SINGAPORE: An Introduction to Banking & Finance: Regulatory

OVERVIEW OF SINGAPORE FINANCIAL REGULATORY DEVELOPMENTS

The banking and finance scene in Singapore has seen considerable developments in the past year, with a mix of high-profile news stories drawing attention to regulatory frameworks and the steady continued evolution of existing rules. Arguably the greatest number of developments in this area have been those relating to the regulation of digital assets, which have gained prominence recently due to the well-publicised insolvencies of various large crypto funds and exchanges. Green financing is gaining significant traction, backed by several government initiatives and a general global push towards net zero. Within the next coming year, we would expect to see a multitude of digital assets that leverage blockchain technology and green financing product offerings in the financial market and in tandem development of appropriate regulatory and supervisory frameworks to protect retail investors and to prevent greenwashing.

Digital Assets 

One carefully watched development has been the clarification by the Monetary Authority of Singapore (“MAS”) on its stance on digital assets. To this end, the MAS has clearly expressed its view that cryptocurrencies are volatile, speculative assets not suitable for retail investors, but at the same time recognising the economic potential of the innovative combination of tokenisation and distributed ledgers. This restrictive stance is manifested in numerous provisions in the Payment Services Act 2019 (“PS Act”), which, inter alia, regulates payment service providers that carry on the business of providing digital payment token (“DPT”) services (the services of which will be expanded by the Payment Services (Amendment) Act 2021 when in effect). Further regulatory measures have been suggested by the MAS in a recent consultation paper proposing for enhanced protection of consumer interests in Singapore by requiring service providers to generally conduct risk awareness assessments, ensure proper safeguarding and segregation of customers’ assets, and restrict debt-financed and leveraged DPT transactions.

Recognising that innovation and regulation can co-exist, the MAS also actively promotes the building of an innovative digital asset ecosystem by encouraging industry players to explore the uses of distributed ledger technology to improve financial services. Some promising use cases include the use of such technology in cross-border payment and settlement, trade finance, and pre- and post-trade capital market activities. The MAS has itself launched an initiative - Project Guardian - to support the tokenisation of financial and real economy assets. Where the underlying assets of tokens involve real property or shares, potential stamp duty issues may arise on the transfer of such tokens and the nature of such tokens must be carefully examined.

Further developments in the regulation of stablecoins are currently being discussed, with the MAS recently releasing a consultation paper proposing to differentiate the regulatory framework of single-currency pegged stablecoins, which are currently treated as DPTs under the PS Act. This is currently expected to manifest itself in a new regulated activity of “Stablecoin Issuance Service” under the PS Act. However, banks in Singapore will continue to be exempted from the requirement to obtain a licence under the PS Act to carry on the business of providing any payment service or the proposed Stablecoin Issuance Service.

“Buy Now, Pay Later” Instalment Scheme 

An increased proliferation of “buy now, pay later” (“BNPL”) schemes prompted discussion on whether greater consumer protection was required. This led to the creation of a BNPL Code of Conduct, which lays out guidance of best practices for the industry. An audit and accreditation process will be available and BNPL providers who pass the process will be allowed to display an accredited trustmark showing their compliance with the Code.

Under the Code, BNPL, providers will be required to restrict customers to SGD2,000 in outstanding payments with each BNPL provider at any given time, unless an additional credit assessment is completed. Other best practices include observing fair, transparent fees, and complying with ethical marketing practices.

Green Initiatives 

The market for green financing has been growing in recent years and governmental support is also available. The MAS has also introduced the Project Greenprint initiative by partnering with the industry to improve the efficiency and reliability of data flows to support green finance. One of the biggest developments in this area is the announcement of the Singapore Green Bond Framework by the Government, which lays out the governance framework for Singapore Sovereign Green Bonds and Statutory Boards Green Bonds. The public sector intends to issue up to SGD35 billion of green bonds by 2030 to deepen Singapore’s green finance market.

The MAS also administers two grant schemes that support businesses seeking to tap on green financing. The Sustainable Bond Grant Scheme (“SBGS”) helps to defray the costs of external pre-issuance and post-issuance reviews of eligible green, social, sustainability, and sustainability-linked bonds. The SBGS is available to bond issues of a minimum size of SGD200 million and is subject to a grant cap of SGD100,000. The Green and Sustainability-Linked Loans Grant Scheme supports businesses in obtaining green and sustainable financing. Loans must be a minimum size of SGD20 million and are subject to a grant cap of SGD100,000 per loan. The Scheme also encourages banks to develop green and sustainability-linked loan frameworks to make such financing more accessible to small and medium-sized businesses.

The MAS has indicated that it is supporting industry efforts to build the infrastructure for a liquid and transparent voluntary carbon credit market in Asia. In line with this, the Goods and Services Tax (Excluded Transactions) Order was recently amended to exclude the issuance or transfer of any carbon credit or any digital representation of a carbon credit from Goods and Services Tax. This paves the way for the development of such a carbon credit market and it is likely that new initiatives, including those involving digital tokenisation, will soon be introduced in this space.

Greenwashing 

As regulators globally seek to reduce the risk of “greenwashing”, the MAS has recently issued a Disclosure and Reporting Guidelines for Retail ESG Funds as part of its measures to combat greenwashing in sustainable finance. Such disclosure requirements are intended to help retail investors better understand their investment in ESG funds. The new guidelines will take effect from January 2023.

Greenwashing is the act of making false or misleading claims that products are environmentally sounder than they actually are. Under the new guidelines, funds that are sold to retail investors in Singapore under the label of meeting environmental, social and governance (ESG) standards will now have to back up their claims. ESG funds will be required to disclose its investment focus (eg, climate change) and relevant ESG criteria, its sustainable investment strategy, any reference benchmarking, and the risks associated with its investment focus and strategy. Disclosures will have to be made on an ongoing basis and investors will be given annual updates on how well the fund has achieved its ESG focus. To support the reporting of ESG data in a structured and efficient manner and provide investors access to such data in a consistent and comparable format, the MAS and the Singapore Exchange (“SGX”) also jointly launched ESGenome under Project Greenprint, a digital disclosure portal to facilitate sustainability reporting for SGX-listed companies.