MAS says it will regulate fintech companies only when they are larger and pose risks to the broad financial system. It fears that regulation will stifle innovation and derail the adoption of technology. p2p lending is not regulated because it does not take deposits and do not pose systemic risks. See article at the bottom.
Regulation can also support healthy growth and not stifle innovation
I was disappointed when I read this news. It is true that too much regulation will stifle innovation. But it is also possible to introduce thoughtful regulation that helps the industry grow in healthy way and yet do not stifle innovation.
Each platform has a different default definition
One good example will be to standardise the definition of “default” used the different platforms. Each p2p platform that I know of has a different definition. A borrower that fails to repay on its due date may be declared as default on one platform, and not on another! With such dynamics, platforms will be motivated to adopt a looser definition and not declare default on problem loans. After all, no platform wants their default rate to look the highest. Eventually, this will erode investor trust. How will fintech grow if trust is lacking?
Is p2p loan a debenture?
Another example will be to clarify what is allowable under SFA and CMS. Is a p2p loan considered a debenture, and hence need to register a prospectus with MAS? Some platforms use a promissory note with loan amount at least $100k and duration of not more than 12 months. Other platforms offer loans below $100k and duration longer than 12 months. These platforms were advised by their lawyers who give differing opinions. Who is right? I don’t think we should wait for a default and a court case to find out. When that happens, the real losers are investors. MAS can and should clarify this.
MAS needs to hear views of p2p investors too
I can go on and on, but it is important for MAS to hear the views of p2p investors. MAS regularly speaks to fintech companies. Investors now need to join in the discussion. There’s no SIAS to defend p2p investors. If p2p investors do not speak up, they will not be heard. I will be gathering my thoughts in the next few weeks and writing directly to MAS on what regulations I think will help investors and yet not stifle innovation and growth. If you are a serious investor and have an interest in this topic, write to me and we can discuss further. I’m not sure if MAS will listen to a small investor like me. Probably not, but I’ll still try.
EDIT: If you have any suggestions on regulations that can help investors and not stifle innovation and growth, feel free to write to me. email@example.com
MAS moves to promote financial technology
APR 4, 2016, 5:00 AM SGT Chia Yan Min
Singapore’s banking regulator is exploring an all-in-one system that will allow people to pay others electronically using the payee’s mobile number, e-mail address or social network account, without the need for bank account numbers.
It is also working towards setting up a unified payment system that can read all kinds of cards at retail and hospitality outlets, said Monetary Authority of Singapore managing director Ravi Menon, speaking at the Singapore Forum last Saturday.
This is part of efforts to promote financial technology (fintech) here, he said at Shangri-La Hotel.
This is done through three main channels. First, by creating common platforms like the unified payment system and standards so fintech applications can complement each other.
The MAS is also engaging with fintech firms to better understand emerging innovations, he added.
Lastly, it also allows banks to experiment with new technologies in a safe environment.
“We want to create an environment where, if an experiment fails, it fails safely and cheaply without larger adverse consequences.”
The MAS will soon issue guidelines for public consultation on how this “regulatory sandbox” approach will work.
This is necessary as emerging fintech is transforming the banking industry and may well be “the best hope for the future of finance” but is not without risks.
Unregulated fintech firms are offering many financial services and disrupting banking, he said.
However, “banks and insurance companies have something that unregulated entities do not have… trust based on a track record of performance,” he said.
Banks are not sitting still amid all this – they are setting up in-house fintech units and collaborating with or buying over fintech firms.
But rapid change is throwing up many questions for the industry and regulators, Mr Menon noted.
He said the MAS is taking a differentiated approach to fintech applications, as the risks and benefits of different technologies vary.
Each must be assessed on its own merits, he said.
However, regulation of fintech must not hold back innovation.
“Introducing regulation prematurely may stifle innovation and potentially derail the adoption of useful technology,” said Mr Menon.
The MAS applies a “materiality and proportionality” test, he said. This means regulation will kick in as risks posed by a new technology becomes material. The regulation must be proportionate to the risks.
For instance, peer-to-peer lending that takes place outside traditional banks are not regulated as long as they do not take deposits.
“But if they get very large and pose macro prudential concerns, then we may consider regulation.”
Similarly, an Internet payment service will not automatically attract regulation if it is for small payments for e-commerce. Only larger, more significant players will be regulated.
“Even then, we do not regulate them as banks and throw at them the whole kitchen sink of capital and liquidity requirements under the Banking Act,” said Mr Menon.