Overview Overview

Overview Overview

This article is dedicated to depicting the panorama of applying for a digital bank in Singapore by introducing the digital bank license and its related application qualification standards, compliance standards, inspection standards and operational planning.

Report report

Report report

Introduction to MAS

The Monetary Authority of Singapore, referred to as the Monetary Authority of Singapore (English: Monetary Authority of Singapore, referred to as: MAS). MAS is a government agency in Singapore that functions as a central bank and is also the authority responsible for monitoring financial institutions.

Before 1970, the various monetary functions related to the central bank in Singapore were managed by various government departments and agencies. However, as Singapore's economy takes off and the international financial environment becomes increasingly complex, it is imperative to clarify and simplify the functions and powers of financial authorities. So in 1970, the Singaporean Parliament passed the "Monetary Authority of Singapore Act". On January 1, 1971, the "Monetary Authority of Singapore" was officially established and began to exercise the functions of the central bank and financial supervision.

In April 1977, the government decided to transfer the regulatory functions of the domestic insurance industry to the Monetary Authority of Singapore, and then in September 1984, the government transferred the regulatory functions of the securities industry to it. On October 1, 2002, the Monetary Authority of Singapore merged with the Monetary Board, and the Monetary Authority has since assumed the function of currency issuance.

To put it simply, MAS is the Singapore version of the People's Bank of China + China Securities Regulatory Commission + China Banking Regulatory Commission + China Securities Regulatory Commission + China Insurance Regulatory Commission, and even occasionally plays a guest role in the National Development and Reform Commission. There is no doubt that this is a behemoth with great power.

Types of MAS Digital Banking License

There are two types of banking licenses involved under the Banking Act: DFB license and DWB license.

All types of banks

Under the Banking Act, all types of banks can conduct all banking activities including deposits, checking services and loans. While a full bank can conduct all Singapore dollar and non-Singapore dollar denominated banking business, a foreign bank with a full banking license can only operate a limited number of branches and automated teller machines (ATMs). However, the Qualified All Banks Program allows foreign banks to operate in more locations, share their ATM networks, and move their branches freely.

wholesale bank

Wholesale banks can do the same banking as regular banks, but they cannot do retail banking in Singapore dollars. They operate within the guidelines for wholesale banking operations issued by the Monetary Authority of Singapore (MAS). Licensed banks can apply to the HKMA for approval to operate Asian Currency Units (ACUs). This is the unit of account that banks use to record all foreign exchange transactions made in the Asian dollar market. Singapore dollar transactions of licensed banks are booked separately at their domestic banking divisions (DBU). The boundary between ACU and DBU will be removed.

Financial institutions can also operate as commercial banks under the Monetary Authority of Singapore Act. Commercial banks are governed by specific MAS regulations. Their scope of activities is generally narrower than that of licensed banks. However, commercial banks can also apply to MAS for approval to operate Asian currency units, thereby competing with licensed banks in the non-Singapore dollar banking market. The regime for commercial banks will be integrated into the Banking Act, so commercial banks will be licensed under the Banking Act rather than the MAS Act.

The HKMA will issue up to two "full-type digital bank" licenses and three "digital wholesale bank" licenses. These licenses allow entities, including non-bank financial institutions, to conduct digital banking in Singapore.

The following table lists the banks and financial companies that have announced their applications for digital banking licenses.

Source: MAS announcement

MAS Digital Bank License Compliance Scope

Banks registered in Singapore are governed by the Banking Act and the Monetary Authority of Singapore Act (MAS Act). As the general regulator and supervisor of the financial services industry, MAS has the responsibility to supervise and regulate banks and their businesses. In addition to the Banking Act and the MAS Act and their subsidiary legislation, banks are also required to comply with circulars, circulars, guidelines, practice guidelines and codes issued by the MAS from time to time.

