Fintech 2024 Comparisons

Fintech Evolution in Singapore in 2023

The fintech sectors of digital payment, cryptocurrency, and AI and machine learning were the top three most funded in Singapore in 2023. Connections between Singapore’s PayNow and India’s UPI were established to make cross border payments possible, the first of its kind. Later in the year, Singapore also established connections with Thailand, Indonesia and Malaysia, through Project Nexus developed by the BIS Innovation Hub Singapore Centre and its partners.

Issues in 2024

It is said that the top fintech trends in Singapore in 2024 would include cross-border transactions, the integration of generative AI in financial services, evolving applications of digital currencies and the adoption of embedded finance (EmFi) “as-a-Service”, and increased ESG (environmental, social, and governance) data reporting. With these trends, the issues that will arise might be:

• increase in scams and frauds associated with these fintech advancements;
• difficulty in hiring workers due to both funding, competition and the skills and talent gap; and
• regulatory challenges on Monetary Authority of Singapore’s (MAS) end.

In Singapore, the fintech landscape is characterised by several prominent business models, encompassing peer-to-peer lending, regulatory technology (“RegTech”), insurance technology (“InsurTech”), and wealth technology (“WealthTech”).

Peer-to-Peer Lending

Peer-to-Peer Lending has gained traction as a model facilitating direct connections between borrowers and lenders, whether individual or institutional, bypassing traditional financial intermediaries. This approach offers businesses increased access to funds at favourable interest rates and potentially more flexibility in managing debt restrictions.

InsurTech

InsurTech leverages technology to enhance the efficiency of the insurance sector, making insurance products more accessible and refining conventional insurance operations.

RegTech

RegTech, a pivotal model, involves leveraging technological innovations to fortify risk management, providing solutions for regulatory monitoring and compliance within financial institutions.

WealthTech

WealthTech, driven by technologies like artificial intelligence and extensive data analysis, transforms investment advice and wealth portfolio management. Notable manifestations of WealthTech include the deployment of “robo-advisors” and sophisticated algorithms. These innovative business models collectively contribute to the dynamic and evolving fintech ecosystem in Singapore.

For industry participants involved in Peer-to-Peer Lending, they are under the regulatory regime of the MAS, and are regulated specifically under the Securities and Futures Act 2001 (SFA) and the Financial Advisers Act 2001 (FAA).

Meanwhile, InsurTech is also regulated under the regime of the MAS, with industry participants potentially facing regulations of the FAA and the Insurance Act (IA), depending on the type of activities and the level of involvement in insurance policies taken on by them.

Furthermore, WealthTech companies are also regulated by the MAS, in particular being regulated by the Personal Data Protection Act 2012 (PDPA) due to the use of collected data in algorithms, the SFA, and the FAA.

Participants in RegTech do not have specific regulations tailored to them, only needing to comply with conventional financial regulations set out by the MAS.

However, it is important to note that there is no single legislation regulating these verticals, and depending on the services or products offered by industry participants, they may be subject to a number of other statutes, including but not limited to:

• Payment Services Act 2019 (PSA);
• Banking Act 1970; and
• Moneylenders Act 2008.

In Singapore, industry participants employ various compensation models, including fee-based, subscription-based, and commission-based structures, based on the nature of their operations.

Under the FAA, industry participants are obligated to provide comprehensive disclosures to clients. These disclosures encompass clear information regarding the amount, frequency, period, and nature of fees and charges associated with the services rendered. Such transparency ensures that clients are well-informed about the financial arrangements and facilitates an environment of trust between the industry participants and their clientele. These disclosures are similar, across the different models.

In Singapore, the regulatory environment is designed to encourage the growth of the fintech industry, adopting a more supportive approach to fintech innovation.

For example, the MAS has implemented a “Fintech Regulatory Sandbox” framework to allow entities to experiment with financial products and the implementation of technology, in a live environment. While the sandbox has regulations in place to maintain financial stability, fintech industry participants are still able to enjoy less regulatory burden in their start-up phase than conventional financial institutions.

Another difference in regulation is the type of licensing required by both parties. On one hand, fintech industry participants may be required to apply for licences tailored to the cutting-edge nature of their operations, such as the:

• PSA licence; and
• Licence under the Financial Services and Markets Act 2022,

depending on their operations, while legacy players are typically subject to existing regulations pertaining to banks, insurers or other conventional financial institutions.

However, some similarities both parties share are the regulations pertaining to anti-money laundering such as the Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) guidelines and requirements in business operations, as well as regulations over consumer protection, such as the application of the PDPA in regulations of both fintech and legacy players.

Singapore’s Regulatory Sandbox

Singapore has a regulatory sandbox, which is operated by the MAS, known as the MAS FinTech Regulatory Sandbox. This framework provides a controlled environment for testing innovative financial products, services and business models. This allows nascent fintech endeavours space to develop within a supervised environment.

How the Sandbox Works

Under the regulatory sandbox, companies, including start-ups and existing financial institutions, can apply to test their innovations in a live production environment. During this testing phase, certain regulatory requirements may be relaxed to facilitate experimentation, while still ensuring consumer protection and financial stability. Examples of legal and regulatory requirements that MAS is prepared to consider relaxing for the duration of the sandbox includes, but is not limited to:

• asset maintenance requirements;
• fund solvency;
• capital adequacy requirements;
• board composition; and
• financial soundness.

Who May Apply

The sandbox is open to a wide range of entities involved in the financial sector, including fintech start-ups, established financial institutions, technology companies, and other innovators. MAS assesses each application based on its merits, considering factors such as the potential benefits to consumers, the novelty of the innovation, and the applicant’s ability to manage associated risks effectively.

Approach to Regulation of Sandbox Companies

MAS maintains oversight throughout the testing phase to monitor the progress of sandbox participants and assess any risks that may arise. While certain regulatory requirements may be relaxed during the sandbox period, MAS ensures that adequate safeguards are in place to protect consumers and the integrity of the financial system. At the end of the testing period, MAS conducts a review to determine whether to grant regulatory approval for the innovation to be deployed on a broader scale, subject to any necessary adjustments or conditions. This approach allows for innovation to flourish while maintaining regulatory standards and safeguarding the interests of all stakeholders.

