesale bank licences to non-bank players in Singapore.
Digital full banks are permitted to take deposits from and provide banking services to retail and non-retail customer segments.
Digital wholesale banks are permitted to take deposits from and provide banking services to SMEs and other non-retail segments.
In this client alert, we set out key points of interest on the licence application process and assessment criteria.
Application process
2019 Interested parties have until 31 December 2019 to submit their applications
2020 The MAS will issue its in-principle approval (“IPA”) to successful applicants in mid-2020
2021 Successful applicants are to meet the conditions under the IPA within 12 months and commence business in mid-2021
The digital bank licence application form is available on the MAS’ website together with a set of eligibility criteria and FAQs. This form is more extensive than the existing licence application form for traditional wholesale banks. Notable differences include the requirement to detail the applicant’s value proposition (e.g. its competitive advantage and unique selling proposition), its anti-money laundering and counterterrorism financing controls, its information technology and cyber risk controls as well as its exit plan.
Such differences are reflective of some key distinctions between the traditional and digital banking frameworks.
Timing-wise, the MAS has clarified that it will not give priority to applicants who have submitted their applications earlier.
Assessment criteria
The MAS will assess licence applications under the following criteria:
1. Value proposition
Applicants should demonstrate their ability to cater to unmet financial needs or underserved segments of the market through an innovative and sustainable digital banking business model. Digital banks should therefore operate more nimbly using new technology stacks, with a lower cost structure than traditional banks.
2. Ability to manage a prudent and sustainable banking business
Applicants must demonstrate their understanding of key risks in a banking business through their business plans and financials, including their customer acquisition plan and path towards profitability.
Digital banks should be profitable on a standalone basis, and reliance on unfairly favourable transaction terms with related parties to generate short-term profits will generally be considered unsustainable.
Although the MAS has not specified a definitive time period by which a proposed bank must breakeven, it may consider an applicant whose financial projection shows an earlier break-even year favourably.
3. Growth prospects and other contributions to Singapore's financial centre
Applicants should demonstrate their prospects for growth and contribution to Singapore's financial centre. They may do so in the following (non-exhaustive) ways:
Introduction of new innovative business models, financial products, services or technologies to Singapore;
Contribution to Singapore's financial sector growth strategies in areas such as SME financing, trade financing, wealth management, sustainable financing and insurance;
Commitment to building up specialised talent locally in areas such as cyber security, cloud computing, full stack development, data analytics, artificial intelligence/machine learning, APIs and microservices, as well as user experience design; and/or
Plans to anchor and grow their operations in Singapore, or to use Singapore as a base for regional or global operations.
Going forward
Additional licences: The MAS will continue to monitor market developments and review the need for additional digital bank licences to be issued in the future. They have stressed the necessity of managing the number of players in the banking sector in order to prevent market fragmentation and inefficiency.
Additional supervisory requirements: The MAS has cautioned that it will monitor market dynamics for value-destructive behavior after digital banks go live, and impose additional supervisory requirements or restrictions where necessary to ensure a level playing field.
For further information, please contact:
Peiying Chua Heikes, Linklaters
peiying.chua@linklaters.com
