On 29 June 2015, Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore (“MAS”), delivered the keynote address at the Global Technology Law Conference 2015. Mr. Menon’s speech focused on the rising importance of financial technologies (“FinTech”) and their potential to impact how financial institutions (“FIs”) operate in the near future. As a recognition of the importance of being up-to- date with the latest FinTech innovation, Mr. Menon announced during his speech that MAS will be launching the Financial Sector Technology & Innovation (“FSTI”) scheme. Briefly, this scheme provides funds with a view to developing FinTech to enhance Singapore’s banking sector. We will elaborate on the FSTI Scheme below.
What is the FSTI Scheme?
Under the FSTI scheme, the MAS has committed SGD 225 million over the next 5 years to support innovation initiatives in the finance industry. The areas of FinTech innovation that the MAS is looking to develop through the FSTI scheme include:
- Cyber security (including trusted computing, security analytics, threat intelligence and active breach detention)
- Efficient digital payment systems
- Efficient regulatory reporting
- Smart surveillance systems
- De-centralised record keeping system (preventing duplicate invoicing in trade finance)
- Digital and mobile payments (to increase productivity and self-checkout functions)
- Authentication and biometrics
- Cloud computing
- Learning machines
- Unified point-of-sale terminal systems
The context in which funds under the FSTI scheme can be used are as follows:
- Innovation centres: to encourage FIs to set up their R&D and innovation labs in Singapore (Metlife and Swiss bank UBS have applied for use of the FSTI scheme funds under this purpose);
- Institution-level projects: to support the development of creative solutions that have the capacity to contribute to efficiency, growth, or competitiveness; and
- Industry-wide projects: to assist the establishment of industry-wide technology infrastructure that may be required for the delivery of new, integrated solutions.
As the FSTI scheme is in its early stages, there are no further guidelines or conditions on which entities may apply for the funds, how the MAS is planning on distributing the funds over the next 5 years, nor what kind of involvement the MAS is looking for in relation to the FSTI scheme participants.
The MAS has stated that it will work with the industry, the Institute of Banking and Finance, training providers, universities, and polytechnics, while also providing funding to FIs and supporting training opportunities. At this stage, it is unclear what proportion of the funds under the FSTI scheme will go to the FIs or if the MAS will work directly with IT companies and distribute funds directly.
While banks have started taking advantage of the funds, this may be an opportunity for IT companies to tap on the funds in developing FinTech, whether in conjunction with an FI or through direct liaising with the MAS. There are numerous FinTech start ups already active in Singapore – for example, Singapore- based Toast is planning to utilise block chain technology to enter the remittance services industry in Asia. We believe that both FIs and IT companies should take the opportunity to work with MAS directly, as appropriate, as there may be limited practical benefit arising from this FinTech initiatives, in view of the rate and permutations of development in this area and the high likelihood of FinTech innovations being lost in translation if they are conveyed through FIs alone.
Key Areas for Technological Partnership between FIs and IT Companies
The MAS’s initiative brings to light the increasing need for FIs to innovate to remain relevant, as they are overtaken by innovative front-facing payment systems (e.g. Apple Pay) on the one hand, and extremely reliable back-end systems (e.g. block chain used by Bitcoin) on the other. MAS is looking to the FinTech initiative to ensure that banks remain at the forefront of both front-facing innovation and back-end systems’ security and efficiency, especially in view of the increasing threat of cybercrime.
In this respect, the MAS has stated that FIs are free to launch new ideas without first seeking MAS’s endorsement, as long as they are satisfied with their own due diligence processes. This means that there will be increased opportunities and flexibility for FIs and IT companies to collaborate directly. IT companies may explore building their FinTech in the FIs’ innovation centres, from which FIs can also benefit through leveraging on the IT companies’ technical expertise.
The MAS has also stated that it is willing to help FIs should they encounter specific issues for which they may require the MAS’s advice of guidance before pursuing a certain FinTech strategy. This may be an effective method of resolving potential tensions between IT companies and an FI which may have conflicting or competing approaches or inclinations (e.g. on technology advancement and security).
On top of providing ad hoc advice at the request of an FI, the MAS has stated that it will continue to conduct regular onsite inspection of FIs’ technology risk management processes and controls to ensure that they meet necessary security requirements. However, the FSTI scheme will be most beneficial if there is active and frequent dialogue between the MAS, FIs and IT companies in general, such that the MAS is ready and congnisant of all the latest FinTech innovations in the global market, and hence is able to actively guide the FIs in Singapore towards adopting them and ensure that Singapore stays relevant as a financial hub in the region.
This new initiative will be most beneficial to to finance industry in Singapore by engaging with both FIs and IT companies which are at the forefront of FinTech. This will also be an opportunity for IT companies and start up entities to interact in a more engaged level with a regulator. Parties who wish to tap on the FSTI scheme should adopt a careful strategy in how it manages relations with big FI players, and how to develop their FinTech innovations without compromising on their brand, product technology, and flexibility.