The regulatory landscape in Singapore is overseen by multiple regulatory bodies, primarily by the MAS, but also by others such as the Accounting and Corporate Regulatory Authority (ACRA), and the Competition and Consumer Commission of Singapore (CCCS).

MAS

The MAS plays a crucial role in regulating fintech activities, including the regulation of payment services, digital banking, and cryptocurrency-related businesses. Notably, it has implemented the Fintech Regulatory Sandbox to allow experimentation by industry participants.

ACRA

ACRA is the national regulator of business entities and public accountants, ensuring compliance with legislation such as the Companies Act 1967. Its jurisdiction mainly covers matters related to registration of fintech companies as businesses, as well as financial reporting of the companies itself.

CCCS

CCCS governs competition law in Singapore and enforces legislation including the Competition Act and Consumer Protection (Fair Trading) Act. It has the authority to investigate and address anti-competitive practices, as well as unfair trade practices that may harm competition in various industries, including fintech.

In Singapore, the MAS has issued comprehensive guidelines on outsourcing for financial institutions. These guidelines mandate that institutions rigorously evaluate vendors to ensure they can uphold a high standard of care, performing services with the same level of diligence as if conducted by the institution itself. Vendors must adhere to the institution’s obligations as a regulated entity, encompassing stringent requirements related to data protection, confidentiality, and regulatory compliance.

When entering into outsourcing agreements, industry participants are obligated to precisely delineate the obligations, responsibilities, and expectations of both parties involved in the outsourcing arrangement. Moreover, these agreements must grant institutions the authority to intervene if necessary to meet their legal and regulatory obligations.

In practice, opting for outsourcing to a regulated entity is generally considered preferable. This choice enhances the vendor’s familiarity with the regulatory requirements incumbent upon the institution, as they are likely subject to analogous obligations. Consequently, outsourcing to a regulated entity increases the likelihood of seamless regulatory compliance within the terms of the outsourcing agreement.

Fintech providers operating in Singapore fall under the regulatory purview of the MAS and are considered “gatekeepers” with significant responsibility for the activities on their platforms. They are subject to various regulatory frameworks contingent on the scope and nature of their products or services.

These providers bear the responsibility of strict adherence to Singapore’s AML/CFT guidelines. These guidelines mandate the assessment and mitigation of AML/CFT risks, necessitating the implementation of customer due diligence (CDD) and Know Your Customer (KYC) procedures, with Enhanced Due Diligence (EDD) being carried out if required. The extensive collection of data also obliges them to comply with PDPA, governing the collection, use, and transmission of personal data in Singapore. Regular account reviews and the reporting of suspicious activities to the Suspicious Transaction Reporting Office of Singapore are integral components of these obligations.

Moreover, in their role as gatekeepers, fintech providers must align with MAS Guidelines on Risk Management Practices – Technology Risk. These guidelines establish risk management principles and best practice standards, serving as a framework for financial institutions to effectively manage technological risks.

While there has been a number of enforcement actions for carrying out regulated payment services without a licence under the PSA, regulators in Singapore have not undertaken significant enforcement actions in the main verticals. MAS proactively monitors developments in the fintech sector, carefully evaluating the need and necessity for regulatory interventions. The establishment of task forces like the FinTech & Innovation Group (FTIG) signals increased scrutiny. It is anticipated that regulators will promptly respond to identified breaches, aligning with the industry’s evolving landscape and growing importance.

In line with the preceding discussions, Singapore’s fintech entities may be regulated by various regulations. However, all such entities operate within the regulatory oversight of the MAS. Given the data-intensive nature of fintech operations, strict compliance with the PDPA is also crucial.

Fintech, entrenched within the banking and finance sector, is also subject to robust cybersecurity regulations mandated by the Cybersecurity Act 2018. These regulations are meticulously crafted to fortify cybersecurity measures, enhance preventive strategies, and ensure effective management and response to cybersecurity threats and incidents.

While Singapore currently does not have imminent plans for dedicated regulations on artificial intelligence (AI), the government has proactively issued guidelines and non-binding frameworks. A noteworthy development in this regard is the release of an Information Paper by MAS in June 2022, titled “Implementation of Fairness Principles in Financial Institutions’ Use of Artificial Intelligence/Machine Learning”. This publication aims to provide observations and recommendations governing the deployment of Artificial Intelligence and Machine Learning in the financial sector. Offering recommendations, outlining good practices, and incorporating industry examples, the Information Paper, especially focuses on implementing the fairness principle in the deployment of AI within the Singaporean financial landscape.

Apart from the regulators, there are industry associations in Singapore such as the Singapore Fintech Association which function more as intermediaries between the fintech participants and stakeholders. The prevailing industry practices involve maintaining well-documented and transparent assessment records, with some indications pointing towards the consideration of external auditing for added assurance.

In Singapore, entities carrying on business in any regulated activity are required to obtain a Capital Market Services (CMS) licence. While some CMS licence holders are involved in unregulated activities, such as trading bitcoin futures and other payment token derivatives, it is important to note that the MAS has issued guidance to address associated risks.

The Financial Institutions (Miscellaneous Amendments) Bill 2024 seeks to confer on the MAS enhanced powers. When this bill comes into force, the MAS will have the authority to issue directives to CMS licence holders engaged in unregulated ventures that could potentially impact their regulated activities. These directives will establish minimum standards and safeguards for both CMS licence holders, ensuring compliance and risk mitigation, even in engaging in unregulated businesses.

