This article has been produced with Holborn Law, which operates in association with CMS
16 years ago, when MAS introduced the anti-commingling framework to separate financial and non-financial businesses of banks, the iPhone did not exist and clamshell Motorola Razrs were cool.
Today, almost all Singaporeans carry smart phones and our wireless broadband penetration has gone up to 200%, making Singapore one of the most connected societies in the world.
This connectivity has made Singapore the perfect ground for technology disruption, and we have seen how technology disruption has impacted traditional business models and shaped consumer behaviour in Singapore. For example, instead of dining and shopping along Orchard Road, many of us now get our meals delivered via Deliveroo and make purchases on ecommerce platforms like Taobao or Honest Bee.
Financial services are not immune to technology disruption and the manner in which their customers consume their services. Non-financial companies such as WeChat have created platforms that enable customers to chat, purchase and pay for goods and services, including financial products, all within one mobile application. Such disruption encroaches onto activities that were historically in the financial services remit.
MAS recognises that this disruption has resulted in the increasing blurring of lines between financial and non-financial businesses, and that banks are facing increasing competition from non-financial businesses that have leveraged their large user base to provide digital wallets, payments and remittance services.
In 2011, MAS took a first step in giving banks greater allowance to carry out non-financial businesses that are related or complementary to their core financial businesses under certain conditions.
This time, MAS has gone further by streamlining the requirements for banks seeking to conduct or invest in permissible non-financial businesses. For example, banks will not need to seek prior regulatory approval before conducting or acquiring major equity stakes in permissible non-financial businesses. Other requirements such as conducting regular stress test or external audits have also been removed. As such, banks can more easily integrate banking services into customers’ day-to-day activities and deliver value added service to them by ensuring these additional services can be provided on the banks’ platform.
MAS has highlighted that it is still important for banks to focus on their core financial businesses and has consequently limited such non-financial businesses to 10% of a bank’s capital funds. Apart from certain digital platforms which banks are now expressly allowed to operate, banks would also need to seek case-by-case approval from MAS.
Going forward, non-financial businesses will continue to make inroads into traditional banking business, and banks need to be able to transform and adapt to such changes in the economy and society. We welcome MAS’ swift response to these changes around us, and look forward to the consultation paper in September which will have to strike a delicate balance between expanding the remit of banks to compete in this new economy and maintaining the safety and soundness of the financial sector.