Financial Technology – or Fintech – has been getting massive traction within the financial service sphere, and deservingly so, as start-ups en masse are now seeking to build their business around this technology. All in the pursuit of disruptive innovation in the market.
Moreover, the fact that Fintechs worldwide have managed to raise double the amount of fundings in the previous quarter of 2020 is a clear indication of the market’s increasing demand for financial services, and that it’s developing at near breakneck speed.
Even banking powerhouses like JP Morgan Chase are taking initiatives to bring their conservative banking products to the clouds in order to compete with the rise of non-bank competitors.
So from the fact that Fintech is seemingly on its course to reshaping the global financial system arise the question:
What does it take to get into fintech?
In this article, we will be showing you the general overview of the Fintech landscape in Singapore. And in addition, a quick rundown of the regulatory compliance procedures to help you start a Fintech business in Singapore.
1. Fintech in Singapore
Singapore currently has a strong standing as one of South East Asia’s most prominent Fintech hubs, garnering attention from local and international investors thanks to its liberal business landscape.
Innovation of financial services has always been the primary goal of the country’s vision of growth, and with the COVID-19 pandemic as a key driving force behind digital adoption, Fintech is looking to have its brightest future yet. As evidenced by the strong rebounce of Fintech investments after a slight decline in the second quarter of 2020.
It can be said that investors recognize the huge capitalization potential during times of recession and are deploying fundings at full throttle. Especially towards niche Fintech sub-sectors that are not susceptible to credit risks, such as insurtech, online payment, and investment & trading.
2. Why Fintech is thriving in Singapore
Fintech has had a miraculous period of growth in the Singapore market thanks to 3 key factors:
2.1. Startup-Centric Ecosystem
It’s a well-known fact that tech startups generally do well in countries that are more supportive of digital innovation within their financial markets, and Singapore fits the bill perfectly. Aside from the very generous state fundings, many policies and agencies have come into the scene with the common purpose of facilitating growth for start-ups.
The government has consistently rolled out initiatives in the form of financing programs, tax incentives, Proof of Concept (POC) grants, ( FTSI 1 & FTSI 2), business-incubating infrastructure – all of which are foundational towards the goal of cultivating a successful start-up ecosystem. At the time of writing, Singapore has a total of +4000 tech startups in operation along with 184 accelerators, incubators, and other intermediaries (venture capital firms).
2.2. Progressive Approach to Regulations
Fintech is transformative in nature since it has a high level of extensive application for various aspects in the financial sector. Consequently, bespoke regulatory solutions for Fintech have been introduced to create an environment conducive to Fintech innovations.
In 2016, a separate regulatory sandbox was established to facilitate freedom of experimentation for up-and-coming Fintechs, allowing them to test their digital solutions on clients within a controlled environment and gradually develop a proof of concept as they go.
In tandem with this initiative, the public sector has also created an open infrastructure platform, “API Exchange”, in 2018 to enable established financial institutions to adopt Fintech innovations into their business.
The MAS-backed Fintech Association works in concert with its peer regulatory members as an industry authoritative figure, providing new Fintechs access to valuable job portals, information directories, and qualifications they need to receive certain capital grants.
2.3. Deep Talent Pool
Given how long Fintech has been around in Singapore, its workforce is more filled with highly capable and promising tech talents than ever before. The government has made several initiatives to cultivate new talents that align with the changing needs of the industry.
The Asian Institute of Digital Finance (AIDF) is one in the growing list of polytechnics that are spearheading Fintech Education and Research, implementing interdisciplinary courses to help students have a smoother lateral transition in their career. Scholarships and post-doctoral training are also in place for those who want to extend their research pursuit in Digital Finance and Fintechs.
Currently, active tech workers are given the option of receiving educational reimbursements – provided by IMDA – to increase their job performance as well as future employment aptitude. In the effort to shape a culture built around boundless innovation, talent acquisition has now taken place offshore as companies are giving overseas secondments to employees.
3. Starting a Fintech Business in Singapore
Setting up a Fintech business in Singapore requires full compliance with the country’s company formation laws and certain regulations in financial services. The following is a set of regulations that has a direct impact on business operations.
3.1. Registering your Fintech business
All individuals, firms, or corporations that want to register their business have to do so with the Accounting and Corporate Regulation Authority (ACRA) – the state-appointed regulatory body for all business entities. Note that for foreign business owners, registration must be handled by a third-party filing agent, as stated by ACRA, to avoid potential mishaps.
The current most favorable incorporation structure is Private Limited Company (PLC) because of its various perks, including but is not limited to:
- Tax Incentives
- Separate Entity
- High Reputability.
3.2. Obtaining particular licenses for specific financial services
Until this point in time, there are no fintech explicit licenses. Nonetheless, to comply with Singapore Law, fintech organizations should procure the right licenses that correspond with their business model.
For example, an organization that falls under the category of monetary counsel needs to obtain a Financial Advisor License. Note that the number of licenses may vary depending on the Fintech business model.
The following is a rundown of the various licenses that might be required of the applicant under Singapore law.
Capital Markets Services (CMS) Licence – Issued by MAS
According to the Securities and Futures Act (SFA), a matching CMS license is mandatory for any individual who wants to conduct business in any given regulated activity. Note that this license is only granted to a business that has the legal structure of “corporation”.
The holder of the CMS license needs to appoint a representative – provisional or temporary – to conduct the regulated activity on their behalf. For more information regarding the appointment of representatives, please refer to this link.
Applied for businesses that have the following service(s):
- Dealing in capital market products
- Advising on corporate finance
- REIT management
- Providing custodial services for securities
- Securities financing
- Providing credit rating services
- Fund management
Financial Advisors (FA) License – Issued by MAS
Applied for businesses that have the following service(s):
- Offers consultations service relating to investment products other than advising on corporate finance
- Issues or promotes any forecast materials on any investment product
- Promotes collective investment schemes ( trust funds, unit funds, equity funds, etc.)
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