In line with international standards set by the Financial Action Task Force (FATF), Singaporean fintech companies, both regulated and unregulated, are significantly impacted by robust AML and sanctions rules established by the MAS. These regulations necessitate comprehensive risk assessments, stringent CDD, and KYC procedures. High-risk customers, including politically exposed persons (PEPs) and those from high-risk jurisdictions, require Enhanced Due Diligence (EDD). Regular reviews of customer accounts, especially high-risk ones, are mandatory.

Fintech firms actively monitor and report suspicious transactions, submitting Suspicious Transaction Reports to the Commercial Affairs Department of Singapore. The Payment Services (Amendment) Act 2021 aims to enhance compliance by aligning with the latest FATF standards, specifically addressing anti-money laundering and countering the financing of terrorism threats associated with virtual assets.

In the context of robo-advisors, the question of whether distinct business models are required for different asset classes revolves around the unique characteristics and risk profiles associated with each class. Asset classes, despite being often combined for diversification, frequently exhibit minimal or negative correlation. This prompts a consideration for tailored business models that align with the specific attributes of different asset classes. For example, a “hold to collect” model may be well-suited for managing current assets like trade receivables, while a “hold to collect and sell” approach may be more fitting for fixed assets such as bonds.

Robo-advisors first came to Singapore in 2018, with major banks such as DBS, UOB, and OCBC leading the way in offering these services. In an effort to broaden accessibility, these banks are extending robo-advisor features to less experienced individuals, providing access to investment strategies and general financial advice. The integration process involves allowing existing bank account holders seamless access to the robo-advisor, eliminating the necessity for a separate fund transfer, which typically takes 1–3 working days. This streamlined approach enables customers to invest instantaneously directly from their deposit accounts.

Best Execution in the context of robo-advisers is a regulatory framework mandating financial services and firms to consistently act in the best interest of their clients, ensuring the optimal outcome for customer trades based on various factors. This standard applies universally across all asset classes, presenting challenges in certain scenarios. Some issues are as follows:

• high-quality data may be less accessible;
• rapid changes in market conditions, particularly during periods of high volatility, poses challenges for achieving Best Execution;
• technological risks such as system outages, disruptions, or cyber treats may impact the timely execution of trades;
• sheer volume of data, making it challenging for firms to thoroughly analyse their true compliance with Best Execution practices; and
• lack of robust Best Execution policies by firms.

In Singapore, a person who does not lend money to individuals or who lends solely to accredited investors will be an excluded moneylender under the Moneylenders Act 2008, who would not be required to obtain a licence or an exemption for carrying on the business of money-lending in Singapore.

Each financial institution adheres to its unique underwriting process, although there is a general conformity to a standardised framework and strategy within the industry itself. Participants in the financial sector engage in a meticulous credit evaluation procedure, wherein they analyse their specific target customers, using risk assessment criteria which they create internally. This process consists of evaluating their customers against their own standards of pricing, collateral, facility structures, covenants and conditions. Furthermore, these institutions will review their predictions of a customer’s financial growth and assumptions on the future of the industry to support their credit evaluation process.

It is to note that there is no specific regulation stipulating these processes. However, MAS proactively ensures regulatory oversight through thematic inspections on various banks. These inspections serve to assess the institutions’ standards and practices, identifying areas for improvement and upholding the integrity of the overall underwriting processes.

There are several sources of funds for loans in Singapore, including peer to peer lending (“P2P Lending”) and securitisation. They are subject to meticulous legal and regulatory oversight by the MAS. Thus, there should be little to no legal issues with the sources of funds for loans in Singapore, if they are in compliance with MAS’s requirements and standards.

P2P Lending or crowd-funding, a collaborative lending money involving multiple individuals lending money to a company, and then to be repaid at a specific interval and interest rate, falls under the regulatory purview of the SFA, if there is an offer of debentures, and the FAA, if financial advice is provided to the lenders. P2P Lending operations must adhere to these statutes to ensure fair lending practices and address investor protection concerns.

Securitisations is the process of converting assets into marketable securities, is also subject to a comprehensive regulatory framework established by MAS. Some compliance with MAS regulations involves meeting separation requirements, fulfilling disclosure obligations, adhering to reporting forms, satisfying servicer requirements, and addressing aspects such as liquidity facilities, credit enhancements, and capital requirements for reporting banks. Thorough compliance with these regulations is imperative to mitigate legal risks associated with securitisation.

Syndication of such loans do take place in Singapore, particularly in the context of corporate financing and government bonds. A notable example of the syndication process is that of SGS bonds. They are conducted through a series of events:

• annually, a calendar outlines upcoming syndicated issuances of SGS bonds for the upcoming year;
• a week before pricing day, banks are appointed as “Bookrunners” by MAS for bond distribution;
• on pricing day, MAS launches the syndicated issuance, with Bookrunners offering bonds to institutional investors through a book-building process. Pricing details are published on the MAS website by the end of the day;
• Public Offer opens one business day after pricing, lasting a determined period. MAS can adjust the aggregate principal amount of bonds during this time;
• 1–2 business days post Public Offer closure, MAS publishes syndication results, detailing applications, allotted amounts, and an overview of allocations for Placement Tranche and Public Offer; and
• bonds are then issued to individual and institutional investors, including those outside Singapore.

Syndicated lending is regulated by MAS. Their comprehensive regulations can be found on the MAS website and banks need to follow these certain requirements to obtain a licence from MAS to carry out syndication of loans.

Payment services, including processing, are regulated by the MAS under the Payment Services Act (PSA). Payment services are categorised by PSA, but it is the providing of the payment service that is regulated, and not the creation or implementation of new payment rails.

Cross-border payments are regulated by the MAS under the PSA. Cross-border payment services in Singapore must be licensed by MAS to ensure that service providers meet legal requirements, implement robust Anti-Money Laundering and Counter-Terrorist Financing measures, carry out transaction monitoring, and meet regulatory standards on practices such as risk management. Additionally, the PSA is aimed at protecting consumers engaging in cross-border transactions. Thus, service providers must inform consumers of related fees, exchange rates, and terms and conditions in a clear manner.

