The FinTech Series: Part II: Overview Of Regulatory Landscape

One of the most important questions that a FinTech startup will need to answer correctly before starting operations is whether or not its business model will involve any activity regulated by the Monetary Authority of Singapore (“MAS”) or Ministry of Law (“MinLaw”).

If it will, the company will have to ensure it either obtains the necessary authorisations from MAS, or is able to qualify for an exemption from each applicable authorisation requirement. Companies may need to apply for multiple licences if they carry on more than one regulated activity.

Conversely, exemptions or exclusions from licensing requirements may be available depending on exactly how the business is carried on.

This article provides a simplified overview of some types of business activities that usually trigger regulatory requirements under Singapore law. It describes some common types of regulated activities and exemptions, and is not meant to be taken as an exhaustive list of all activities regulated by MAS or MinLaw. Nevertheless, it may prove helpful for FinTech companies to assess their proposed business activities against the below descriptions to better understand whether they may be regulated as a financial institution.

Where do FinTech companies fit?

Given their nature, it is not always clear which category of regulated institution companies fall within (or, indeed, if at all). While FinTech companies in general provide finance-oriented products or services, there is also usually an innovative element. Whether this is in relation to the structure of the product or service concerned, how it is offered, and so on. This can sometimes make it more difficult to determine how exactly it should be treated under Singapore law.

As an example, take a company offering a robo-advisory service. It may sound like it would just need a financial adviser’s licence, since such a service involves recommending an investment portfolio based on information received about a customer’s risk appetite, financial position, and investment objectives. However, the company may also need to acquire additional licences depending on the exact range of services offered. For instance, if the company allows customers to also buy and sell regulated financial instruments on its platform (i.e., instead of having them make these transactions through a third-party dealer), it will likely need to obtain a capital markets services licence for dealing in capital markets products. Similarly, if the company will be managing its customers’ portfolios beyond rebalancing, it will likely need to obtain a capital markets services licence for fund management.

Regulated activities

FinTech companies that wish to offer an electronic wallet (“e-wallet”) service should additionally take note of the stored value facility regime. This is a notification-based regime, not a licensing regime, which means that one need not apply to MAS for a licence or other authorisation before commencing business. Instead, companies merely need to complete a standard form (Form 1A, available on the MAS website) about their business and operations and email it to MAS along with the necessary supporting documents. If MAS does not reply with questions within 10 working days of the submission, the company may commence offering its e-wallet service. Companies should note that if they want to allow their customers to transfer funds stored in their e-wallets to people based outside of Singapore, they will need to first obtain a remittance .

FinTech companies seeking to offer payments-related services should also note that Singapore is currently in the midst of overhauling its payments regulatory framework. While the full framework has yet to be finalised, it is clear that the regulatory regimes for entities that carry on business in providing remittance, money changing, stored value facility, merchant acquisition, and virtual currency or cryptocurrency-related services will be affected. These distinct regimes will be streamlined under a single legislation, the Payment Services Act 2019. Under the new regime, payment service providers will only need to hold one licence to conduct specified payment activities.

Next steps

Once FinTech companies have determined whether they will require a licence, and the specific licence if so, they should evaluate how best to proceed. Companies should consider the regulatory requirements that will be applicable to them as holders and what will be required to ensure compliance with them. While there are standard requirements for holders of each type of licence, additional regulatory requirements may also apply depending on the specific company’s business model. For instance, if any core functions of the business will be outsourced, MAS’s guidelines on outsourcing arrangements should be observed.

If non-face-to-face customer onboarding will be undertaken, additional anti-money laundering and countering the financing of terrorism measures will likely need to be implemented. Companies should also consider the application process itself, including the timelines involved and whether they may need external support (e.g., legal advice) during the application process. Upon considering what would be involved, it may in some cases make more sense to partner with a company that already has the required licence(s).