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Striking the right balance between regulation and space for fintech innovation in Singapore

By Ong Kai Kiat

Singapore is an established financial hub and it represents a significant 25% to 30% of our GDP in the past four years. The financial industry is changing rapidly along with the disruption of technology. The traditional roles of banks are being challenged by financial technology (fintech) firms.

Facing the reality of fintech
Singapore's Deputy Prime Minister Tharman Shanmugaratnam summarised this trend succinctly when he said:

"Crowdfunding is taking off in some places. You already have it in the UK, in the US – things like Lending Club, Funding Circle. So, banks and financial institutions are being disintermediated but it means that you have to be part of that same game, of disrupting existing ways of doing business, offering a cheaper or better product for the customer, and growing our people at the same time."

Even as the DPM was encouraging banks to catch up to fintechs, the Monetary Authority of Singapore (MAS) had taken active steps to promote the fintech scene. This shows that the government is not favouring banks over fintech. In fact, this makes strategic sense for Singapore.

Five recent moves to nurture fintech in Singapore
By nurturing the fintech scene, Singapore is investing in the continued relevance of its status as the leading financial hub globally. After all, businesses are practical. If they can find a fintech that disburses loans for SMEs in a faster, cheaper, and more secure manner in Jakarta instead of Singapore, they will source for their funds there.

Recognising this brutal reality, MAS made the following five significant moves recently to enhance the reputation and profile of fintechs in Singapore.

1. Regulatory sandbox
The regulatory sandbox allows local fintechs to experiment with their new and innovative solutions without the fear of punishment in the case of failure. The current regulations would not apply for a defined period and space for this innovation to be implemented.

This is not a free-for-all. Fintechs would have to justify for their admission to the regulatory sandbox and subject themselves to MAS approval. This sandbox strikes the right balance between maintaining the sterling reputation of Singapore and the need to create the space for disruptive experiments.

2. Singapore FinTech Festival
Innovation is the fusion of different ideas and discipline. Nothing is better at nurturing innovation than to bring a large group of innovators together. The inaugural fintech Singapore festival would last from 14-18 November 2016.

There will be events and conferences for interested parties to meet and interact with each other. Twenty new teams will present their ideas to the wider fintech community. Ambitious web developers in Singapore can take this opportunity to dip their toes in the water. Lastly, MAS will recognise the fintech solutions that are implemented properly with awards.

3. Fintech office
The fintech office brings together multiple government agencies in Singapore. The fintech office will be led by MAS and the National Research Foundation. Other agencies would include the Economic Development Board, Infocomm Investments Pte Ltd, Info-communication Media Development Authority, and SPRING Singapore.

Basically these are all the major government agencies that fintechs will have to interact with in their operations in Singapore. As they are all brought under one roof, whatever requests, improvements, or issues would be heard across the relevant government spectrum.

Time is money. A responsive government would be more attractive for aspiring fintech entrepreneurs to set up base. Existing fintech businesses would also be encouraged to invest time and resources to develop new solutions.

4. Lower requirements for securities crowdfunding
MAS had removed the need to issue prospectus for SMEs that are seeking to raise small amount of capital that is below $5 million within 12 months. Investors will still have to be informed of the risks involved and need to provide their written undertaking.

For securities crowdfunding platform, they do not have to provide a $100,000 deposit and their minimum base capital requirement will be reduced from $250,000 to $50,000. Besides these concessions, the Securities and Futures Act would apply. All these changes are meant to encourage the formation of more securities crowdfunding platform.

5. Australian collaboration
The mature equity market in Australia made it the ideal platform for fintech listing. For instance, home-grown property crowdfunding site CoAssets was listed on the National Stock Exchange of Australia last year.

MAS had signed an agreement with the local regulator, Australian Securities and Investment Commission (ASIC), to assist fintech firms from both countries to enter into each other's market. The deal also makes it easy for companies to gain the licenses required to operate in both countries.

Conclusion
Fintech is a relatively young industry in Singapore and it needs to be nurtured and regulated. If there is any doubt in your mind, you will just have to refer to the scandal that is surrounding Lending Club. Lending Club founder and CEO, Renauld Laplanche, was dismissed last May after an internal probe found that $22 million worth of loans were falsified. Regulators were involved and their shares dropped 40% as a result.

These five MAS measures have set sufficient regulatory oversight and still give fintechs the necessary space and resources for them to succeed in this competitive landscape today. The actual success would depend on the initiatives of the fintechs themselves.

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