With much fanfare being made of Singapore’s move to position itself as a global crypto and FinTech Hub, we explore in this article what exactly is drawing more and more crypto and FinTech businesses to Singapore’s shores and how laws and the legal industry play such a significant part.
According to the Monetary Authority of Singapore, Singapore has seen a 19 per cent year-on-year increase in FinTech investments for the first half of 2020, with a record high of over S$1 Billion (c. USD 731.5 million) in FinTech investment recorded in the year 2019. This did not happen by chance. These efforts can be distilled down to two key thrusts: (i) governmental support and (ii) a supportive regulatory framework.
There is strong government support for the crypto industry and FinTech sector, and Singapore has launched numerous schemes and grants aimed at encouraging innovation. This includes the Financial Sector Technology and Innovation Scheme (“FSTI“) Proof of Concept (“POC“) Grant, which runs until March 2023. Under this grant, applicants working on novel solutions to problems in the financial industry can apply for funding of up to 70 per cent of the cost of a qualifying project, with a cap of S$400,000 for specified expense items. To qualify, applicants must have at least one sponsor that is a financial institution that is licensed, regulated, supervised or registered by the Monetary Authority of Singapore.
FinTech businesses based in Singapore can access numerous other grants, covering key areas such as manpower and operational costs, as well as support for access to business opportunities and even for getting listed.
It is not all about funds and government grants. There are many jurisdictions that provide grants and funding options for FinTech and crypto start-ups and companies but don’t necessary have the same level of success as London or San Francisco or Singapore – why? The main reason is laws and regulation. FinTech and crypto are industries where clear and facilitative legal regulations are critical for success and user trust. The Monetary Authority of Singapore, as the primary FinTech regulator, has taken a practical approach to regulation, with a focus on managing risk without discouraging innovation. This approach focuses on ensuring that:
- regulations are not premature and do not front-run innovation;
- regulations are introduced only when risks of new technologies become material, and will be proportionate to the evaluated risk-levels; and
- businesses are incentivised to mitigate current risks while restraining new risks in the face of new technologies.
This generally provides FinTech and crypto firms with opportunities to innovate and experiment with new products. For instance, Singapore was a preferred location for the conduct of Initial Token Offerings from 2017-2018 due to the clear delineation between tokens subject to regulatory oversight and tokens that were unregulated.
To keep abreast with new technologies, the Monetary Authority of Singapore has taken the approach of issuing “soft law” guidance on topics such as Digital Token Offerings, Robo-advisors, and E-payments. This approach of complementing existing regulations with regulatory guidance has provided welcome clarity and transparency on the regulatory approach to emerging technologies.
Singapore has also worked to reduce barriers to entries for new entrants. One key regulatory feature that continues to attract FinTech and crypto businesses is the Monetary Authority of Singapore Regulatory Sandbox. A successful application allows innovative FinTech businesses to experiment with relaxed legal and regulatory requirements for the sandbox duration.
An express regime is further available for applicants carrying on business as an insurance broker or establishing or operating an organised market. Successful applicants here can begin market testing in the pre-defined sandbox environment within 21 days of application.
Notably, key requirements for a sandbox application include the applicant showing:
- that it offers an innovative financial service that is not already being offered in the market, unless the applicant can show:
- a different technology being applied; or
- the same technology being applied differently; and
- that it has conducted its due diligence in terms of testing of the service and having knowledge of legal and regulatory requirements.
Regulatory requirements that can be relaxed include requirements as to track record and capital requirements.
Regulations in the crypto and FinTech space continue to evolve rapidly and are becoming increasingly complex. As FinTech and crypto products often do not fit neatly within traditional categories of regulated activities or instruments, legal issues that arise from new technological applications in this sector are often novel as well. The forward thinking regulatory approach has firmly placed Singapore in the leading global hubs for crypto and FinTech. The Monetary Authority of Singapore is also part of the Global Financial Innovation Network (“GFIN“) along with the UK Financial Conduct Authority and other leading regulators.
The key regulatory themes in Singapore for 2020 have been:
- the regulation of payment providers under the omnibus Payment Services Act 2020;
- prevention of money laundering and terrorism financing (“AML/CFT“); and
- management of cybersecurity and other IT related risks.
Current and prospective entrants that are looking at Singapore will need to continue to keep up with these and other evolving areas.
This is where innovative lawyers with deep seated knowledge of cutting edge technologies and their related legal issues can offer much needed guidance to businesses seeking to operate in the South-East Asian region.
Given the positive policy approach from the Singapore government and the pro-active and FinTech friendly approach to regulation, opportunities abound for crypto and FinTech firms in Singapore. In this new-frontier business, innovative and experienced counsel remain a relevant partner, and can definitely serve as a boost for such firms to reach for the stars.
By Abradat Kamalpour, Partner Ashurst LLP and Architect FinTech Legal Labs (www.fintechlegallabs.com) and Evan Lam, Partner Ashurst LLP and Zhan Teng Chua, Trainee Ashurst LLP