Rules to bar fintechs from moving into banking ops

While fintechs are welcome to set up shop here, there will be clear lines drawn to prevent them from using funds to push into banking operations, such as extending loans.

Monetary Authority of Singapore (MAS) managing director Ravi Menon said yesterday that larger mobile wallet operators will have to ring-fence their e-wallet funds, meaning they will be barred from lending.

The curbs are part of the Payment Services Bill that is heading for the statute books, likely next year.

It will stipulate that mobile wallet operators with an average daily e-money float of more than $5 million will have to secure the funds.

"The... fintech cannot lend that to somebody else," said Mr Menon.

"Once you take a deposit and lend it out, you become a bank. That's a clear line a fintech cannot cross, unless it obtains a banking licence."

The move to ring-fence funds held by larger operators sets Singapore apart from China, where fintechs have a much freer rein. This has enabled large firms there to earn revenue by using deposits as loans, operating in effect as unregulated banks.

Fintechs in general have shied away from being labelled as banks, which are heavily regulated.

The ring-fence move here will put the spotlight on large fintechs with an emerging business arm for financial services, such as Grab.

Larger payment fintechs may be able to explore a fee model by offering advisory services. But Mr Menon noted that any fintech that moves into this sphere would need a separate financial advisory licence from the MAS.

As large fintechs nudge uncomfortably into the banks' space, top bankers have argued that these firms are less regulated, which in turn gives them more room to innovate and to take market share from the incumbents.

But capital requirements and other Basel III rules are deemed as unrealistic for pure e-wallet and payment operators, with PayPal commonly cited as an example.

Mr Menon said: "We want to achieve a level playing field from the perspective of risk. If a fintech poses 1 per cent of the risk that a bank poses, how can we impose the same burden on them?"

But he noted that the MAS will not yield on two main areas - cyber security and anti-money laundering standards - although it will calibrate the rules according to the scale of a fintech's operations.

"A big bank can be used for money laundering, but a small payments provider can also be abused. There, the risk is not very different, so there must be roughly the same requirements," said Mr Menon, who was speaking ahead of the Singapore FinTech Festival that runs from Nov 12 to 16.

"The second hygiene factor is cyber security. Both a large bank and a small fintech can get hacked. If both are licensed, they will be subject to roughly similar requirements, but we are not going to find the resources to inspect the smaller fintech players. But with banks, we will scrutinise a lot more. We can't take a chance."

The MAS is also looking to refine its "sandbox model", which began in 2016 so start-ups can test ideas amid relaxed rules for a set period.

This involves ways to speed up the approval process.

A version of this article appeared in the print edition of The Straits Times on October 11, 2018, with the headline 'Rules to bar fintechs from moving into banking ops'. Print Edition | Subscribe