Singapore financial regulator proposes reforms for the future economy

Recent global developments have reiterated the importance for Singapore to be able to adapt to a changing economic landscape. The Committee on the Future Economy (CFE) was set up to identify strategies to keep the Singapore economy competitive and able to meet future economic challenges. In response to the CFE’s report, the Monetary Authority of Singapore (MAS) has highlighted in its press release on 13 February 2017, how it will support the recommendations of the CFE and help to gear up the financial sector for the future.

The proposed measures are geared towards (a) building technology infrastructure to drive innovation; and (b) strengthening financing channels for next-generation Asian growth companies.

Building technology infrastructure

Some of the proposed technology infrastructural reforms include:

• Developing an electronic marketplace for trade finance assets.

An “e-marketplace” will allow participating banks to tap on the international capital market and go towards increasing the supply of trade finance for businesses in Singapore.  In this regard, a local Fintech firm, with the help of an MAS grant, is already developing such a platform for trade finance assets that aims to go live in the coming months.

• Promoting electronic platforms.

To boost liquidity and efficiencies in foreign exchange (FX) transactions, the MAS is working with banks to anchor e-FX trading platforms that can help enhance liquidity and efficiency in FX trade execution.

• Streamlining Know-Your-Customer (KYC) processes.

In light of repetitious and often costly and resource-intensive KYC processes required to screen clients, the MAS is exploring the feasibility of developing a centralised industry KYC utility using government-registered data that will streamline and automate KYC processes, thereby reducing compliance costs and enhancing efficiencies for financial institutions.

• Developing infrastructure for electronic payments.

To further enhance the convenience of electronic payments for businesses and consumers through Fast and Secure Transfers, the banking industry will be implementing a central addressing scheme in the third quarter of this year to allow users to make fund transfers by using proxies including mobile numbers and NRIC numbers instead of bank account numbers.

• Harnessing the power of data analytics.

The MAS has also announced the formation of a new Data Analytics Group to use data analytics to unlock insights, enhance the supervision of financial institutions and improve the efficiency of regulatory compliance.

Strengthening financing channels

In line with the CFE’s recommendations to make capital more accessible to start-up firms and Singapore enterprises, some proposed financial reforms include:

• Streamlining the authorisation process and regulatory framework for venture capital managers to support start-ups.

As part of its broader efforts to promote financing for enterprise development, the MAS will simplify the authorisation process and regulatory requirements for VC managers, with a view to allowing them to operate more nimbly in supporting start-ups in Singapore and the region. Under the proposed simplified regime, VC managers can expect to see relaxed requirements in relation to the assessment of fitness and propriety, base capital requirements and business conduct rules. MAS will also look to deepen the pool of private equity managers to draw more capital for late-stage and mature start-ups and will seek to streamline rules for PE managers.

• Strengthening the role of finance companies as active providers of SME finance. 

Recognising that finance companies complement the role of banks by providing more customised solutions for small and medium enterprises, the MAS has stated that it will relax some regulations that apply to them, with a view to enhancing their ability to better meet the financial needs of SMEs while ensuring prudent risk management.

In particular, the limits on a finance company’s uncollateralised business loans will be raised. In addition, finance companies will be allowed to offer current account and chequing services to customers and will be allowed to join electronic payment networks. However, these will still be subject to other regulatory restrictions and requirements to limit risks and to safeguard prudential standards. The regulatory changes will be phased in from this year.

• Enhancing the financial market infrastructure: dual-class shares.

The CFE has recommended that dual-class shares (DCS) structures be allowed, with appropriate safeguards to mitigate governance risks, to widen the range of public financing options, and to support the Singapore Exchange (SGX) as a listing venue for high-tech companies. The SGX has launched a public consultation on whether and how to introduce DCS structures in Singapore.

Implications

There is an increasing emphasis on innovation, the deepening of our capabilities and remaining connected and relevant on an international scale. The measures are also indicative of a shift towards digitisation that aims to consolidate data and streamline processes for added convenience and enhanced efficiencies to the various industry players including consumers, businesses, service providers as well as the regulator. With stronger financing channels for growth companies, high-tech companies might be more incentivised to innovate and flourish here.

It will be interesting to watch if and how DCS structures are introduced in Singapore. In 2011, a steering committee had proposed that public companies be allowed to issue shares with multiple-voting rights, subject to certain safeguards. In 2014, the Companies Act was amended to allow public companies to issue multiple-vote shares and the SGX has since released its consultation paper on implementing DCS structures in Singapore.

The various infrastructural and regulatory reforms proposed represent a positive step in developing Singapore into a conducive environment for innovation. It is hoped that such steps together with other future initiatives will ensure that Singapore remains competitive in an ever developing landscape.