Fund administrators are not regulated by the MAS unless they carry out fund management activities or provide custodial services. Fund managers are regulated depending on the size of their assets and clientele, as either a:

• Registered Fund Management Company (RFMC), with at most SGD250 million of Assets Under Management (AUM) and 30 accredited and institutional investors; or
• Licensed Fund Management Company (LFMC), with no limit on the number of investors but must hold a CMS licence.

LFMCs can be further categorised as such:

• Retail LFMC;
• Accredited/Institutional LFMC; or
• Venture Capital Fund Manager (VCFM),

each with their own requirements and regulations based on the differences in activities.

Certain services relating to fund administration may fall within the ambit of the Outsourcing Guidelines issued by MAS, in which case the contractual terms with the fund administrator should be in line with the Outsourcing Guidelines. The fund manager or fund adviser should also ensure that the contractual terms require the fund administrator to ensure that the outsourced work meets the requirements expected of the fund manager or fund adviser.

There are various types of marketplaces and trading platforms that are permissible in Singapore. MAS oversees these platforms to ensure market integrity, investor protection, and regulatory compliance across the financial ecosystem.

Traditional Stock Exchanges

• Example – Singapore Exchange (SGX).
• Regulatory regime – traditional stock exchanges are regulated by the MAS and must adhere to the SFA and the rules and regulations set forth by MAS and SGX. These regulations govern aspects such as listing requirements, trading rules, market conduct, and investor protection.

Multilateral Trading Facilities (MTFs)

• Example – SGX Bond Pro.
• Regulatory regime – MTFs are alternative trading venues that facilitate the trading of securities outside of traditional stock exchanges. They are subject to regulations similar to traditional stock exchanges, including compliance with the SFA and MAS regulations. However, MTFs may have slightly different listing requirements and trading rules tailored to their specific market segments.

Peer-to-Peer (P2P) Trading Platforms

• Example – Funding Societies.
• Regulatory regime – P2P trading platforms facilitate direct transactions between buyers and sellers without the involvement of traditional intermediaries. They are regulated by MAS under the SFA if they offer securities and FAA if they provide financial advice. MAS imposes licensing requirements, conduct standards, and disclosure obligations on P2P trading platforms to safeguard investor interests, ensure market integrity, and mitigate risks associated with peer-to-peer lending.

Cryptocurrency Exchanges

• Examples – Gemini; Coinhako.
• Regulatory regime – cryptocurrency exchanges facilitate the trading of digital assets such as Bitcoin and Ethereum. They are regulated by MAS under the PSA if they facilitate the exchange of digital payment tokens. Such cryptocurrency exchanges are required to obtain a licence from MAS to operate legally in Singapore. The PSA imposes stringent requirements on regulated cryptocurrency exchanges, including AML/CTF measures, customer due diligence, and cybersecurity standards.

In Singapore, different asset classes are regulated within the regulatory framework established by the MAS. In particular, they are regulated by the AML/CFT rules. These rules aim to safeguard the integrity of the financial system by combating illicit financial activities.

Different asset classes may be subject to different regulatory regimes tailored to their unique characteristics. Capital markets products such as shares and debentures may be regulated under the Securities and Futures Act 2001 depending on whether the activity carried out in relation to the capital markets product is regulated and whether any exemptions apply. Likewise, digital payment tokens and e-money may be regulated under the Payment Services Act 2019 depending on whether the activity carried out in relation to the digital payment token is regulated and whether any exemptions apply.

Overall, MAS’s regulatory framework encompasses a diverse range of asset classes, each subject to tailored regulations aimed at maintaining market integrity, protecting investors, and preserving financial stability.

Regulatory Response to Cryptocurrency Exchanges

The emergence of cryptocurrency exchanges has spurred Singaporean regulators to enact comprehensive frameworks, extending AML/CFT regulations to cover these platforms. A cryptocurrency exchange may be regulated under the PSA and require a licence to operate if it facilitates the exchange of digital payment tokens. Under the PSA, cryptocurrency exchanges are mandated to submit Suspicious Activity Reports (SARs) to the MAS and implement stringent CDD procedures. These regulations mark a significant advancement from previous legislation, reflecting Singapore’s commitment to fostering innovation while safeguarding against financial crimes.

Balancing Innovation and Security

By enforcing robust regulatory requirements, Singapore aims to strike a balance between promoting innovation in the cryptocurrency sector and ensuring the integrity and security of its financial system. The PSA underscores the importance of transparency, accountability, and co-operation among regulatory authorities, enhancing the overall resilience of the cryptocurrency ecosystem in Singapore. Through these measures, Singapore seeks to maintain its reputation as a leading global financial hub while addressing emerging challenges posed by the rapid evolution of digital assets.

Listing standards are overseen by the Singapore Exchange (SGX), and are divided into Mainboard for established enterprises, and Catalist for fast-growing enterprises.

Mainboard

For Mainboard, some requirements include having a profitable track record, meeting higher financial thresholds and meeting corporate governance and disclosure standards. Quantitatively, the company must meet one of the following requirements:

• have a minimum consolidated pre-tax profit of at least SGD30 million for the latest financial year with operating track record of at least three years;
• be profitable in the latest financial year, and have a market capitalisation of at least SGD150 million based on the issue price and post-invitation issued share capital with operating track record of at least three years; or
• have operating revenue in the latest completed financial year and a market capitalisation of at least SGD300 million based on the issue price and post-invitation issued share capital.

Catalist

For Catalist, there are no minimum quantitative standards, but they must also meet corporate governance standards.

Global Financial Industry

The global financial industry generally agrees upon the following listing standards, aimed at ensuring transparency and integrity of financial markets:

• financial performance;
• corporate governance;
• listing fees;
• liquidity of shares; and
• size of firm (determined through income and market capitalisation).

