Singapore digital banks

Moving to issue up to five new licenses for digital banks will bring market diversity to Singapore’s bid to become a digital economy, said the industry regulator, which will begin examining applicants in August.

Singapore has announced plans to issue up to five digital bank licenses to boost it’s country’s banking system as it looks to become a digital economy, as part of efforts to increase market diversity. The move is also part of a two-decade market liberalization process and an extension of an existing web banking framework that allows local banks to set up digital bank subsidiaries.

The notice meant that non-bank organizations, according to the Singapore Monetary Authority (MAS), might apply for a license and offer digital banking services.

In July 2000 the industry regulator issued a policy enabling Singapore banks, on their own or within a joint venture, to establish digital banking subsidiaries in which the local bank must retain control. For those subsidiaries, the minimum pay-up capital was S$100 million (USD 73.83 million), as the parent banking group was already fulfilling S$1.5 billion (USD 1.11 billion) capital requirements.

In this recent move, MAS stated that it would issue up to two full digital bank licenses that will enable licensees to provide financial services and take deposits from retail clients, and up to three wholesale digital licenses that will allow licensees to serve both small and medium-sized enterprises (SMEs) as well as the other non-retail segments.

Only Singapore-based companies controlled by the Singaporeans could apply for full digital banking licenses. A foreign company interested in joining the ranks would have to form a joint venture with the local, Singapore-based joint venture entity.

Moreover, digital full-bank applicants would have to meet three key requirements including the track record of operations in their respective fields of technology or e-commerce and the value proposition outlining how existing unmet or underserved needs could be met.

The Regulator said in a statement: “MAS will not allow any bank, digital or not, to compete for value destruction to gain market share. “MAS is evaluating the applicant’s business plans and financial projections, such as cost-to-income ratios and net interest margins.” Applications to apply for digital wholesale bank licenses would be open to all companies but applicants would have to comply with the same eligibility criteria as full digital banks. Digital wholesale bank licensees must also be incorporated locally and submit a viable exit plan during the application phase. They would also need at least S$100 million paid-up capital.

Thus, MAS President and Senior Minister of Singapore, Tharman Shanmugaratnam, announced Friday: “The new digital banking licenses marking the next chapter on the journey towards Singapore’s banking liberalization, will ensure that the banking sector in Singapore remains resilient, competitive, and dynamic.” MAS had undertaken a journey to open the country’s financial sector in 1999, he noted. Tharman said. “This new phase of banking liberalization will add diversity and contribute to enhance the robustness of our banking system in the new digital age in finance.” He said that Digital full-bank licenses have been reduced to two to “not fragmentation of Singapore’s small domestic retail banking market.” As regards digital wholesale licenses, he added that in future MAS would examine whether more of these licenses would be issued.

He also noted the introduction of safeguards to protect depositors, mitigate the risk of untested business models and minimize costs for the financial system in the event of an insufficient operation. At the same time, the aim was to ensure that digital banks could compete on a level playing field with incumbents.

Tharman said: “This can also complement the local banks in anchoring domestic financial stability by successful digital banking in Singapore.” MAS said it would invite applications in August 2019 and would provide more details on criteria for eligibility and entry.

Earlier this week, in talks with Facebook on the recently launched cryptocurrency of the social media, Libra, the regulator said it assessed the way the platform operated, including its security and operations. Digital tokens or cryptocurrencies are permitted but are regulated in Singapore if they relate to products subject to the Securities and Futures Act of the country. MAS had repeatedly warned people before investing in cryptocurrencies that they were not recognized as a legal tender and operated in an unregulated environment.

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