INVESTMENT FUNDS UPDATE

Monetary Authority of Singapore to Issue up to Five Digital Bank Licenses

July 15, 2019

On June 28, 2019, the Monetary Authority of Singapore (MAS) announced that it will issue up to five new digital bank licenses. Out of the five digital bank licenses, MAS will issue up to two digital full bank licenses and up to three digital wholesale bank licenses. 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. In effect, MAS’ announcement opens up digital bank licenses to nonbank players.

MAS views the entry of new digital players as adding diversity and helping to strengthen Singapore’s banking system in the digital economy. With innovative business models and strong digital capabilities, these new players can cater to the underserved segments of the Singapore market. At the same time, they will provide impetus for existing banks to continue enhancing the quality of their digital offerings.

MAS has released the preliminary details on the eligibility criteria for digital full banks and digital wholesale banks here and here respectively. This briefing provides a summary of the key eligibility criteria to qualify for a digital full bank license or a digital wholesale bank license.

License

Criteria

Digital full bank license

Open to companies headquartered in Singapore and controlled by Singaporeans.
Foreign companies are eligible if they form a joint venture with a local company and the joint venture meets the headquarters and control requirements.
Applicant or its parent group must have the requisite track record, value proposition and sustainable digital banking business model.
The digital full bank must

be incorporated in Singapore
participate in the deposit insurance scheme provided by the Singapore Deposit Insurance Corporation
comply with same suite of prudential rules as incumbent banks
submit a viable exit plan to facilitate an orderly windup if necessary

There will be a two-stage phasing-in process for a digital full bank:

Under the first stage, the digital full bank will be subject to business limitations such as caps on aggregate deposits, restrictions on business (for example, it may not offer complex investment products such as structured notes, nor engage in investment banking activities such as derivatives and proprietary trading) and a minimum paid-up capital of S$15 million.
Under the second stage, the digital full bank will be able to carry out a wider range of services but will be subject to more stringent requirements such as a minimum paid-up capital requirement of S$1.5 billion. The transition from first stage to second stage may be a gradual process. For example, MAS may impose progressively higher caps on deposits and minimum paid-up capital as the digital full bank offers more and more services. MAS will consider factors such as business and financial performance, quality of loans, products and customer service, ability to serve needs of identified segments and risk management when assessing a digital full bank’s readiness to transition from first stage to second stage.

Digital wholesale bank license

Applicant or its parent group must have the requisite track record, value proposition and sustainable digital banking business model.
The digital wholesale bank must be incorporated in Singapore.
Must have a minimum paid-up capital of S$100 million.
Not permitted to take Singapore dollar deposits from individuals, except for fixed deposits of at least S$250,000. However, permitted to take deposits from small and medium-size enterprises and corporates.
Same capital and liquidity rules as existing wholesale banks in Singapore.

Applications for the abovementioned digital bank licenses will open in August 2019, and MAS will provide further details on the eligibility and admission criteria at that time.

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