In Singapore, the MAS has established order handling rules for marketplaces, exchanges, and trading platforms. These rules mandate entities to implement Best Execution procedures, ensuring they take reasonable steps to achieve optimal outcomes for client orders, considering factors like speed, price, and execution likelihood. Capital markets intermediaries must actively monitor compliance with these policies and provide clear disclosure of their Best Execution practices to clients, ensuring transparency and informed decision-making. Overall, these regulations aim to uphold fair and transparent trading practices while prioritising client interests and market integrity.

Impact on Traditional Players

The rise of peer-to-peer trading platforms introduces heightened competition for traditional players like banks and financial institutions. With features such as payment versatility, global transfers fostering financial inclusion, and online trading offering convenience, consumers increasingly opt for these digital platforms. This trend poses a risk of market share loss for traditional players, compelling them to adapt to evolving consumer preferences and technological advancements to remain competitive.

Impact on Fintech Players

Peer-to-peer trading platforms drive innovation within the fintech sector by streamlining borrowing processes, eliminating paperwork, and offering lower interest rates. This facilitates easier access to funds for business ventures, fostering an environment conducive to entrepreneurship and innovation. Fintech players stand to benefit from this innovation, as it enhances the efficiency and accessibility of financial services, potentially expanding their market reach and driving sectoral growth.

Regulatory Challenges

Peer-to-peer trading platforms present regulatory challenges related to consumer protection, data privacy, and market integrity. Regulators must address concerns such as inadequate disclosure, fraud prevention, and personal data protection under the PDPA. Additionally, ensuring market integrity and preventing manipulation, as outlined in the SFA, is crucial. Regulatory oversight is also essential to enforce due diligence, record-keeping requirements, and combat money laundering and terrorism financing, aligning with Singapore’s Financial Services and Markets Act 2022. Balancing innovation with regulatory compliance is imperative to foster a thriving and secure peer-to-peer trading ecosystem.

In Singapore, the Best Execution Policy, outlined in compliance with the MAS Notice on Execution of Customers’ Orders (SFA 04-N16), underscores the importance of robust procedures for optimal order placement and execution. These guidelines, applicable to capital market intermediaries, prioritise critical factors such as price, costs, speed, and overall client relationship quality, ensuring that customer trades are executed in the most advantageous manner possible.

To uphold these standards, Best Execution policies must be approved by the capital markets intermediary’s Board of Directors or a designated management committee. Moreover, they must undergo periodic updates to maintain relevance and effectiveness. Robust monitoring infrastructure is also mandated for ongoing adherence and to assess the policies’ efficacy over time.

Transparency is paramount in the execution process. Prior to executing customer orders, intermediaries are obligated to clearly disclose their Best Execution policies to clients in a comprehensible manner, ensuring that clients are well-informed about the processes governing their trades. This commitment to transparency enhances trust and confidence in the financial markets.

Rules

As of 1 April 2023, in line with the Guidelines to Notice SFA 04-N16 on Execution of Customers’ Orders, the MAS has unequivocally prohibited the practice of Payment for Order Flow (PFOF). Under this regulation, brokers are strictly prohibited from receiving any form of payment for order flow in the placement and execution of customers’ orders. This regulatory stance is aimed at eliminating potential conflicts of interest inherent in PFOF arrangements.

Impact

The prohibition of PFOF is designed to safeguard the integrity of the market and uphold brokers’ obligations to achieve Best Execution for their clients. PFOF incentivises brokers to prioritise routing orders to market makers or trading venues that offer the highest commission, potentially compromising the broker’s duty to execute orders in the most advantageous manner for their clients. By prohibiting PFOF, MAS aims to ensure that brokers remain fully committed to fulfilling their fiduciary duty to clients and providing them with optimal execution without undue influence from external incentives. This regulatory measure underscores MAS’s commitment to promoting fairness, transparency, and investor protection in the financial markets.

Market Integrity

The basic principles governing trading to maintain market integrity are outlined in the SFA, which mandates that markets be fair, orderly, and transparent. A fair market ensures proper trading practices and provides non-discriminatory access to market facilities and information, fostering an equitable environment for all participants. An orderly market is characterised by robust procedures and systems that facilitate organised transactions while minimising the risk of market failure. Transparency in trading, including the real-time availability of pre-trade and post-trade information, is crucial for maintaining market integrity.

Moreover, regulatory measures have been implemented to address emerging challenges, such as those in the digital payment token (DPT) services sector. Following a consultation paper released by MAS on proposed measures for Market Integrity for DPT services, regulatory measures for digital payment token services were introduced. These measures aim to uphold market integrity in the evolving digital landscape, aligning with the fundamental principles of fairness, orderliness, and transparency outlined in the SFA.

Market Abuse

Market abuse and misconduct, defined as violations of the SFA, encompass practices such as insider trading, false trading, and breaches of corporate disclosure requirements. To combat such misconduct, the MAS and SGX have jointly published a trade surveillance practice guide, assisting brokers in implementing effective monitoring practices.

SGX RegCo published the Algorithmic Trading Regulatory Guide in 2020 that recommends best practices in governance, risk controls, development process, and testing process for SGX member firms that use algorithms for trading in Singapore markets.

In 2023, SGX RegCo published a consultation paper regarding proposed changes to its Futures Trading Rules to formalise important parts of the Algorithmic Trading Regulatory Guide in relation to the requirements for automated trading. There are currently no differentiated regulatory regimes for different asset classes.

When a firm acts in a principal capacity, it may apply to The Singapore Exchange Securities Trading Limited (SGX-ST) in order to become a Designated Market-Maker.

In Singapore, the MAS establishes regulatory distinctions between funds and dealers engaged in high-frequency trading and algorithmic trading. Funds are primarily regulated under the SFA and FAA, focusing on investor protection and disclosure. Licensing requirements may necessitate funds to apply for a CMS licence for fund management. These funds operate within a broader investment context, aiming to generate returns for investors through optimised trading decisions.

Firms that operate as dealers function as market makers, providing bid and ask quote on securities, and profit from their spread. Dealers participating in high frequency-trading and algorithmic trading, are also regulated under the SFA, may require a CMS licence, emphasising market integrity and fair-trading practices.

