Fintech regulation in Singapore

Financial regulation

Which bodies regulate the provision of fintech products and services?

Generally, the provision of fintech products and services is predominantly regulated by MAS, Singapore’s central bank and financial regulatory authority. Particular aspects relating to competition and data privacy issues may be specifically regulated by the Competition and Consumer Commission of Singapore and the Personal Data Protection Commissioner (PDPC). The Intellectual Property Office of Singapore has also launched a fintech fast-track initiative to expedite the file-to-grant process for fintech patent applications.

MAS has launched various initiatives pertaining specifically to fintech, such as the FinTech and Innovation Group and FinTech Regulatory Sandbox. MAS has also promulgated regulations relating to aspects of fintech.

Which activities trigger a licensing requirement in your jurisdiction?

Depending on the nature and scope of services or products offered, licensing requirements under the Securities and Futures Act (Chapter 289) (SFA) or the Financial Advisers Act (Chapter 110) (FAA), or both, may apply.

The following activities are regulated under the SFA:

• dealing in capital markets products;
• advising on corporate finance;
• fund management;
• real estate investment trust management;
• product financing;
• providing credit rating services; and
• providing custodial services.

The following activities are regulated under the FAA:

i. advising others, either directly or through publications or writings, and whether in electronic, print or other form, concerning any investment product, other than:

• in the manner set out in (ii); or
• advising on corporate finance within the meaning of the SFA;

ii. advising others by issuing or promulgating research analyses or research reports, whether in electronic, print or other form, con­cerning any investment product; and

iii. arranging of any contract of insurance in respect of life policies, other than a contract of reinsurance.

The licensing requirements under the SFA and the FAA have extrater­ritorial effect. Section 339 of the SFA and section 90 of the FAA provide that where a person does an act partly in and partly outside Singapore, which, if done wholly in Singapore, would constitute an offence against any provision of the SFA or the FAA (as the case may be), that person shall be guilty of that offence as if the act were carried out by that per­son wholly in Singapore, and may be dealt with as if the offence was committed wholly in Singapore. In addition, section 339 of the SFA also provides that where a person does an act outside Singapore that has a substantial and reasonably foreseeable effect in Singapore and that act would, if carried out in Singapore, constitute an offence under the rel­evant provisions of the SFA, that person shall be guilty of that offence as if the act were carried out by that person in Singapore, and may be dealt with as if the offence were committed in Singapore.

The activity most relevant to fintech businesses is likely to be ‘deal­ing in capital markets products’ under the SFA. ‘Dealing in capital markets products’ means (whether as principal or agent) making or offering to make with any person, or inducing or attempting to induce any person to enter into or to offer to enter into any agreement for or with a view to acquiring, disposing of, entering into, effecting, arranging, subscribing for, or underwriting any capital markets products. ‘Capital markets products’ means any securities, units in a collective investment scheme, derivatives contracts, spot foreign exchange contracts for the purposes of leveraged foreign exchange trading, and such other products as the Monetary Authority of Singapore (MAS) may prescribe as capital markets products.

In addition to the above licensing requirements, where the fintech business undertakes banking business such as receiving money on cur­rent or deposit accounts, such business is required to be licensed as a bank by MAS. Certain other activities, such as moneylending, money exchange services, money remittance services and certain payment-related services, also require licences or approvals from MAS.

Licensing requirements may differ depending on the nature and scope of activities contemplated, and advice should be sought on the specific circumstances of any particular case.

Is consumer lending regulated in your jurisdiction?

Under Singapore law, the offering and provision of consumer lending is not distinguished from primary lending. Lending (consumer lending and primary lending) is a regulated activity in the jurisdiction and is governed by the Moneylenders Act (Chapter 188) of Singapore.

The Moneylenders Act requires that all loans made available in Singapore are by licensed moneylenders or excluded moneylenders. Examples of excluded moneylenders are:

• any person regulated by MAS under any other written law who is permitted or authorised to lend money or is not prohibited from lending money under that other written law;
• any person who lends money solely to his or her employees as a benefit of employment;
• any person who lends money solely to accredited investors within the meaning of section 4A of the SFA of Singapore; and
• any person carrying on any business not having as its primary object the lending of money in the course of which and for the purposes whereof he or she lends money.

Are there restrictions on trading loans in the secondary market in your jurisdiction?

The acquisition of a (funded) loan receivable and the holding of that loan receivable does not constitute moneylending unless, following the acquisition, additional loans are extended (in which case, the restrictions outlined in question 5 apply).

Secondary market loan intermediation is not a regulated activity, provided that it does not involve any lending or deposit taking and provided that loans are not in the form of securities.

