The Monetary Authority of Singapore (“MAS”) has adopted the approach of a regulatory sandbox to experiment with innovative financial services in the production environment but within a well-defined space and duration (“Sandbox”). The Sandbox shall include appropriate safeguards to contain the consequences of failure and maintain the overall safety and soundness of the financial system. MAS believes that a key driver to transforming Singapore into a Smart Financial Hub is the provision of a regulatory environment that is conducive for innovative use of technology. It is expected that this Sandbox minimises risks for companies in a production environment where consequences of the failure can be contained, and at the same time, promising innovations can be tested in the market and have a chance for wider adoption, in Singapore and abroad. Interested applicants (whether financial institutions or any other firms) should apply to MAS which will evaluate based on a list of criteria.
To provide further clarity, MAS has issued guidelines for the Sandbox (the “Guidelines”) on 16 November 2016 after a consultation exercise that was held earlier in June 2016.
Through the Sandbox, MAS will provide the requisite regulatory support by relaxing specific regulatory requirements on a case-by-case basis for the duration of the specified sandbox project. Examples of specific regulatory requirements have been provided in a table under the Annex A of the Guidelines which includes “to maintain” requirements and “possible to relax” requirements. For the avoidance of doubt, this list is non-exhaustive and MAS will determine the specific requirements depending on the proposed financial service, the applicant involved and the application made.
In any event, MAS will not compromise on requirements in areas such as confidentiality information, as well as in anti-money laundering and countering the financing of terrorism.
The projects with MAS’ Sandbox
A few months have passed since the introduction of the Guidelines and the Sandbox has made headlines in the news. The first applicant for the Sandbox is PolicyPal which focuses on insurance. PolicyPal uses Optical Character Recognition (OCR) technology to digitalise a client’s existing insurance policies so as to analyse a client’s current coverage and also propose how one can further improve on the coverage. It also utilises technology to protect sensitive data stored. With the Sandbox, PolicyPal is given the opportunity to test its solution over a six-month period from 2 March 2017 by partnering with NTUC Income and Etiqa Insurance to distribute insurance products to consumers via its app. At the moment, PolicyPal’s clients would be able to buy direct-purchase life insurance products through PolicyPal, which are sold as simple products without any financial advice. The public may also purchase insurance policies to cover accidents caused by riding bicycles or scooters (i.e. “Mobility Insurance”) and insurance against diseases spread by mosquito (i.e. “Mosquito Insurance”), which are probably not typically offered by the usual insurance providers.
What the future is starting to look like
With PolicyPal as a positive example of InsurTech being more accepted in Singapore, it is anticipated that more start-ups in the FinTech space will join this bandwagon. Strong continued support from MAS would be critical for more financial institutions or interested parties that are keen on developing and applying new technologies to the financial ecosystem to continue on innovating. We also expect that with further perceived acceptance of FinTech (aided by the existence of the Sandbox, which is a symbol of welcome for FinTech), it is inevitable for an increase in partnerships and joint ventures between bigger firms and these start-ups in the respective incubator and accelerator programmes. This is clearly a positive start for Singapore to move towards its goal of being a Smart Financial Hub.