Singapore to issue digital bank licenses

Move to issue up to five new digital bank licenses will add market diversity and boost the local banking system in Singapore's bid to become a digital economy, says industry regulator, which will begin reviewing applicants in August
Written by Eileen Yu, Senior Contributing Editor

Singapore has announced plans to issue up to five digital bank licenses as part of efforts to add market diversity and boost the banking system in the country, as it looks to become a digital economy. The move also is part of a market liberalisation journey spanning two decades and an extension of an existing internet banking framework that has allowed local banks to establish digital bank subsidiaries. 

The announcement meant that non-bank organisations would be able to apply for a license and offer digital banking services, according to the Monetary Authority of Singapore (MAS). 

The industry regulator in July 2000 had issued a policy to enable Singapore banks to either set up digital bank subsidiaries on their own or do so within a joint venture, in which the local bank must retain control. The minimum paid-up capital for such subsidiaries was S$100 million (US$73.83 million), since the parent banking group already would have fulfilled a capital requirement of S$1.5 billion (US$1.11 billion). 

In this latest move, MAS said it would issue up to two digital full bank licenses, allowing licensees to offer financial services and take deposits from retails customers, and up to three digital wholesale bank licenses, which would enable licensees to serve small and midsize businesses (SMBs) and other non-retail segments. 

Only companies headquartered in Singapore and controlled by Singaporeans were eligible to apply for digital full bank licenses. Foreign companies keen to join the ranks would have to form a joint venture with a local company, with the joint venture entity headquartered in Singapore and controlled by Singaporeans. 

In addition, digital full bank applicants would have to meet three key criteria including a track record in operating an existing business, in their respective technology or e-commerce fields, and a value proposition detailing how it could serve existing unmet or underserved needs.

"MAS will not allow any bank, digital or not, to engage in value-destructive competition to gain market share," the regulator said in a statement. "MAS will assess the reasonableness of the applicant's business plans and financial projections such as cost-to-income ratio and net interest margin."

Application for digital wholesale bank licences would be open to all companies, but applicants also would need to meet the same eligibility criteria as digital full banks. In addition, digital wholesale bank licensees must be locally incorporated and submit a viable exit plan during the application stage. They also would need a minimum paid-up capital of S$100 million.

Announcing the move Friday, MAS Chairman and Singapore's Senior Minister Tharman Shanmugaratnam said: "The new digital bank licences mark the next chapter in Singapore's banking liberalisation journey. They will ensure that Singapore's banking sector continues to be resilient, competitive, and vibrant."

He noted that MAS in 1999 had embarked on a journey to open up the country's financial sector, including banking, securities, and insurance, and now was ready to welcome the entry of digital banks in its next phrase of market liberalisation. Tharman said. "This new phase of banking liberalisation will add diversity and help strengthen the resilience of our banking system in a new digital era in finance."

He explained that digital full bank licenses were restricted to two so as "not to fragment Singapore's small domestic retail banking market" and keeping these local would help main a strong local core in the country's banking system. With regards to the digital wholesale licenses, he added that MAS would review whether to issue more of such licenses in future. 

He further noted that safeguards would be put in place to protect depositors, mitigate the risk of untested business models, and minimise costs to the financial system in the event of a failure. At the same time, the goal was to ensure digital banks were able to compete with incumbents on a level playing field.

Tharman said: "In time, successful digital banks in Singapore can also complement the local banks in anchoring domestic financial stability."

MAS said it would invite applications in August 2019 and provide more details on eligibility and admission criteria then.

Earlier this week, the regulator said it was in discussions with Facebook regarding the social media's recently-launched cryptocurrency, Libra, to assess how the platform functioned including its security and operations. Digital tokens or cryptocurrencies are permitted in Singapore, but are regulated if they involve products governed under the country's Securities and Futures Act. MAS in the past year had repeatedly cautioned the public to understand the risks before investing in cryptocurrencies, stressing that these were not recognised as legal tender and functioned in an unregulated environment.


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