20 December, 2016
On 16 November 2016, the Monetary Authority of Singapore (“MAS”) issued a set of guidelines to encourage more financial technology (“FinTech”) experimentation which will allow promising innovations to be tested and have an opportunity to be adopted in domestic and foreign markets. This article provides an overview of the guidelines setting out the regulatory sandbox approach adopted by the MAS for FinTech experimentation (“FinTech Regulatory Sandbox Guidelines”).
What is MAS’ FinTech Regulatory Sandbox?
The regulatory sandbox is one of the methods used by the MAS to create a smart financial centre where technology is used, especially in the financial industry to increase efficiency, create opportunities, allow for better management of risks and improve lives.
1 The regulatory sandbox allows an applicant to experiment in the productive environment within a defined space and duration. During the regulatory sandbox period, MAS will provide the relevant regulatory support by relaxing specific legal and regulatory requirements which an applicant would ordinarily be subject to for the duration of the sandbox. Some of the legal and regulatory requirements that MAS may be willing to relax include, inter alia
- Asset maintenance requirements;
- Board requirements;
- Cash balances;
- Credit rating;
- Licence fees; and
- MAS guidelines such as technology risk management guidelines and outsourcing guidelines.
Who Can Apply?
Firms that are looking to apply technology in an innovative way to provide financial services that are or likely to be regulated by the MAS. They include but are not limited to financial institutions, FinTech firms or professional services firms partnering with or providing support to such businesses.
However, applications by firms who intend to offer services similar to existing services will not be accepted by MAS unless it can be shown that (i) a different technology is being applied or (ii) the same technology is being applied differently.
An application would also be rejected if the relevant due diligence has not been done, which includes testing the proposed financial service in a laboratory environment and knowing the legal and regulatory requirements for deploying the proposed financial service.
Application Process
Applications are to be made with a report setting out the information required as set out in the evaluation criteria discussed below. In addition, MAS also requires information such as a brief description of the organization and its core business, a brief description of the proposed financial service, whether the applicant already possesses the relevant licence to deploy the proposed financial service and which legal and regulatory requirements the applicant requires MAS to relax.
MAS will endeavor to inform an applicant of its potential suitability within 21 working days after MAS has received all the relevant information for the assessment.
Evaluation Criteria
The main evaluation criteria MAS will use when assessing an application are set out as follows:
- The proposed financial service includes new or emerging technology, or uses technology in an innovative way (research should show that there are few or no comparable offerings in the Singapore market);
- The proposed financial service addresses a problem, or brings benefits to consumers or the industry (evidence to be gathered from relevant consumer or industry research);
- The applicant should display its intention and ability to deploy the proposed financial service in Singapore on a broader scale after exiting the sandbox (in exceptional circumstances where the proposed financial service cannot be deployed in Singapore, the applicant should still contribute to Singapore in other ways);
- The test scenarios and expected outcomes of the sandbox experimentation should be clearly defined;
- The appropriate boundary conditions should be clearly defined to execute the proposed product meaningfully but still suffice to protect the interests of consumers and the safety and soundness of the industry;
- Significant risks from the proposed financial service should be assessed and mitigated (providing evidence of preliminary testing, identifying key risks from the testing and proposed mitigation); and
- An acceptable exit and transition strategy in the event the proposed financial service is discontinued or can proceed to be deployed on a broader scale after exiting the sandbox.
The timeframe for MAS to evaluate the application depends on the application’s completeness and complexity and the specific legal and regulatory requirements involved.
Sandbox Period
The sandbox period will expire based on the period approved in the application to MAS. Upon expiry of the sandbox, the applicant will be subject to all the legal and regulatory requirements. Any applications for an extension of the sandbox period should be submitted to MAS 1 month before expiry.
Applicants should note that MAS will discontinue the sandbox if:
- MAS is not satisfied that the sandbox has achieved its intended purpose, based on the latest test scenarios, expected outcomes and schedule mutually agreed with the applicant;
- the applicant is unable to fully comply with the relevant legal and regulatory requirements at the end of the sandbox period;
- a flaw has been discovered in the financial service under experimentation where the risks posed to customers or the financial system outweigh the benefits of the financial service under experimentation, and the applicant acknowledges that the flaw cannot be resolved during the sandbox period;
- the applicant breaches any conditions imposed for the duration of the sandbox; or
- the applicant informs MAS of its decision to exit or discontinue the sandbox.
Conclusion
MAS understands that the financial sector is an integral part of Singapore’s ambition to become a smart nation and the guidelines and objects set out in the FinTech Regulatory Sandbox Guidelines are aimed at enhancing and providing support to firms developing innovative financial services products. Firms developing such financial services products should make the sandbox application (if relevant and suitable) to fully utilise the opportunity and concessions that may be provided by MAS.
This will allow firms to focus their resources in developing innovative and workable financial services products during the sandbox period before having to fully comply with the various regulations which may, at times, be quite onerous.
1 http://www.mas.gov.sg/Singapore-Financial-Centre/Smart-Financial-Centre.aspx.
2 Fintech Regulatory Sandbox Guidelines (16 November 2016), MAS, pg 5-6.
3 Fintech Regulatory Sandbox Guidelines (16 November 2016), MAS, pg 7.
Kim Kit, Ow, Partner, RHTLaw Taylor Wessing