20 December 2018
Following experience gained from the implementation of the FinTech Regulatory Sandbox, the Monetary Authority of Singapore (“MAS”) is now proposing the creation of Sandbox Express comprising a set of pre-defined sandboxes to complement the existing approach of customised sandboxes. This is unlike the current approach which requires an extensive review of each application as each sandbox is customised to facilitate meaningful experiments while ensuring that the consequences of failure can be contained. The new approach seeks to provide enterprising firms carrying on certain regulated activities with a faster option to bring innovative financial services or products to the market for testing and reduce the time and resources required of the applicants.
In its consultation paper released on 14 November 2018, MAS sought comments on the regulated activities which may be suited for Sandbox Express and outlined the Sandbox Express principles and governance framework. The consultation closed on 13 December 2018.
Proposed Sandbox Express principles and governance framework
Applications and required information
Interested applicants may apply to MAS on the prescribed application form and submit it together with the required information listed in the consultation paper. This includes:
- Profile information about the applicant and its key stakeholders (e.g. the applicant’s substantial shareholders, CEO and director), and information about the applicant’s financial standing and its regulatory status with MAS and/or other regulators.
- Details of the proposed financial service/product such as the problem statements to be addressed and the new benefits that the solution brings, including a comparison with similar offerings in Singapore. MAS will also require information about the business model and use cases, with end-to-end illustrations of the interactions and money flows between the applicant, the target customers and business partners. In addition, the applicant must provide information about the technical architecture and solution, detailing the specific technology and innovative ways in which the technology will be applied, and the readiness of the prototype and the development timeline.
- Start and end date of the pre-defined sandbox, taking into consideration the processing time required by MAS and the maximum duration allowed for that pre-defined sandbox.
- A declaration that the applicant will be conducting the specific regulated activity that is permitted by the pre-defined sandbox, and that it fully complies or is able to fully comply with all the conditions for that pre-defined sandbox.
Assessment criteria and approval timeframe
MAS will assess applications based on the following two criteria:
- Whether the applicant’s key stakeholders are fit and proper taking into account the factors set out in the MAS Guidelines on Fit and Proper Criteria; and
- The technological innovativeness of the proposed financial service or product.
MAS aims to complete the assessment and respond to the applicant within 21 days from the date the application is received. If an application is complex and requires more time to assess, MAS may decide to assess it under the customised sandbox approach instead of under Sandbox Express. For approved applications, MAS will publish information on the pre-defined sandbox entity and its activities on the MAS website.
Clear and proper disclosure to users
The pre-defined sandbox entity must provide clear and proper disclosure to every user and obtain an acknowledgement before the user can be on-boarded as a customer. The consultation paper lists the information that must be included in the disclosure, such as that the entity is permitted to operate in a pre-defined sandbox for a specified period of time (“approved period”) and that its scope is limited to the constructs of that pre-defined sandbox. The scope and limitations should be fully disclosed.
During the approved period, the entity has to submit a progress report to MAS every two months which must include:
- A declaration that the pre-defined sandbox conditions have been and are fully adhered to;
- Progress of the experiment;
- A register of issues encountered (e.g. technical, business, customer feedback) and the actions taken to resolve the issues; and
- A register of enhancements made to the solution in relation to the financial service or product.
Applicable activities for Sandbox Express
MAS explained that, as the intention is to shorten the time to process the applications, the conditions and regulatory reliefs for each pre-defined sandbox will need to be pre-determined. Hence, Sandbox Express would only be suitable for financial services or products which carry low risks, or risks that could be reasonably contained by the respective pre-defined sandbox’s constructs.
MAS proposes the initial set of pre-defined sandboxes for insurance broking, recognised market operator (“RMO”) and remittances. In all three cases, the approved period of the sandbox is capped at six months. The consultation paper lists the conditions and expectations that MAS will apply to the pre-defined sandboxes to safeguard the interests of the entity’s customers and contain potential risks of the experiment, including the requirement to provide clear and proper disclosure as set out above.
MAS will review the list of pre-defined sandboxes over time to meet the evolving needs and interests of the financial industry as well as to address any regulatory concerns.
An entity operating under the insurance broking pre-defined sandbox can conduct any one or a combination of the following regulated activities under the Insurance Act: (a) direct insurance broking, (b) general reinsurance broking, or (c) life reinsurance broking. The entity will be exempted from registration as an insurance broker under the Insurance Act.
Among other things, the total number of transactions is limited to 1,000 within the approved period. The entity will be required to maintain records of all transactions executed and cannot handle or hold onto customer’s monies. The entity must ensure that its shareholders, CEO, directors and broking staff are fit and proper.
If the entity intends to continue its insurance broking activities after the approved period, it must submit its application for registration as an insurance broker at least six weeks before the approved period ends.
Recognised market operators
An entity operating under the RMO pre-defined sandbox can conduct the regulated activity of establishing or operating an organised market as an RMO under the Securities and Futures Act (“SFA”). The entity will be exempted from the requirement to be recognised as an RMO under the SFA during the approved period.
Among other things, the entity can only on-board as customers those institutional investors and accredited investors who are not individuals. The maximum volume traded is capped at S$5 billion for securities market or five million derivative contracts for derivatives market. The entity cannot participate in its own markets as a participant or take principal positions. The entity will be required to maintain records of all transactions executed and cannot handle or hold onto customer’s monies and/or collateral.
If the entity intends to continue operating a market as an RMO after the approved period, it must submit its application for recognition as an RMO at least six weeks before the approved period ends.
An entity operating under the remittances pre-defined sandbox can conduct the regulated activity of remittance business under the Money-Changing and Remittance Businesses Act (“MCRBA”). The maximum value of outstanding remittance transactions at any point in time is limited to S$100,000.
The entity will be granted a remittance licence under section 8(3)(a) of the MCRBA, and exempted from complying with section 10(1) of the MCRBA to hold S$100,000 of security deposit for each place of business, during the approved period. The entity will be required to comply with all regulatory requirements that a holder of a remittance licence is subject to.
If the entity intends to continue its remittance business after the approved period, it must submit its application for a remittance licence at least four weeks before the approved period ends.
The following materials are available on the MAS website www.mas.gov.sg:
- Media release: MAS propose new regulatory sandbox with fast-track approvals
- Consultation paper on Sandbox Express