Describe the regulatory regime for collective investment schemes and whether fintech companies providing alternative finance products or services would fall within its scope.

Broadly, ‘collective investment schemes’ are arrangements in respect of any property that exhibit the following features:

• the participants do not have day-to-day control over the management of the property (Control Limb);
• the property is managed as a whole by or on behalf of a manager (Management Limb) and/or the contributions of the participants, and the profits or income out of which payments are to be made to the participants, are pooled (Pooling Limb); and
• the purpose or effect (or purported purpose or effect) of the arrangement is to enable participants to participate in or receive profits, income, or other payments or returns arising from the acquisition, holding, management, disposal, exercise, redemption or expiry of, any right, interest, title, or benefit in the property or any part of the property or to receive sums paid out of such profits, income, or other payments or returns (Purpose Limb).

Previously, it was a requirement that both the Management Limb and the Pooling Limb be satisfied. However, following certain amendments to the laws in October 2018, arrangements can now qualify as a ‘collective investment scheme’ if they fulfil either the Management Limb or the Pooling Limb, or both, in addition to the Control Limb and Purpose Limb.

Generally, unless an exemption applies, it is an offence to make an offer of units in a collective investment scheme to the Singapore public unless the scheme is authorised or recognised by MAS and the offer is made in or accompanied by an SFA-compliant prospectus.

It is possible that certain fintech activity could involve a collec­tive investment scheme where the business concerned is managing assets on behalf of participants who have invested through a fintech platform. Careful analysis of the specific circumstances and the way in which the platform permits investors to participate will be required to determine whether it constitutes a collective investment scheme.

Are managers of alternative investment funds regulated?

Managing the property of or operating a collective investment scheme or undertaking on behalf of a customer (whether on a discretionary authority granted by the customer or otherwise):

• the management of a portfolio of capital markets products; or
• the entry into spot foreign exchange contracts for the purpose of managing the customer’s funds,

but not including real estate investment trust management, is regulated as ‘fund management’ under the SFA (see question 4).

Accordingly, unless an exemption applies, managers of alterna­tive investment funds generally require a licence to conduct business involving such activities.

Describe any specific regulation of peer-to-peer or marketplace lending in your jurisdiction.

There are no specific regulations applicable to peer-to-peer or marketplace lending in Singapore. Fundraising from the public through lending-based crowdfunding, or peer-to-peer lending, is regulated by MAS under the SFA and the FAA. Therefore, such activity might constitute a regulated activity that requires a licence, but much will depend on the precise model. See question 10 for more details.

Furthermore, in Singapore, any invitation to lend money to an entity is deemed to be an offer of debentures, which is a type of security. The entity offering the debentures is required to prepare and register an SFA-compliant prospectus with MAS unless an exemption applies.

Describe any specific regulation of crowdfunding in your jurisdiction.

There are specific regulations applicable to crowdfunding in Singapore. These regulations apply to securities-based crowdfunding operators and lending-based crowdfunding.

Generally, securities-based fundraising from the public through equity-based crowdfunding is regulated by MAS under the SFA and the FAA. Therefore, such activity might constitute a regulated activity that requires a licence, but much will depend on the precise model.

Such a licensed crowdfunding operator must comply with the controls and disclosures required of it under the MAS Circular No. CMI 27/2018 (issued 23 August 2018) (Securities-Based Crowdfunding Circular). Under the Securities-Based Crowdfunding Circular, an operator must:

• disclose to investors the scope of due diligence that it has performed on issuers;
• institute policies and procedures to handle issuer defaults (particularly lending-based operators);
• put in place a proper business cessation plan;
• disclose information on interest rates and non-performing loan rates in a consistent manner:
• for loan offers:
• interest rate per annum to be paid; and
• net interest rate per annum receivable by investors;
• for prior loans (in the past three years), highest/lowest/weighted average net rate of returns;
• in advertising materials, rate of returns stated as a range or as the weighted average;
• rates disclosed should be accompanied by explanations and warnings as to their non-indication of future returns; and
• non-performing loan rates should be computed as amount of 30 and 90 days-overdue loans divided by total amount of outstanding loans; and
• if offering auto-allocation tools, should have a proper governance and management framework over the design, monitoring, testing and operation of the tools.

As for lending-based crowdfunding in particular, it is specifically regulated by the MAS’s FAQ on Lending-Based Crowdfunding (issued 8 October 2018). While the FAQs do not introduce new rules, the FAQs do clarify the applicability of the SFA and/or the FAA to lending-based crowdfunding.

If applicable, the SFA would require a lending-based crowdfunder to register a prospectus with MAS, unless exempted. It would only be exempted if the crowdfunding offer is:

• a personal offer (made only to pre-identified entities) below S$5 million per 12 month-period;
• a private placement to 50 or fewer investors within a 12-month period; or
• an offer made only to institutional or accredited investors.

