Sandbox initiative allows Singapore to figure out fintech regulations

The proposal, which allows companies to test products under less stringent laws, will enable Monetary Authority of Singapore to better understand the fintech industry and work out whether new regulations may be needed to support the ecosystem.

Singapore's initiative to implement a "sandbox" environment will allow the government to better understand and figure out whether new regulations are necessary to support the local fintech industry.

Proposed by the Monetary Authority of Singapore (MAS), the sandbox scheme would allow any organisation within or outside the financial services industry to experiment with new fintech products and services under less stringent regulatory requirements. These pertained to a range of legal requirements such as the company's asset maintenance, credit rating, license fees, and minimum liquid assets.

The introduction of the sandbox would benefit both the companies as well as MAS, which could seek to better understand an industry that was still new and evolving, said Kemmy Teng, principal associate at Holborn in association with Olswang. The lawyer, who currently specialises in fintech and e-commerce, was previously a legal counsel in a bank.

In an interview with ZDNet, Teng explained: "Everything is still so new, so I think MAS is trying to be proactive and look at new ways to address all the new technological advancements. Right now, they want to better understand the landscape and what's on the ground, and the sandbox will allow them to do that."

In addition, she noted that cost often proved to be a major entry barrier for fintech startups, the majority of which were unlikely to have the financial standing or resources to meet MAS's legal requirements. This could prevent them from entering the market even if they offered innovative services, she added.

While no fintech-specific regulations had been implemented in Singapore, most fintech vendors primarily offered their services to banks, which in turn would have to comply with existing MAS laws.

The regulatory sandbox scheme, hence, would provide a good platform for these companies to build on their ideas, even if they might not meet certain existing legal conditions.

According to MAS, organisations approved for the sandbox initiative would be limited to 50 customers and allowed to run their tests for 6 months, during which they could measure customer experience and assess the product's risk exposure and mitigation measures.

Under the sandbox, companies would still have to comply with rules pertaining to security and customer data protection.

"You do still need some regulations, especially for fintech, because you're dealing with a lot of sensitive data and need to ensure the necessary security safeguards are in place," Teng said, adding that the sandbox would allow startups to gain a better understanding of Singapore's regulations.

MAS in June 2015 announced plans to set aside S$225 million (US$160.6 million) over five years to support the local fintech ecosystem. Called the Financial Sector Technology & Innovation (FSTI) scheme, the funds could be used to support innovation centres such as the setting up of R&D labs in Singapore, as well as institution-level and industry-wide projects.

The regulator in November also would be hosting its first Singapore FinTech Festival, which would include a fintech "Hackcelerator" where up to 20 teams from across the globe would be selected to develop their proposed fintech products and services.

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MAS' proposed fintech regulatory sandbox