The Monetary Authority of Singapore (MAS) will make it easier for banks to invest in non-financial businesses such as e-commerce and digital payments with less stringent regulations.
The upcoming policy change was announced on Tuesday, June 27, with the regulator seeking to update its framework separating banks’ financial and non-financial business.
In a speech at the 44th annual dinner of the Association of Banks in Singapore, Finance Minister Heng Swee Keat said banks will not need to seek regulatory approval before acquiring major stakes in non-financial businesses related to, or which complement their core financial business.
MAS introduced the anti-commingling framework in 2001 to separate the financial and non-financial businesses of banks. Heng said it was a pre-emptive move to ensure banks remained focused on their core financial businesses and competencies.
“In 2011, MAS took a first step to give banks greater allowance to carry on non-financial businesses that are related or complementary to the bank’s core financial businesses. Since then, the outlook has changed further. The growing ease of accessing financial services over the internet and smartphones presents new channels for banks to deliver value-added services to customers.”
“The line between financial and non-financial business is blurring. Banks are facing increasing competition from online and non-financial players that have leveraged their large user base to provide digital wallets, payments and remittance services. MAS recognises that we can simplify our requirements to enable banks to embed banking services into consumers’ day-to-day activities,” he adds.
Excluding businesses such as property development and the provision of hotel and resort facilities, according to MAS, this will be capped at 10 per cent of the bank’s capital funds.
It will also permit banks to engage in operating digital platforms matching buyers and sellers of consumer goods or services as well as their online sale if such activities are related or complementary to their core financial businesses.
According to MAS, this is meant to allow banks to broaden their ability to provide a fuller suite of services to their retail customers, though outside of this chance related to digital platforms, banks will still need case-by-case approval. The MAS also intends to deregulate the rules, such as removing the need to conduct regular stress tests or external audits.
However, banks and their boards will still be required to put in place necessary risk management governance arrangements. The regulator will provide operation details of these policy changes in a consultation paper to be released at the end of September.
This deregulation is a reflection of the position that MAS has taken as it seeks to boost innovation in the city-state.
Ravi Menon, head of MAS, had stated last year: “If you start regulating every one of those, you stifle a lot of innovation, and they don’t get a chance to grow. So only when they grow and reach a certain critical mass, which then poses a significant impact on the system, or it can affect a large number of consumers, then we step in to regulate. It’s always a fine balance.”
“Do you want to regulate PayPal the way you regulate DBS or Standard Chartered? No, that would be far too onerous, that would kill the business model and they won’t even come here. … Do you need to regulate them? Yes, because they have a scale,” he added.