The initiative effectively extends digital bank licences to non-bank players, as existing banking groups in Singapore already have a framework for setting up digital bank subsidiaries.
The MAS (Monetary Authority of Singapore) announced late Friday (28 June) that it will issue up to five new digital bank licences, with applications set to open next month.
Last month, the MAS was said to be studying whether to allow digital-only banks with non-bank parentage to operate in the country, a move inspired by an HKMA (Hong Kong Monetary Authority) initiative to grant virtual bank licences, part of a move into a “New Era of Smart Banking“.
“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,” said MAS Chairman and Senior Minister Tharman Shanmugaratnam, making the announcement at the 46th Annual Dinner of the Association of Banks in Singapore.
According to the MAS, the entry of new digital players will add diversity and help strengthen Singapore’s banking system. “With innovative business models and strong digital capabilities, these players can cater to under-served segments of the market. They will provide impetus for existing banks to continue enhancing the quality of their digital offerings,” the regulator said in a statement.
The new licences will be in addition to any digital banks subsidiaries established by Singapore banking groups under the MAS’ July 2000 framework, which allowed them to set up themselves or with joint venture partners (where Singapore banks retain control). The minimum paid-up capital requirement for such banking subsidiaries was set at SGD 100 million, taking into account the SGD 1.5 billion capital required of their parent entities.
As such, the initiative effectively extends digital bank licences to non-bank players.
Up to two digital full bank licences will be issued, allowing licensees to provide a wide range of financial services and take deposits from retail customers. Companies headquartered in Singapore and controlled by Singaporeans will be allowed to apply for the licence. Foreign companies can form a joint venture with a Singapore company to participate, provided the headquarter and control requirements are met.
To be eligible, the applicant or its parent group must have a track record in an existing technology or e-commerce business; provide clear value proposition; and demonstrate a sustainable digital banking business model which does not require value-destructive competitive behaviour to gain market share.
The new digital full bank licensees will have to participate in the deposit insurance scheme, comply with capital and liquidity rules similar to incumbent banks, and have a viable exit plan to facilitate an orderly wind-up if necessary. They shall only have one physical place of business, and should not have minimum account balance requirements for customers.
To minimise risk to retail depositors, during the first stage of roll out, the banks will be under a ‘restricted’ digital full bank licence, where aggregate deposits will be capped at SGD 50 million, and individual deposits at SGD 75,000 (the same amount protected by deposit insurance).
Restricted digital full banks will only be allowed to offer simple credit and investment products, and will not be allowed to deal in complex products, or to engage in investment banking activities such as derivatives (except for risk management) and proprietary trading. Further, the banks should not establish banking operations in more than two overseas markets.
Given the limited scope of activities, the paid-up capital requirement for ‘restricted’ licensees will initially be set at SGD 15 million. As relevant milestones have been met, this will increase, until the bank is deemed to not pose any supervisory concerns. Once the bank graduates to a full licence a paid-up capital requirement of SGD 1.5 billion will apply, the same level as existing banks in Singapore. The deposit cap will also be lifted.
Additionally, up to three digital wholesale bank licences will be issued, allowing licensees to serve SMEs and other non-retail segments. Both local and foreign companies can apply, provided they meet similar eligibility criteria as digital full bank applicants.
Digital wholesale bank licencees will have a minimum paid-up capital requirement of SGD 100 million, and will not be able to take Singapore dollar deposits from individuals, except for fixed deposits of at least SGD 250,000. Business should be conducted from only a single place of business.
The MAS plans to invite applications in August 2019, and will provide more details on eligibility and admission criteria at that time.