The Monetary Authority of Singapore (MAS) isn’t making the most of its geographical or technological position in the FinTech industry and could fall behind global peers if it doesn’t change its approach. Singapore is missing out on being at the leading edge of developing new FinTech solutions because of an overly protective approach that isn’t making the most of the facilities that the MAS has available. Rather than leave regional FinTech companies a regulatory limbo, the MAS could adopt a light-touch approach through more actively using their sandbox. This would give more regulatory certainty to entrepreneurs and could cause them to flock to Singapore to work on their FinTech products. At the same time, the influx of innovations will help established incumbents resolve existing issues and provide new solutions to the populous.
The MAS launched its FinTech sandbox in June 2016, since then one company has graduated from the sandbox and three are currently going through it. On the other hand, the United Kingdom’s Financial Conduct Authority’s (FCA) sandbox, which launched around the same time, has had over 70 companies go through it so far.
The MAS needs to open their doors wider in an effort to become more innovative in their approach towards attracting FinTech startups if they want to establish Singapore as a “Smart Financial Centre and a transformational FinTech hub.” Otherwise, the country could be dethroned as a leading financial hub as these new technologies emerge.
What’s the issue?
The MAS isn’t allowing enough companies to experiment within the sandbox. It should be more open to allowing companies to fail on a small enough scale without endangering the existing banking infrastructure or client’s pocketbooks. If it’s worried about the quality of the companies that are coming through, it could put restrictions on the amount of financial exposure that any client could have with the sandbox participant.
As at 30 November 2017, there had been over 30 applications to be involved with the MAS’s sandbox, this number is no doubt larger now. However, there has only been one graduate from the sandbox so far, PolicyPal (giving users the ability to buy and manage insurance products). Currently there are three more companies that are sitting within the sandbox, Kristal Advisors (AI based advisory), Thin Margin (foreign currency remittance), and TransferFriend (Singapore’s mobile first answer to Transferwise). It’s arguable how innovative or disruptive the two foreign currency remittance platforms will be considering the alternatives available in the market.
In contrast, since launching in 2016, the FCA’s sandbox has supported over 70 companies, allowing them to test their ideas with real customers under controlled conditions. The FCA is now looking at a new global model that will allow firms to conduct tests in different jurisdictions at the same time while working with other regulators. At the MAS’ current rate it will take them a couple of decades before the amount of companies that goes through their sandbox reaches the same level as the FCA has already achieved.
The MAS vs the FCA
The sheer scale of difference between the amount of companies that the FCA has been able to facilitate through their sandbox (73) as compared to the MAS (4) suggests that the MAS could be doing more to encourage FinTech companies to innovate in Asia.
The first cohort that went through the FCA’s sandbox had 24 applicants, 18 of which had their product testing plans approved. The second cohort had 31 applicants accepted. The third cohort has had 18 companies successfully accepted into the regulatory sandbox. Again, the MAS has only had four companies accepted into their sandbox since launching in June 2016.
When looking at peers and how their sandbox and regulatory regime has developed, we could look at Singapore’s neighbour in the network of financial hubs, Hong Kong. The structure in Hong Kong is different to what the FCA and MAS have implemented as it’s limited to banks that are already regulated by the Hong Kong Monetary Authority (HKMA). After beginning their sandbox in September 2016 the HKMA was able to rollout 15 pilot trials of FinTech products. While this isn’t a threat to Singapore’s quest for financial dominance in Asia in the near-term, as the HKMA expands the scope of their program they could have more bandwidth, as a result of monitoring more pilots, enabling them to process more FinTech participants in each cohort and leapfrog the limited success that the MAS has seen to date.
Why haven’t there been more companies through the MAS’s sandbox?
The MAS claims that half of the businesses that have applied to be a part of the sandbox didn’t need regulatory exemption. While I can understand the basis for this statement and by and large it could be true, I personally know of a handful of companies that did need regulatory oversight and were aiming to build world changing products that were denied entry to the sandbox. They were either forced to come up with other solutions or move offshore.
I find it hard to understand how there haven’t been any blockchain businesses that have been accepted into the MAS’s sandbox. I was recently speaking with the leaders of the FinTech department at one Singapore’s big three banks and they were very excited about the fact that Singapore Airlines had announced that it would implement a blockchain solution for their frequent flier program (although when quizzed they couldn’t describe why a distributed ledger system was necessary). This suggests that even within the established institutions there is interest in innovative products that are built with distributed ledgers. The MAS could be skating ahead of the puck and encouraging innovation in this area with the opening up of their sandbox but it feels like they would rather tread too carefully and watch others innovate instead of being a leader.
There are a number of initiatives that the government and regulator have introduced in Singapore to facilitate the development of the startup and more specifically FinTech ecosystems. However, if they don’t continue to encourage and drive innovation, then it’s likely that they’ll lose what relevance they have in the evolving FinTech industry both locally (shock horror — to Hong Kong) and internationally.
What’s the solution?
A more appropriate approach could be to welcome the businesses that established financial institutions are going to rely on to innovate with open arms. The MAS would do well to allow FinTech companies to develop ideas at a small scale domestically before they’re pushed out to a global audience.
Any concerns around the longevity and risks around FinTech businesses could be addressed by limiting a potential client’s exposure to the company while it’s in the sandbox. Having a company in the sandbox will give the MAS greater oversight and allow it to grow and learn about emerging technologies and applications as the industry continues to develop.
Allowing companies to try and fail while still small is a far more suitable solution than leaving a heap of FinTech companies that are trying to build their products out in the financial hinterlands with limited guidance and oversight. Having a light-touch regulatory approach that’s implemented through the sandbox will allow consumers to have more certainty about who they’re dealing with and will help participants to prove out and further develop their products. The MAS would do well to take a page out of the FCA’s book and encourage significantly more companies to go through the sandbox.