Regulatory Authority

Regulatory Authority

As far as the regulatory agency is concerned, all applicants are reviewed and supervised by the Banking Department under MAS. There are a large number of banks in Singapore, so the Banking Department is also the largest department under the MAS.

Commercial banks in Singapore are divided into three categories. The first category is all types of banks. This type of banking business is comprehensive and has few restrictions. It can provide various deposit and loan businesses, foreign exchange transactions, etc. to customers in Singapore and abroad. The second category is restricted banks. This type of bank cannot set up branches, does not accept savings deposits, and only accepts time deposits. The minimum amount for each transaction is 250,000 Singapore dollars. The third category is offshore banks, which can only engage in foreign exchange transactions and are not allowed to open new currency deposit accounts. The Banking Office supervises banks according to their countries. Business personnel, in order to cooperate with relevant departments in the Banking Department, bank credit can be effectively supervised, and capital markets can penetrate each other.

MAS Digital Bank Application Qualification and Inspection Items

Relevant laws and regulations

• The compliance documents for DFB and DWB are as follows:

• "Banking Act"

• The Monetary Authority of Singapore Act

• "Basel"

• Payment Services Act

• Securities and Futures Act

• MAS Circular 635

• MAS Circular 637

• MAS Circular 644

• MAS Circular 649

• MAS Circular 655

• "HKMA Consultation Paper on Bank Anti-merger Framework"

• "Tax Administration Regulations"

The Banking (Credit and Charge Cards) Regulations 2018

compliance standards

• Applicants for any type of license must meet the following requirements:

• At least one entity in the applicant group has three or more years of experience operating in the technology or e-commerce space.

• The key people are all "fit".

• Ability to meet minimum paid-in capital requirements in the initial phase and minimum capital requirements in subsequent phases.

• Provide a clear value proposition, incorporate innovative technologies to meet customer needs and reach underserved segments of the Singapore market.

• The sustainability of the proposed digital banking business model is demonstrated.

• Submit a viable exit plan.

• The applicant group shareholders undertake to provide such letters of responsibility and undertakings as may be required by the HKMA in relation to the operation of the proposed digital bank.

  
  

The applicant group must provide a 5-year financial forecast for the proposed digital bank and be profitable. Financial projections must be reviewed by external and independent experts.

Regarding the scope of the "applicant group", MAS stipulates that it is the entity that will hold a digital bank license (hereinafter referred to as the "proposed digital bank") and all 20% of its controllers. Among them, the 20% controller refers to holding no less than 20% of the total issued shares of the proposed digital bank or controlling no less than 20% of the voting rights of the proposed digital bank.

Regarding the scope of "major shareholders", MAS has given the following requirements: the applicant group and its directors, the major shareholders and 12% controllers of the proposed digital bank, and the directors and executive executives of the proposed digital bank.

Regarding paid-in capital: For groups applying for DFB, paid-in capital must include a funding commitment or a specific fundraising plan to meet the minimum paid-in capital of S$1.5 billion.

There are no additional requirements for foreign applicants. However, for a digital banking license, the DFB applicant group must be rooted in Singapore, which means it will be controlled by Singaporeans (majority shareholding) and headquartered in Singapore; the DWB applicant group must be registered in Singapore.

review standard

• Applicants will be assessed as follows:

• Apply for the value proposition of the group business model, including innovative use of technology to meet customer needs and reach underserved segments of the Singapore market that differ from incumbent banks. The HKMA will also consider the applicant's ability to implement the proposal.

• The ability to manage a robust and sustainable digital banking business, including an understanding of the key risks to the bank's business, as well as an understanding of its compliance and risk management programs. The HKMA will also consider the applicant's reputation, track record, financial capability and shareholder commitment.

• Contributions to Singapore as a financial center include, for example, the promotion of local employment, skills training for local labor, technology retention in Singapore, establishment of headquarters in Singapore, and regional expansion plans.