The SFA would also require the operator to obtain a capital markets services licence. Separately, if the operator provides financial advice to interested investors, the operator would also need to comply with the requirements of the FAA.

The FAQs also clarify that crowdfunding with promissory notes are not exempted from the requirements under the SFA.

Some of the P2P lending companies in Singapore engage with MAS-regulated trustees to hold escrow funds.

Describe any specific regulation of invoice trading in your jurisdiction.

To the extent that an invoice is purchased, without risk of being recharacterised as a loan for the purposes of the Moneylenders Act, with true sale there is no specific regulation on the buying and selling of invoices. This is common in factoring and invoice discounting arrangements.

However, in the event that invoices are opened to the public and crowdfunded, the operator of the trading platform will need to follow certain regulations, as described in questions 9 and 10.

Are payment services regulated in your jurisdiction?

Payment services include a wide range of activities such as taking cash deposits, making cash withdrawals, executing payment transactions, issuing or acquiring payment instruments, issuing and administering means of payment, money remittance, making payments sent through the intermediary of a telecoms, IT system or network operator, or even providing stored value facilities.

At present, payment services are regulated activities in Singapore including under the Payment Systems (Oversight) Act (Chapter 222A) of Singapore (PSOA), the Banking Act (Chapter 19) of Singapore, and the Money-Changing and Remittance Businesses Act (Chapter 187) of Singapore (MCRBA).

MAS has announced its intention to repeal the PSOA and the MCRBA, and to replace the Acts by one new Payment Services Act (No. 2 of 2019) (PS Act). In addition, MAS will prescribe several Payment Services Regulations, a Payment Services (Designated Payment Systems) Order, anti-money laundering (AML) and countering the financing of terrorism (CFT) notices, and other notices and guidelines to effect the objectives of the PS Act. To take into account new developments in payment services and the various risks they pose, the PS Act expands the scope of regulated payment services, to also include digital payment token service providers.

The PS Act was passed on 14 January 2019 but has not yet came into effect.

In order to provide any of the payment services set out below, the entity will require one of three types of licence: money-changing, standard payment institution or major payment institution:

• account issuance;
• domestic money transfer;
• cross-border money transfer;
• merchant acquisition;
• electronic money issuance;
• digital payment tokens; and
• moneychanging.

The PS Act includes provisions to mitigate the risks of loss of customer monies, money laundering and terrorism financing (ML/TF) risks, fragmentation and lack of interoperability across payment solutions, and technology risks including cyber risks. MAS has also proposed technology risk management requirements, including cybersecurity risk-management guidelines.

Are there any laws or regulations introduced to promote competition that require financial institutions to make customer or product data available to third parties?

MAS has published a comprehensive API playbook in its bid to encourage more banks to participate in open banking. This document outlines and standards framework for:

• API governance;
• API lifecycle governance;
• governance of API risk; and
• regulatory considerations for partner API operating models.

The result of MAS’s push towards open banking can be clearly seen with businesses such as Citibank, DBS, Standard Chartered, and payments service provider NETS running their own Open API portals comprising over 272 API sets.

MAS has also implemented the Financial Industry API Register, which is updated semi-annually and designed to serve as the initial landing site for Open APIs in the Singaporean finance industry. These APIs fall under the following functional categories:

• product APIs that provide information on financial product details, rates and branch or ATM location;
• sales and marketing APIs for product sign-ups, sales or cross-sales and leads generation;
• servicing APIs for managing customer profile or account details and customer queries or feedback;
• transaction APIs that support customer instructions for payments, funds transfers, settlements, clearing, trade confirmations and trading; and
• other APIs for common services such as authentication, authorisation, reporting, market data and compliance.

Do fintech companies that sell or market insurance products in your jurisdiction need to be regulated?

The marketing and sale of insurance products are regulated under the Insurance Act (Chapter 142) of Singapore and the FAA.

Are there any restrictions on providing credit references or credit information services in your jurisdiction?

Credit bureaux are recognised by the MAS under the Banking Act (Chapter 19) of Singapore to collect and disclose credit data to their members. A credit bureau bill was passed in parliament on 9 November 2016 but has not yet come into force. Once in force, there will be a framework in place to subject credit bureaux to formal supervision by the MAS as credit bureaux collect increasing (and more specifically detailed) amounts of data to facilitate more comprehensive credit assessments by their members. The bill will also allow consumers the right to access, review and rectify their credit records. The provision of credit ratings (opinions primarily regarding the creditworthiness of entities other than individuals, governments or securities) is also regulated under the SFA.