Singapore Extending Digital Bank Licenses to Non-Bank Players

Jul 2019

The Monetary Authority of Singapore (MAS) announced on 28 June that it will issue up to five new digital 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.  This new announcement extends digital bank licenses to non-bank players.

The five new digital bank licenses will consist of the below:

Up to two digital full bank licenses, which allow licensees to provide a wide range of financial services and take deposits from retail customers; and 
Up to three digital wholesale bank licenses, which allow licensees to serve SMEs and other non-retail segments.

Application for digital full bank licenses is open to companies headquartered in Singapore and controlled by Singaporeans. Foreign companies are eligible for these full bank licenses if they form a joint venture with a Singapore company, and the joint venture meets the headquarter and control requirements.  Application for digital wholesale bank licenses is open to all companies.

In addition, to be eligible to apply, the applicant or its parent group must have a track record in operating an existing business, in their respective technology or e-commerce fields; provide clear value propositions on how it can serve existing unmet or underserved needs; and demonstrate that it has a sustainable digital banking business model. MAS will not allow any bank, digital or not, to engage in value-destructive competition to gain market share. MAS will assess the reasonableness of the applicant’s business plans and financial projections such as cost-to-income ratio and net interest margin.

To minimize risks to retail depositors, MAS will phase in the permissible activities of the digital full bank via a two-stage process. To minimize risks to retail depositors, there will be a two-stage process to phase in the digital banks.  At the point of entry, the digital bank’s aggregate deposits will be capped at SGD 50 million (USD 37 million) and individual’s deposits will be capped at SGD 75,000. In addition, the bank can only accept deposits from a small group of persons such as business partners, staff and related parties and can only offer simple credit and investment products, and will not be allowed to offer complex investment products such as structured notes. It will also not be able to engage in investment banking activities such as derivatives (other than for risk management purposes) and proprietary trading. Further, the bank should not establish banking operations in more than two overseas markets. The initial paid-up capital at the entry point is set at SGD 15 million. The institution will graduate to become a full functioning digital bank with all deposit caps lifted, once it has met all relevant milestones and has been assessed to pose no significant supervisory concerns. At this time, it will need to meet the minimum paid-up capital requirement of SGD 1.5 billion. In assessing the bank’s readiness to graduate to become a full functioning digital bank, MAS will consider factors such as its business and financial performance, quality of loans, products and customer service, ability to serve needs of identified segments, risk management and compliance track record, and if the business is generally well-managed and profitable. 

For the wholesale bank, the minimum paid-up capital will be SGD 100 million. Digital wholesale banks will not be able to take Singapore dollar deposits from individuals, except for fixed deposits of at least SGD 250,000. It is however free to open and maintain business deposit accounts for SMEs and corporates.

(Sources: Monetary Authority of Singapore; Business Times)

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