• Applicants do not have to hire a full management team at the time of application, but should at least hire a future Chief Executive Officer (CEO), and identify a Chief Risk Officer (CRO), Chief Financial Officer (CFO), Chief Technology Officer (CTO) and Candidate for Chief Information Security Officer (CISO).

• Applicants are not required to have a fully built and deployed technology infrastructure at the time of application, but are required to provide a high-level IT plan, including architectural diagrams of key systems.

Guidelines on Technology Risk Management (hereinafter referred to as TRM), MAS Circular 644 on TRM and MAS Circular 655 on Cybersecurity as key applicable technology risk management measures.

In addition, as part of the application, MAS expects applicant groups to demonstrate that they are able to meet all regulatory requirements and, where appropriate, fully develop IT systems, risk management policies, processes and the risk profile at which the system will operate. However, at the time of application, there is 12 months to obtain initial approval for a license, and applicants need only demonstrate their plan to implement the required capabilities before commencing operations.

Venture Capital and Liquidity Rules

DFBs have the same risk capital requirements as D-SIBs. (D-SIB refers to systemically important banks. Once such banks can no longer continue to operate, it will have a significant negative impact on the stability of the local financial system (D-SIB).) Including a 6.5% CET1 capital adequacy ratio (hereinafter referred to as CAR) , a 10% total CAR, a 2.5% capital protection buffer, and a 2.5% countercyclical capital buffer. While DFBs will not initially be designated as D-SIBs, MAS will impose higher risk capital requirements given their untested business models.

DFB is also required to comply with the prevailing Minimum Liquidity Assets (MLA) and Liquidity Coverage Ratio (LCR) requirements. If a DFB is involved in international business, or is designated as a D-SIB, whether the bank is a restricted DFB or a formally operating DFB, it will be required to comply with the LCR requirement (minimum 16% liquid assets).

Application steps

application time

Application fee

There is no application fee for applications.

Operational Planning

Full Kind of Digital Bank (DFB)

DFB must be registered in Singapore. At the beginning, it will enter the sandbox to start a limited operation, and will enter the official operation after passing the inspection. MAS does not predetermine a time period. The growth rate of the restricted version will depend on its ability to meet its commitments and the regulatory considerations of the Monetary Authority of Singapore. However, MAS believes that DFB will be fully operational within three to five years of opening.

During the earlier version, DFB will not be able to take deposits from the public. It will, however, be able to solicit deposits from shareholders, employees, related entities and anyone else familiar with the business of DFB's parent or majority shareholder, such as existing clients of the parent.

However, large deposits can be excluded from the total deposit limit provided it has a minimum absorbed capital of S$100 million. The S$50 million deposit limit is limited to individual S$-denominated deposits.

During the transition period, DFB can apply for an increase in the total deposit cap during the annual review period. MAS will assess DFB based on factors such as strength of internal controls, frequency and type of breaches, customer complaints and sustainability of business performance. At the same time, this assessment also includes a review of the audit report on the effectiveness of the digital bank's financial and internal controls.

During the transition period, if DFB offers an unsecured credit facility to an individual, it can only grant an unsecured credit limit of twice the individual's monthly income. Regulated supervision under Circular MAS 635 and other unsecured credit rules of the Banking Regulations 2013.

During the transition period, DFB shall not engage in any proprietary trading activities.

The investment products provided to individuals can only be simple capital market products, and DFB cannot conduct banking business in more than two countries overseas.

Digital Wholesale Banking (DWB)

DWB must be registered in Singapore. And can only operate a physical store.

DWB's application needs to meet the same regulatory requirements as existing wholesale banks, including a minimum paid-up capital of S$100 million, risk-based capital and liquidity requirements, and requirements related to technology risk, money laundering and terrorism financing risk, non-financial business conduct related requirements.

DWB does not permit unsecured credit to retail individuals. MAS does not want DWB to serve retail investors and provide them with financial advice.

Conclusion

Conclusion