19 July 2000, Singapore. The Monetary Authority of Singapore (MAS) announced today its approach to the licensing, regulation and supervision of Internet banking in Singapore.

MAS said that the risk considerations inherent in Internet banking are not new or fundamentally different from those posed in other forms of banking. MAS said that Internet banking, including Internet-only banks (IOBs), will therefore operate within the same prudential framework as traditional banking. MAS' admission criteria for new licence applicants, and its regulatory and supervisory approach, will apply across the board.

Licensing of new banks

MAS' existing policy already allows all banks licensed in Singapore to use the Internet to provide their services. The MAS announced that it is prepared to grant new banking licences to Singapore-incorporated banking groups to set up banking subsidiaries to pursue new business models, including IOBs. This will allow a bank to decide whether it wants to engage in such activities within the bank or through a separate subsidiary. Should a Singapore-incorporated bank choose to have a joint-venture partner in setting up the subsidiary, MAS will require the Singapore-incorporated bank to have control over the venture. Further, the MAS is prepared to admit branches of foreign-incorporated IOBs within the existing framework of admission of foreign banks.

The MAS has decided to impose a minimum paid-up capital requirement of S$100 million on banking subsidiaries whose Singapore-incorporated parent banks have already met the S$1.5 billion capital requirement, provided the parent bank has control over the subsidiary. The lower minimum paid-up capital requirement will apply to all Singapore-incorporated bank subsidiaries, new and existing. The new S$100 million minimum paid-up capital requirement is still higher than international norms. In addition to the paid-up capital requirement, all banking subsidiaries will continue to be subject to MAS' current minimum Capital Adequacy Ratio (CAR) requirement of 12%, which is also above minimum requirements elsewhere.

Risk-focused supervision of Internet banking

The MAS stated that its current framework for prudential regulation and supervision provides flexibility for innovation in new business models and technologies. There is no need for a new prudential framework to manage or mitigate the risks involved in Internet banking. However, certain types of risks will be accentuated in Internet banking, and will require greater attention by the banks, and by the MAS in supervising them. Given the different models of Internet banking that will be in play, a risk-focused supervisory approach to individual banks is more suitable than "one-size-fits-all" regulation. Depending on the overall risk profile of the individual bank, MAS may in certain cases require the bank to take additional prudential measures to mitigate these risks.

MAS said that banks are responsible for assessing and managing the risks associated with their operations, including the adoption of new technologies and business models. Bank management must pay special attention to the security, technology-related, liquidity and operational risks which may be accentuated in Internet banking, whether offered within existing banks or in standalone entities such as IOBs. IOBs may in addition face higher business risks arising from their new business models and will have to manage such risks through a detailed and robust system of performance measurement. MAS will require public disclosure of such undertakings as part of its requirement for all banks to enhance disclosure of their risk management systems.

In announcing these changes, Mr Tharman Shanmugaratnam, Deputy Managing Director, MAS said, "Our supervisory approach towards Internet banking will have to evolve as the technologies and business strategies in banking themselves keep changing. We want to maintain prudent regulatory oversight so as to preserve public confidence in the financial system, while encouraging financial institutions to take full advantage of new technologies to improve efficiency and competitiveness. The MAS will also require further disclosure by banks of their risk management systems, and expects them to inform customers of both the benefits and risks of new products and services."

Click here for the MAS' Policy Statement on Internet Banking.

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