Virtual bank licences have been something of a work in progress in Singapore over the past few years, and despite the pandemic, this process has remained on track. In June last year, the Monetary Authority of Singapore (MAS) shortlisted 14 contenders “eligible for next stage of assessment,” and by December, the city-state had approved four digital bank licences.

Singapore has strengthened its focus on the digital economy in recent years, pushing legal tech and pitching itself as a regional leader in business innovation, but last year its long-time competitor Hong Kong edged ahead in the virtual banking race after issuing licenses.

In the Chinese city, the Hong Kong Monetary Authority (HKMA) has issued eight virtual banking licences, all focusing on retail banks. These have been lauded as a step in the right direction, and a welcome pressure on traditional banks long considered complacent.

In comparison, the Monetary Authority of Singapore (MAS) issued four digital bank licenses — two digital full (retail) bank licences and two digital wholesale bank licenses.

Evan Lam, Singapore-based financial regulatory partner at Ashurst, and his colleague, Hong Kong-based counsel Hoi Tak Leung, say in both cities, the issues of these licences has led to an uptick in demand for legal advice.

“We have seen clients placing a greater focus on lawyers who can traverse the technology and financial services landscapes — leading to greater importance on lawyers and teams who can advise on a cross-discipline basis. Those lawyers and teams who can advise on the digital economy and transformation have seen a significant uptake in workload, as clients increasingly expect lawyers to be able to provide their legal advice in a commercial, practical manner,” Lam and Leung say.

They note, however, that the differences in both the types and the number of licences “likely means that the disruption to the existing market in Singapore will be less than what it was in Hong Kong”.

In Hong Kong, part of the reason behind the perceived success of virtual banking licences is the impact on the market and the pressure on banks to offer better digital services.

In this regard, Singapore is in a somewhat different position to Hong Kong, with its banks typically well-established in the digital space and positioning themselves as forward-thinking, digitally-savvy operations. DBS, for example, has previously won global awards for its digital banking offerings, Lam and Leung say.

“In general, Singapore is one of the best markets for digital banking services globally. This means that digital banks will find a more competitive landscape in providing any differentiation via its digital offerings,” they add.

With Singapore’s digital banks expected to start operations from early 2022, there is still time for the existing banks to consolidate their leadership in the digital space, according to the lawyers, who predict digital banks are likely to take a strategic approach to the well-served market.

“We expect that the new digital banks will be able to tape some niche or unmet needs in the market. At a broad level, both in Singapore and globally, many activities have shifted from physical to online – and that’s particularly true in the financial services space. That in itself means that there will be opportunities for the new digital banks to tap,” Lam and Leung note.

The MAS digital bank licence application itself emphasised reaching under-served segments of the Singapore market, likely to spark further innovation and creative approaches.

“Amongst other things, we expect to see new offerings that have faster account opening, greater personalisation of banking services and closer tie-in with existing digital measures introduced by MAS (notably, digital customer verification), and (as with Hong Kong) a strong focus on serving SME customers. We may also see new digital solutions, products and methods of delivery,” feel Lam and Leung.

Additionally, other countries in the region may be looking to implement similar digital banking and payment frameworks in the future.

“We also expect digital banks to use Singapore as a launching pad for other banking licences and services across Southeast Asia, though given the MAS’ focus on Singapore, we expect that this will follow after the Singapore services are developed,” the lawyers add.


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