30 July 2019
On 28 June 2019, the Monetary Authority of Singapore (“MAS”) announced that it will issue up to five new digital bank licences. This is in addition to any digital banks that the Singapore banking groups may also establish under the existing internet banking framework introduced in 2000. This move extends digital bank licences to non-bank players.
The MAS announcement noted that the entry of new digital players will add diversity and help strengthen Singapore’s banking system in the digital economy of the future. It will also provide impetus for existing banks to continue enhancing the quality of their digital offerings.
In announcing the move, Senior Minister and Chairman of MAS, Tharman Shanmugaratnam, explained that, “The new digital bank licences mark the next chapter in Singapore’s banking liberalisation journey. They will ensure that Singapore’s banking sector continues to be resilient, competitive and vibrant”.
The five new digital bank licences will comprise:
- up to two digital full bank licences, which allow licensees to provide a wide range of financial services and take deposits from retail customers; and
- up to three digital wholesale bank licences, which allow licensees to serve SMEs and other non-retail segments.
The Senior Minister noted that while MAS is prepared to award up to five digital bank licences, it will only do so if the applicants meet the eligibility and admission criteria, including demonstrating a tangible proposition that is innovative and sustainable.
MAS expects to invite applications for digital full bank and digital wholesale bank licences in August 2019.
Digital full bank licence framework
To be eligible for a digital full bank licence, a company must be headquartered in Singapore and controlled by Singaporeans. Foreign companies are eligible for these full bank licences if they form a joint venture with a Singapore company, and the joint venture meets the headquarter and control requirements. The decision to restrict the new licences to companies “anchored in Singapore” is in order to maintain a strong local core in the Singapore banking system and to avoid unintended unilateral liberalisation of Singapore’s full bank regime as a result of the country’s World Trade Organization (WTO) commitments.
In addition to headquarter and control requirements, MAS requires an applicant company or its parent group to demonstrate the following characteristics:
- A track record in operating an existing business in technology or e-commerce fields;
- Clear value propositions on how the company can serve existing unmet or underserved needs; and
- Have a sustainable digital banking business model, which will be assessed on the basis of reasonableness of business plans and financial projections such as cost-to-income ratio and net interest margin.
The Digital Full Bank Framework issued by MAS states that MAS will not allow any bank, digital or not, to engage to value-destructive competition to gain market share. The Senior Minister noted that MAS will set prudent baseline requirements on track record and sustainability of business models in order to ensure high-quality applicants.
A digital full bank will be required by MAS to comply with the following requirements:
- Incorporate in Singapore. This will strengthen MAS’ regulatory and supervisory oversight and offer better protection for depositors by enhancing the resolvability of the digital bank in the event of failure.
- Participate in the deposit insurance scheme provided by the Singapore Deposit Insurance Corporation. This will protect deposits of up to S$75,000 per depositor in the event of the bank’s failure.
- Comply with the same suite of prudential rules as incumbent banks, including ongoing risk-based capital and liquidity requirements.
- Submit a viable exit plan to facilitate an orderly wind-up if necessary.
Two-stage process for phasing in permissible activities
Permissible activities of digital full banks will be phased in by MAS via a two-stage process in order to minimise risk to retail depositors.
At the first stage, that is, the point of entry, the digital bank will commence as a Restricted Digital Full Bank and will be subject to specified restrictions in its initial one to two years. This is because the digital bank will still be building its business and risk management capabilities. Once the digital bank has demonstrated the ability to manage its risks well, the business and deposit restrictions will be relaxed and the minimum paid-up capital will be increased in proportion to its risk profile as assessed by MAS and how the bank is delivering on its value propositions.
At the second stage, the Restricted Digital Full bank will become a full functioning digital bank with all deposit caps lifted. The move to this second stage will occur once it has met all its relevant milestones and has been assessed as posing no significant supervisory concerns. The factors MAS will consider to allow the move to the Digital Full Bank stage include the Restricted Digital Full Bank’s business and financial performance, quality of loans, products and customer service, and risk management.
No time period for the transition from Restricted Digital Full Bank status to Digital Full Bank status will be prescribed.
The MAS announcement sets out the two stages and the corresponding requirements relating to minimum paid-up capital, deposit caps, capital and liquidity rules and business restrictions.
Additionally, both Restricted Digital Full Banks and Digital Full Banks can only have one physical place of business. There are no minimum account balance and fall below fees to be applied at either stage. At both stages, the digital bank must comply with unsecured credit rules, and will be able to offer cashback services through electronic funds transfer at point of sale (EFTPOS) terminals at retail merchants. Neither Restricted Digital Full Banks nor Digital Full Banks will be able to access automated teller machines (ATMs) or the cash deposit machine network.
Digital wholesale bank framework
Both Singapore and foreign companies are able to apply for a digital wholesale bank licence, with MAS specifying that an applicant under this framework will be required to meet similar eligibility criteria as set out for digital full bank licence applicants.
MAS requires that digital wholesale banks be incorporated in Singapore and must provide a viable exit plan during the application process. The key requirements for digital wholesale banks are as follows.
- Capital requirements: Minimum paid-up capital of S$100 million.
- Deposit restrictions: Unable to take Singapore dollar deposits from individuals, except for fixed deposits of at least S$250,000.
- Capital and liquidity rules: Same as existing wholesale banks.
- Business restrictions: Limited to one physical place of business and must only conduct activities within the proposed business scope.
Details of the eligibility criteria for digital full banks and digital wholesale banks are at Annex A and Annex B to the MAS press release. A summary of the progressive liberalisation of Singapore’s banking sector over the last 20 years is at Annex C.
These materials are available on the MAS website www.mas.gov.sg:
- MAS press release
- Annex A Digital Full Bank Framework
- Annex B Digital Wholesale Bank Framework
- Annex C Liberalisation of Singapore’s Banking Sector in last 20 years
- “Banking Liberalisation’s Next Chapter: Digital Banks” - Keynote address by Mr Tharman Shanmugaratnam, Senior Minister and Chairman, MAS, at
The Association of Banks in Singapore’s Annual Dinner, on 28 June 2019
Allen & Gledhill Regulatory & Compliance
To assist our clients with compliance matters, our consultancy arm, Allen & Gledhill Regulatory & Compliance, provides a range of services and solutions. Should you have any queries relating to compliance issues arising out of this development, please contact: