MAS to expand regulation of trade exchanges

It wanted to give way to new business models like blockchain and P2P trading.

The Monetary Authority of Singapore (MAS) issued two consultation papers to improve market operators’ business flexibility when establishing new centralised trading facilities and speed to market when launching new products.

It proposed to expand the existing Recognised Market Operators (RMO) regime from a single tier to three separate tiers (namely RMO Tier 1, RMO Tier 2 and RMO Tier 3) to better match regulatory requirements to the risks posed by different types of market operators.

"A multi-tier RMO regime with gradated requirements can better accommodate the emergence of new business models such as blockchain-based or peer-to-peer trading facilities, and lower the cost of entry for start-up operators," MAS added.

RMO Tier 1 is a new tier for market operators that serve a limited base of retail investors. With this new tier, market operators that do not pose system-wide risks will be allowed to serve retail investors if they are able to meet additional requirements that pertain to retail investor protection. "These requirements are more stringent than the existing RMO regime and include increased information disclosure," MAS said.

RMO Tier 2 is for market operators that qualify under the existing RMO regime but do not pose system-wide risks and only serve non-retail investors. The regulatory requirements will be retained.

RMO Tier 3 is another new tier for market operators that have a significantly smaller scale of business compared to more established operators under the existing RMO regime. "This new tier is designed to facilitate new entrants that develop solutions for wholesale market participants or market operators that have reached the end of their sandbox tenure and are commercially viable, but whose businesses are not able to meet the requirements of the existing RMO regime," MAS said.

Qualifiers in this tier will be subjected to less stringent requirements on capital, technology risk management and outsourcing. However, their scale of business activity will be capped to limit the impact in the event of failures.

As MAS will place primary reliance on the self-certification by such applicants, MAS expects to complete processing applications within four weeks of submission. All applicants will be required to meet the full set of fit and proper requirements that are imposed on existing RMOs.

The second consultation aims to have exchanges just notify MAS instead of gain its approval for operations. As a result, market operators have to self-certify that their products comply with MAS requirements and notify MAS no less than one week prior to the product launch announcement.

"As part of the self-certification process, market operators are required to identify and mitigate risks associated with the product launch. MAS will supervise market operators to check that they have appropriate internal controls and governance procedures to be able to assess and monitor the relevant product risks and mitigating measures," the agency added.

MAS capital markets assistant managing director Lee Boon Ngiap noted that with the proposals, market operators will have greater flexibility to choose between different business models with regulatory requirements and compliance costs that are commensurate with their investor reach. "They will also be able to launch their products more quickly in response to market demand. These changes are in line with MAS’ risk-based supervisory approach.”

The public consultation will end on 22 June 2018.