By Nayela Deeba
Nov. 18, 2016
The Monetary Authority of Singapore (MAS) has announced that it will ensure that the regulations it rolls out will not only be conducive to innovation, but also foster safety and security. This will support Singapore's vision of becoming a Smart Financial Centre.
Ravi Menon, Managing Director at MAS, shared the general principals underlying the central bank's approach to fintech regulation.
"Firstly, we believe regulation must not front-run innovation. Introducing regulations prematurely may stifle innovation and potentially derail the adoption of useful technology. It is important to keep pace with what is going on, assess what the risks might be, and continually evaluate whether it is necessary to regulate or leave things to evolve further," he said.
Secondly, MAS will apply a materiality and proportionality test. "This means regulation comes in only when the risk posed by the new technology becomes material or crosses a threshold. And the weight of regulation must be proportionate to the risk posed," he explained.
Finally, MAS will focus on the balance of risks posed by new technologies. "The regulatory approach must seek to incentivise the risk mitigation aspects while restraining the new risks," he said.
Safe space for fintech to experiment
Showing its support to the development of fintech, MAS launched a regulatory sandbox in June this year to provide financial instutions and fintech companies a safe space for experimentations. If an experiment fails, it fails cheaply and without adverse consequences.
In order for sandbox to work, MAS and the applicant will jointly define the boundaries of the experiment. The central bank will then determine the specific legal and regulatory requirements that it is prepared to relax for the duration of the experiment within these boundaries.
According to Menon, MAS has received several proposals from financial institutions and fintech companies. The proposals include the use of technologies such as distributed ledgers, machine learning, and big data analytics.
A considerable number of fintech innovations are in the payments space, said Menon. However, many e-wallet solutions are caught under two separate pieces of regulation in Singapore.
MAS will hence streamline the licensing of payments services under a single, activity-based modular framework. "This means holding just one licence to conduct different kinds of payment activities; meeting only those regulations pertinent to the specific payments activities they undertake, rather than the full gamut of payments regulations; adhering to common standards for consumer protection and cyber security," Menon explained.
MAS' stance on cloud computing
When it comes to using cloud technologies, MAS is not against financial institutions using them.
"MAS has no objections to FIs using the cloud. In fact, a secure cloud infrastructure is an enabler for a variety of FinTech innovations, including banking-as-a-service (BaaS) platforms," Menon asserted.