Both entities must adhere to MAS regulations, ensuring compliance with risk management, reporting, and supervisory requirements. While there are regulatory similarities, funds and dealers have distinct roles and objectives within Singapore’s financial framework.

Programmers and software developers of trading algorithms are highly recommended to apply the MAS Technology Risk Management Guidelines’ secure coding and application security standards during development and creation of trading algorithms and other electronic trading tools, which mainly call for the practice of:

• secure programming;
• cryptography;
• authentication;
• input validation;
• output encoding; and
• access controls.

In any case, these Guidelines are primarily applicable to financial institutions regulated by MAS, and not directly to the programmers and developers.

In Singapore, DeFi may be governed by the PSA and SFA, depending on the features of the platform or protocol. DeFi applications may fall under the purview of these statutes as they could involve digital payment token services or e-money issuance services, and could therefore be required to apply for Standard or Major Payment Institution Licences. Additionally, DeFi applications may be identified as dealing with capital markets products, depending on the type of transactions they initiate, which would thus be regulated by the SFA, and a Capital Markets Services Licence would then be required, for its operation. A DeFi exchange may be regulated under the SFA if it falls within the definition of an “organised market”.

In general, platforms disseminating purely factual and objective information are typically exempt from licensing requirements. However, it is crucial for these platforms to include a disclaimer explicitly stating that the information provided is strictly factual and should not be construed as financial advice. Should the platform express opinions on financial actions or induce individuals to take specific steps regarding a product, it could be considered to be providing financial advice, which would be regulated under the FAA.

Research materials that convey opinions on financial actions or encourage actions on a product, even if based on data, could fall under the category of providing financial advice. Context plays a crucial role in this determination, and the requirement for authorisation may be mitigated by demonstrating that recipients are not reasonably expected to rely on such communications for making financial decisions.

Financial research platforms that offer advisory information are subject to regulatory oversight under the FAA in Singapore. The FAA imposes stringent standards of accuracy, encompassing a prohibition on the dissemination of false or misleading information within the regulatory scope of the FAA.

To further enhance the regulation and mitigation of false or unverified information, the Protection from Online Falsehoods and Manipulation Act (POFMA) plays a pivotal role. POFMA specifically addresses statements of fact, or those presented as facts, disseminated to end users in Singapore through internet platforms. The legislation particularly targets content that could be prejudicial. Under POFMA, a government minister possesses the authority to declare the falsehood of a statement, with subsequent determination by the court. Entities responsible for spreading false information are legally obliged to issue a public notice acknowledging the falsehood, provide directions for corrections, and take necessary actions to promptly remove the misinformation.

To safeguard against pump and dump schemes, the spreading of inside information, and other forms of unacceptable behaviour on financial research platforms, the SFA plays a pivotal role in upholding market integrity. The SFA provides a comprehensive framework that prohibits deliberate actions aimed at artificially influencing market fluctuations, including activities that may manipulate prices or create false market impressions.

Specifically, the SFA forbids the use of non-public information for activities such as subscribing for, purchasing, or selling securities. This prohibition applies both to individual actions and those conducted by proxy, serving as a deterrent against insider trading, pursuant to Section 218 of the SFA.

Moreover, the platform’s management of false statements of fact falls under the regulatory oversight of POFMA, aligning with the principles discussed in 9.2 Regulation of Unverified Information. POFMA addresses the dissemination of false information and provides mechanisms for the correction and removal of such content to ensure transparency and accuracy within the platform. These regulatory measures collectively contribute to maintaining a fair and transparent environment while preventing illicit activities on the financial research platform.

Singapore’s prominence in the InsurTech domain stems from dynamic startups and services cultivated within regulatory sandboxes. In underwriting, firms harness cutting-edge technologies such as big data, machine learning, AI, and IoT to revolutionise decision-making processes. This tech-centric paradigm optimises risk assessment and enhances pricing precision, ultimately streamlining efficiency. This transformation facilitates a specialised underwriting pipeline, introducing tailored offerings and enabling dynamic premium adjustments. The emergence of usage-based insurance models further directs attention to individual lifestyles and risk factors, departing from traditional metrics like age and location.

Despite the absence of specific InsurTech legislation, life insurance entities operate under the IA. Broader regulatory obligations extend to data privacy, big data usage, and AI ethics. Compliance with the PDPA is imperative, mandating participant consent, purpose-specific data usage, and timely deletion when retention serves no functional purpose.

In Singapore, the regulatory treatment of different types of insurance is overseen by the MAS. MAS applies specific regulations and guidelines tailored to each category of insurer to ensure compliance with industry standards and the overall stability of the insurance market.

Life Insurance

Regulators – life insurance is subject to specific regulations from MAS that address policyholder protection, solvency requirements, and the unique features of life policies and long-term accident/health policies.

Industry participants – life insurers focus on developing products that cater to long-term financial planning, retirement, and protection needs. Underwriting processes emphasise health assessments and mortality risk evaluations.

Annuities

Regulators – annuities are regulated to ensure the fair treatment of annuitants, with MAS guidelines addressing the unique characteristics of annuity products, including payout structures and guarantees.

Industry participants – insurers offering annuities design products that provide periodic payments to policyholders, emphasising the stability of income in retirement. Underwriting may consider factors specific to annuitants’ financial situations.

Property and Casualty Insurance

Regulators – property and casualty insurance is subject to regulations that manage risks associated with property damage, liability, and other perils. MAS oversees compliance with guidelines tailored to the dynamic nature of this insurance category.

Industry participants – insurers in this category offer diverse products, including home, auto, and business insurance. Underwriting practices focus on assessing property-specific risks, such as location, construction, and occupancy.

Captive Insurance

Regulators – captive insurers, writing insurance principally for risks related to their associated corporations, have specific licensing requirements and regulatory oversight from MAS.

Industry participants – captive insurers often tailor coverage to meet the unique risk profiles of their parent companies, allowing for flexibility in policy terms and conditions.

