One of the primary challenges for government in the context of rapidly developing, changing technology is how to regulate it and its offshoots and products. Governments may overreact to perceived risks and end up stifling innovation through over-regulation, even before the technology can enter the mainstream. Or it might get left behind by the pace of change and scrambling to draft the right laws and regulations reactively.
In light of the above dilemma, announcements by the Monetary Authority of Singapore (MAS) at the ongoing Singapore Fintech Festival provide an example of forward-looking, balanced, pro-active approach to technology regulation, which appears to successfully walk the tightrope for now.
The Monetary authority of Singapore (MAS) made a slew of announcements in pursuance of its vision for a Smart Financial Centre.
Mr Ravi Menon, Managing Director, MAS, laid out the principles underlying MAS’ approach to FinTech regulation:
- Getting the timing right – Mr. Menon said, “First, we believe regulation must not front-run innovation.” He highlighted the danger of stifling innovation and adoption of new technology because of premature introduction of regulations. At the same time, it is important for the regulator to keep pace with the evolution of technology.
MAS is proposing a pragmatic, measured approach based on continuous risk assessment and evaluation and evaluation on whether it would be be best to introduce regulations or to wait and let the situation evolve further.
- Materiality and proportionality test: Regulation will be introduced when the risks cross a certain threshold and they will be proportionate to the risk posed.
- Holistic view of risks posed by new technologies or solutions: A new technologies might mitigate existing risks but may introduce new ones. The aim of the MAS’ regulatory approach would be to incentivise the risk mitigation aspects, while restraining the new risks.
Examples of initiatives based on the aforementioned regulatory approach
Activity-Based Regulation for Payments
Payment solutions are growing at a rapid pace. At the moment, e-wallet solutions are governed by two separate pieces of regulation in Singapore. MAS plans to streamline the licensing of payments services under a single, activity-based modular framework. Only one licence would be required for different kinds of payment activities and the service providers need to meet only the regulations pertinent to the specific payments activities they undertake, rather than all the regulations.
Guidelines to Promote Secure Cloud Computing
Earlier this year, the MAS set out specific guidelines on the use of cloud services by Financial institutions (FIs). The guidelines permit FIs to adopt public, private or hybrid cloud and assign the ultimate responsibility for security to the FIs. FIs are expected to conduct the necessary due diligence and apply sound governance and risk management practices, keeping in mind features, such as multi-tenancy, data co-mingling, and processing in multiple locations.
Enabling Digital Financial Advice and Insurance
MAS has adopted a technology-agnostic regulatory framework for financial advice. But now MAS is looking at automated financial digital advice providers, based on algorithms. MAS wants to ensure that customers can have access to the benefits of greater choice at lower cost, enabled by automated robo-advisers, while putting in place adequate safeguards.
MAS plans to set out proposals on the governance, supervision, and management in consultation with industry. MAS allows insurers to offer simple term life and direct purchase policies with broadly standardised features online without advice.
MAS now plans to allow insurers to offer the full suite of life insurance products online without advice.
Regulatory Sandbox to Test Innovative Ideas
MAS launched a regulatory sandbox for financial institutions and FinTech players to test their innovations. The sandbox enables experiments to happen in a quarantined environment, with minimal costs in the event of failure. At the inception of an idea or an innovation, it might be impossible to anticipate every risk.
The idea is that MAS and the applicant will jointly define the boundaries within which the experiment will take place.MAS will determine the legal and regulatory requirements which it is prepared to relax for the duration of the experiment within these boundaries.”
MAS is in the process of evaluating applications already received and plans to launch the selected ones in the sandbox soon. It also issue finalised regulatory guidelines for the sandbox, based on industry feedback and tested against the applications they have already received.
"Singapore’s FinTech Journey – Where We Are, What Is Next" – Speech by Mr Ravi Menon, Managing Director, Monetary Authority of Singapore, at Singapore FinTech Festival – FinTech Conference on 16 November 2016