Financial Sector Gears Up for the Future Economy
Singapore, 13 February 2017… The Monetary Authority of Singapore (MAS) today highlighted how it will support the recommendations of the Committee on the Future Economy (CFE) and help to position the financial sector for the future. MAS will take a series of specific measures to:
a. strengthen financing channels for next-generation Asian growth companies; and
b. build technology infrastructure to drive innovation.
Strengthen financing channels for next-generation Asian growth companies
2 The CFE report recommends supporting companies with strong growth potential to scale up and internationalise. Singapore aims to be the financing hub for these next-generation Asian growth companies. They range from start-ups to small and medium enterprises (SMEs) or early-stage large enterprises, and often have a strong focus on innovation or technology. MAS will be announcing over the next few days specific initiatives to strengthen funding for such growth companies.
3 Simplify the authorisation process and regulatory framework for venture capital (VC) managers to support start-ups. A vibrant VC industry is an essential component for the start-up ecosystem. VC managers bring their know-how, business networks and capital to nurture promising start-ups and help them grow. VC and Private Equity (PE) assets under management in Singapore have grown by an average 30% per year in the past five years. But the industry is still at an early stage and there is scope to expand both the number and variety of VC managers. MAS will simplify the authorisation and ongoing regulatory requirements for VC managers to allow them to operate more nimbly in supporting start-ups in Singapore and the region. MAS will also look to deepen the pool of PE managers in order to draw in more capital for late stage and mature start-ups. In the coming year, MAS will examine the scope to streamline rules and enhance the operating environment for PE managers.
4 Strengthen the role of finance companies as active providers of SME finance. SMEs are a core pillar of Singapore’s economy, contributing about half of GDP and two-thirds of employment. While their financing needs are generally well met, more can be done to encourage more customised small business lending. Finance companies are important players in this market segment given their focus on developing strong links with small business owners and understanding their business models. MAS will adjust the regulations that apply to finance companies, with a view to enhancing their ability to better meet the financial needs of SMEs while ensuring prudent risk management.
5 Study the introduction of Dual Class Share (DCS) structures to support the growth of high-tech companies. By reducing short-term pressures on financial performance, DCS structures can potentially help the owners of high-tech companies to incubate innovations that require time to develop before generating tangible revenue. The CFE report as well as SGX’s Listing Advisory Committee have recommended the introduction of DCS structures. However, DCS structures pose governance risks that need to be carefully assessed and managed. SGX will soon be conducting a public consultation on whether and how to introduce a listing framework for DCS structures in Singapore.
6 Explore the scope to develop private market financing platforms. Such platforms can help successful entrepreneurs unlock capital so that they can go on to start new and innovative businesses. In the coming year, MAS will work with industry players to study successful private market structures in other financial centres and engage potential platform and market operators, with the aim of introducing such solutions in Singapore.
Build technology infrastructure to drive innovation
7 The CFE report recommends harnessing the transformative potential of digitalisation for innovation and growth. MAS has been working closely with the industry on technology infrastructure projects to drive innovation, boost market efficiency, enhance customer service, and extend Singapore’s connectivity with the region.
8 Develop an electronic marketplace for trade finance assets. An electronic trade finance platform will enable participating banks to distribute trade finance assets internationally, unlock capital to originate new trade finance lending, and increase the supply of trade finance for the region. A local FinTech firm with international experience in trade finance is developing such a platform with a grant from the Financial Sector Development Fund, and aims to go live in the next few months.
9 Promote electronic trading platforms for foreign exchange (FX). MAS is working with banks to anchor e-FX trading platforms that can help to enhance price discovery and FX trade execution, especially for Asian currencies. This will enable market participants to benefit from better liquidity and greater efficiency in executing FX transactions, and sharpen Singapore’s edge as Asia’s leading FX hub.
10 Build data infrastructure for natural catastrophe and cyber risk insurance. The Natural Catastrophe Data Analytics Exchange seeks to expand the availability of high-quality data on catastrophes in Asia by pooling industry loss data and collecting economic data through remote sensing technologies. This enhanced data will help increase catastrophe insurance penetration in the region. The Cyber Risk Management Project aims to develop industry-wide cyber risk definitions, databases and models to better quantify cyber risks. This will help to accelerate the growth of cyber risk insurance in Singapore and across Asia.
11 Explore feasibility of developing an industry Know-Your-Customer (KYC) utility. KYC is the process by which financial institutions identify and verify the credentials of their clients. This is a critical process for the financial services industry worldwide, but has become increasingly costly and resource intensive. It can also be duplicative and inefficient – clients are required to repeat the same KYC processes and provide the same information to every financial institution when opening a bank account, applying for a credit card or insurance policy. MAS is working closely with the industry and other government agencies to study the feasibility of developing an industry KYC utility. Such a utility can perform KYC processes on a centralised basis, and enable participating financial institutions to leverage government registered information based on client consent. It will also help to simplify and automate KYC processes, reduce compliance burden and enhance efficiencies within financial institutions.
12 Put in place infrastructure for the pervasive use of electronic payments. MAS has been working with the financial industry to promote the broad use of electronic payments to enhance consumer convenience and business productivity. Singapore already has a strong payment infrastructure in the form of Fast and Secure Transfers (FAST), which enables secure, real-time, inter-bank payments. The banking industry will implement in the third quarter of this year a Central Addressing Scheme that will allow users to make fund transfers through FAST by using proxies such as mobile numbers and NRIC numbers instead of bank account numbers. In view of the growing prevalence of QR-code payments in Singapore, MAS is also looking to work with the industry to develop interoperable standards for such payments.
A conducive environment for innovation in financial services
13 “The underlying thrust of MAS’ various initiatives is to provide a conducive environment for innovation – which is critical for the future of financial services. We do this through a judicious regulatory framework and enabling technology infrastructure. And even as we allow more risk-taking, we want to do so without compromising the safety of financial institutions and the stability of the financial system,” said Mr Ravi Menon, Managing Director, MAS.