RegTech Providers specialise in providing technology-based solutions that help financial institutions comply with regulations. Though the MAS has launched several schemes to promote RegTech in the country, such as the RegTech Grant and the Digital Acceleration Grant schemes, these providers are not regulated in Singapore.

Provisions are dictated by both industry custom and regulation.

Industry Custom

In Singapore, contractual agreements between financial services firms and technology providers are meticulously crafted to ensure optimal performance, data accuracy, and compliance with the regulatory framework set by MAS. From an industry custom standpoint, financial services firms may choose to impose contractual terms similar to those in a Quality Assurance Contract or Service Level Agreements. Provisions regarding intellectual property rights, regulatory compliance, and audit and monitoring rights are tailored to Singapore’s legal and regulatory landscape, ensuring that financial institutions maintain control, adhere to regulatory standards, and uphold data integrity. Dispute resolution clauses can also be included, to align with the industry custom of Singapore’s robust legal framework.

Regulation

Contractual terms can also explicitly address data accuracy – to comply with PDPA. Security measures are also a focal point, with robust cybersecurity practices to safeguard sensitive financial data, required under MAS’s Technology Risk Management guidelines for financial institutions. Financial institutions are also to adhere to the MAS Guidelines on Outsourcing in implementing adequate risk management practices.

Traditional players in Singapore’s financial services sector are actively embracing blockchain technology to modernise and streamline operations. Some institutions have already implemented blockchain solutions for cross-border payments, trade finance, and digital identity verification, aiming to enhance efficiency and reduce costs. Collaborations between traditional financial players and blockchain start-ups are also on the rise, fostering joint ventures and consortia focused on developing innovative blockchain applications tailored to Singapore’s financial landscape. These partnerships underscore a collective effort to leverage blockchain’s potential for transformative change in the industry.

For example, MAS has partnered with participants in the industry to conduct a collaborative project, “Project Ubin”, to explore the use of blockchain and distributed ledger technology for the clearing and settlement of payments and securities. The payments network prototype that was developed through this project would facilitate the development of a cross-border payments infrastructure, as well as customer applications.

Consultation Papers and Amendments

MAS regularly issues consultation papers to gather feedback on proposed regulatory changes related to blockchain and digital token activities. For instance, a consultation paper issued on 3 July 2023 sought public feedback on draft amendments to the Payment Services Regulations 2019, aiming to enhance regulations concerning DPTs. Proposed amendments included requirements for safekeeping customer assets under a statutory trust and restrictions on facilitating lending and staking of DPT tokens by retail customers. These consultations demonstrate MAS’s commitment to engaging stakeholders and adapting regulations to address emerging risks in the blockchain space.

Expansion of Regulatory Scope and Collaborative Initiatives

MAS has expanded its regulatory scope with the introduction of the Financial Services and Markets Act, targeting entities providing digital token services outside Singapore to mitigate money laundering and terrorist financing risks. Furthermore, MAS collaborates with government agencies, research institutions, and industry players through initiatives like the Singapore Blockchain Innovation Programme (SBIP). This collaborative effort aims to strengthen Singapore’s blockchain ecosystem by fostering innovation, nurturing talent, and conducting research on scalability and interoperability. These initiatives reflect MAS’s proactive approach to regulating blockchain technology while promoting its development and adoption within Singapore’s financial landscape.

In Singapore, not all blockchain assets are considered regulated financial instruments. The classification of blockchain assets depends on their specific characteristics. MAS has introduced various classifications for blockchain assets, each subject to different regulatory frameworks.

Digital Payment Tokens

DPTs are one of the primary classifications of blockchain assets in Singapore. These include cryptocurrencies like Bitcoin and Ethereum. MAS regulates entities dealing in DPTs under the PSA Depending on their activities, entities may need to obtain licences for providing DPT services, such as facilitating the exchange or dealing in DPTs. MAS has introduced regulations to address risks associated with DPT activities, including AML and customer protection measures.

Securities Tokens

Securities tokens represent ownership in traditional assets such as stocks, bonds, or funds, issued on blockchain platforms. MAS regulates securities tokens under the SFA. Issuers of securities tokens may need to comply with prospectus requirements when offering these tokens to the public. Additionally, intermediaries dealing in securities tokens must hold capital markets services licences issued by MAS.

Utility Tokens

Utility tokens provide access to specific products or services within a blockchain ecosystem. MAS generally does not regulate utility tokens if they do not exhibit characteristics of regulated financial instruments. However, issuers and intermediaries must comply with consumer protection and fair trading laws.

Regulation of Issuers

In Singapore, the regulation of issuers of blockchain assets, including cryptocurrencies, is primarily governed by the PSA and SFA. Entities engaging in the issuance of DPTs or e-money for payment transactions must obtain a licence from the MAS and adhere to stringent AML/CFT measures to mitigate associated risks. Additionally, issuers of securities tokens, representing ownership in traditional assets like stocks or bonds, are regulated under the SFA.

For securities tokens, issuers must prepare and lodge a prospectus with MAS before offering them to the public, disclosing comprehensive information about the issuer, the tokens, and associated risks. However, certain exemptions from prospectus requirements may apply, subject to specific conditions.

In Singapore, the regulation of blockchain asset trading platforms, as well as secondary market trading of blockchain assets, is overseen by the MAS under existing regulatory frameworks governing securities and payment services.

Blockchain asset trading platforms, also known as digital asset exchanges, are regulated under the SFA and PSA, if they fall within the definitions in these regulatory frameworks. These platforms facilitate the trading of digital tokens, including cryptocurrencies and security tokens. Regulated digital asset exchanges are required to comply with the regulatory requirements to operate legally in Singapore. They must also comply with AML/CTF regulations, CDD procedures, and cybersecurity measures on an ongoing basis. MAS imposes strict standards to ensure investor protection, market integrity, and operational resilience within digital asset exchanges.

