For InCorp’s final episode of our Pro-Business Podcast Series, we cover exactly why Singapore has proven itself to be such an effective incubator to set up a fintech company. Eric Chin, the Chief Business Development Officer of the InCorp Group, and Alton Neo, InCorp’s Deputy Chief Operating Officer sat down for a chat.
Joining Eric and Alton is Li Ling from RHT Law, InCorp’s trusted law partner who provides much-appreciated insight into how regulation from the Singapore Government has proven to be so attractive to fintech companies.
The following is a breakdown of the podcast:
Table of Contents
Smart Nation Initiative: Forward-Looking and Finance-Focused Government
It’s no secret that the Singapore Government has not been shy about its ambition to be a global fintech hub, and it’s already established itself as an international center for finance in general. To achieve these ambitions, the Singapore Government has initiated the Smart Nation Initiative, which recognises that technology is disrupting and will continue to disrupt the financial sector. Singapore intends to leverage these changing tides in their favour and attract the fintech industry’s innovators.
Singapore’s long-standing focus on financial sector superiority has seen it rank fifth on the Global Financial Centers Index, which takes into account education, finance, development, business, environment, the rule of law, and innovation. So it’s not just the Singapore Government’s actual practices that are attracting innovation; it’s also Singapore’s global reputation itself.
Related Read: Market Readiness Assistance Grant Singapore
The Singapore Variable Capital Company Act
The Singapore Variable Capital Company (VCC) Act came into legislation in January 2020, and it allows fund managers to use a new legal structure that allows for umbrella funds and sub-funds. As an investment vehicle, it has many benefits, but its main purpose is to attract high-net-worth individuals (HNWIs) and ultra-high-net-worth individuals (UHNWIs) to invest using Singapore as a home base.
The VCC brings Singapore in line with the likes of Luxembourg and the Cayman Islands as a tax haven, which means massive tax incentives to raise capital and start a new company in Singapore.
The Payment Services Act
While not an entirely new system, the Payment Services Act has streamlined the payment service regulations that were previously under several pieces of legislation (the Payment Systems Oversight Act and the Money Changing and Remittance Businesses Act).
The Payment Services Act has also enhanced the scope of regulated activities, with payment services such as merchant acquisition services and digital payment token services being recently regulated activities.
Providers of payment services will only need one license to conduct any one or multiple payment activities. There are three licenses: a money changing license, the second a standard payment institution license, and the third being a major payment institution license.
Whether an applicant applies for a standard or a major payment institution license depends on the applicant’s volume, calculated on an average monthly basis over a calendar year. A major payment institution has more demanding obligations under the Act, including higher base capital requirements, the obligation to maintain a security deposit with the Monetary Authority of Singapore (MAS), and the use of a safeguarding account to deposit customers’ money within a certain amount of time.
In terms of innovation within the Act, Singapore is one of the world’s first jurisdictions to regulate cryptocurrencies. The Act calls cryptocurrencies digital payment tokens, and they are traded on cryptocurrency exchanges. This is a testament to Singapore’s support for fintech innovation while maintaining its risk-based approach to overall financial regulation.
The Payment Services Act’s intelligent and progressive regulations have led to a large number of license applications as new players want to enter this new and exciting space. Many existing players are also considering adjusting their business models because it’s a sector that is evolving so quickly. There are supposedly around 200 applications pending, all of which the MAS is reviewing on a first submitted, first reviewed basis.
Conclusion — What’s Next for Starting Your Fintech Company in Singapore
Singapore’s financial and entrepreneurial landscape is ripe for planting the seeds of a successful fintech firm; however, the waiting list to qualify for a MAS license is long. Suppose you are interested in making sure your application is expedited. In that case, InCorp can help ensure your internal controls and processes and business flows are properly implemented and adequately described in the application documents before making your application.
If you have any questions at all about what was covered in the podcast or this article, please do contact us; we’d be glad to help. Thank you again to Li Ling from RHT Law for your valuable insight.
- Singapore has progressive regulations to allow fintech companies to grow and prosper globally. Monetary Authority of Singapore (MAS) currently lists over 40 innovation labs for fintech in Singapore, all launched by leading financial institutions. In total, there are more than 490 fintech companies in Singapore.
- In terms of innovation within the Payment Services Act, Singapore is one of the world’s first jurisdictions to regulate cryptocurrencies. The Act calls cryptocurrencies digital payment tokens, and they are traded on cryptocurrency exchanges. This is a testament to Singapore’s support for fintech innovation while maintaining its risk-based approach to overall financial regulation.
- Fintech is a portmanteau of “finance” and “technology”. It is an industry that uses technology to enhance and automate services in the financial sector, such as lending investment and bank management.
- Notable Singaporean fintech companies include Vesta Payment Solutions, OneConnect Financial Technology, and Validus Capital. In total, there are more than 490 fintech companies in Singapore.
- While it’s unlikely that fintech will completely replace banks and the traditional banking model, it will provide competition, innovation, and a legitimate long-term different mode of delivery for financial services.