Intermediaries involved in secondary market trading, such as broker-dealers or investment advisers, are required to hold licences from MAS and comply with regulatory requirements, including disclosure obligations, market conduct rules, and investor protection measures. Additionally, peer-to-peer trading platforms facilitating direct transactions between buyers and sellers of blockchain assets must adhere to AML/CFT regulations and MAS guidelines to mitigate the risks of financial crime and fraud.

Funds investing in blockchain assets in Singapore may be subject to regulatory oversight by the MAS within the existing framework governing collective investment schemes (CIS). Fund managers must obtain a CMS licence from MAS to operate and market CIS to investors in Singapore. These funds, whether wholly or partially invested in blockchain assets, are required to comply with regulatory requirements outlined in the SFA and MAS regulations, ensuring investor protection and market integrity.

Regulated funds investing in blockchain assets will be subject to regulatory requirements, including disclosure and transparency obligations, robust valuation and pricing mechanisms, secure custody arrangements, and effective compliance and risk management frameworks. Fund managers must also adhere to AML/CFT regulations, conducting CDD on investors and reporting suspicious transactions to the authorities. These regulations aim to safeguard investor interests, maintain market stability, and mitigate risks associated with investing in blockchain assets within the Singaporean regulatory framework.

In Singapore, virtual currencies and blockchain assets are typically treated differently under regulatory frameworks, primarily due to their distinct characteristics and intended use cases.

The main differences between virtual currencies and blockchain assets lie in their intended use cases, regulatory treatment, and underlying characteristics. Virtual currencies are primarily designed for use as a medium of exchange and are regulated under the PSA as digital payment tokens. In contrast, blockchain assets encompass a broader spectrum of digital assets utilising blockchain technology, including tokens with investment functions, which are regulated under the SFA as capital market products.

While both virtual currencies and blockchain assets leverage blockchain technology, their regulatory treatment in Singapore differs based on their specific characteristics and intended functions. Virtual currencies are subject to regulations aimed at ensuring the integrity of payment systems and protecting consumers, while blockchain assets are regulated within the framework of capital markets and securities activities, with a focus on investor protection and market integrity.

In Singapore, decentralised finance (DeFi) refers to a financial system where users conduct transactions directly through decentralised blockchain networks using smart contracts, bypassing traditional financial intermediaries like banks or centralised exchanges. As of current regulatory standards, DeFi activities are primarily monitored by the MAS. While MAS has yet to introduce specific regulations targeting DeFi, it imposes regulatory oversight if DeFi activities fall within the regulatory ambit of the PSA or the SFA. Notably, MAS regulates DeFi tokens under the SFA and PSA, with requirements such as licensing for entities engaging in regulated digital payment token or security token activities, AML/CFT compliance, and regulatory approval for decentralised exchanges categorised as “organised markets” under the SFA.

DeFi platforms in Singapore face regulatory complexities due to their decentralised nature, which makes it challenging to identify responsible entities for oversight and accountability.

NFTs, NFT Platforms and Their Regulatory Perimeters in Singapore

While Singapore’s regulatory framework does not explicitly address NFTs and their associated platforms, certain factors could bring them within the fintech regulatory perimeter.

NFTs representing ownership of assets with economic value may be classified as financial products, potentially subjecting them to regulations governing securities or derivatives.

Additionally, NFT platforms offering payment services involving fiat currencies or cryptocurrencies may fall under the purview of the PSA, requiring licences from the MAS and have to be compliant with AML/CFT regulations.

Concerns around investor protection and market integrity may prompt regulatory intervention, particularly if NFTs are marketed as investment products.

Open banking is a system where several banks use a common third-party system for the relaying of information to its customers. The regulations in Singapore support open banking – with the MAS collaborating with the Association of Banks in Singapore to construct non-binding guidelines on developing and adopting open API-based systems, which are crucial for open banking. Moreover, MAS is seen showing active support for Singapore’s transition to open banking by developing APIX, the world’s first cross-border platform for further collaboration within ASEAN itself.

In Singapore, the rising prominence of open banking has prompted banks and technology providers to prioritise robust measures for data privacy and security. Guided by MAS regulations, these entities are implementing advanced technologies like encryption and multi-factor authentication to fortify access controls and protect sensitive information during the transmission and storage phases. Privacy-enhancing systems such as pseudonymisation, anonymisation and data minimisation are also being widely adopted to mitigate risks associated with data breaches, aligning with global principles and local regulations such as PDPA.

Moreover, a collaborative industry approach involves regular information sharing, cybersecurity forums, and joint initiatives, fostering a collective defence against evolving cyber threats. Continuous investments in cybersecurity infrastructure, employee training, and periodic security audits underline the commitment of Singaporean banks and technology providers to secure customer data and maintain the integrity of the open banking ecosystem.

Fraud in Singapore

There are two main categories of fraud in Singapore:

• fraud in criminal proceedings; and
• fraud in civil proceedings,

of which both involve and require the elements and proof of dishonesty/deceit.

Fraud in Relation to Financial Services and Fintech

Generally, fraud that occurs in relation to financial services and fintech will often fall under the category of fraud in criminal proceedings. Some examples of criminal fraud are identity theft, embezzlement, money laundering and forgery – all of which, occurs in relation to financial services and fintech. Such offences would render the offender to be criminally liable of cheating.

Pursuant to the nature of the crime, the sections that offenders are likely to be found liable and punishable under the Penal Code 1871 includes but is not limited to:

• Section 415 – Cheating;
• Section 416 – Cheating by personation;
• Section 416A – Illegally obtained personal information;
• Section 417 – Punishment for cheating; and
• Section 419 – Punishment for cheating by personation.

In 2023, the types of fraud which had the highest average losses in Singapore are as follows:

• government officials impersonation scams;
• investment scams;
• job scams;
• e-commerce scams;
• fake friend call scams;
• phishing scams; and
• investment scams.

Thus, it is likely for Singapore regulators to focus more on the above-mentioned frauds in 2024.