Let’s assume that some 20 years ago you would consider establishing an affiliation of your bank in a foreign country, what country would be your top of mind? Most probably, your top rate wouldn’t include Singapore. The situation has changed radically since then.
Nowadays, Singapore is a thriving center for international banking services, which has all chances to soon become one of the strongest and well-developed on the global scene.
What are the key factors of such an overwhelming success? First of all, a sound regulation and supervision of banking and financial sector, which are considered some of the best in the world, reputation for integrity, a favorable tax policy, and strenuous efforts to combat crime and money laundering – a combination of all these factors created environment for Singapore to become one of the most desirable places on the globe to set up a financial institution or open a virtual bank. In the last years, the country has been dynamically and inevitably turning into the biggest fintech hub in Asia and beyond.
This article contains a brief overview of the regulation of the Singapore banking, which will become at handy for you if you are thinking of expanding your financial activities in this fascinating country.
Who is in charge?
The primary regulator with broad authorities to oversee banking activity in this jurisdiction is the Monetary Authority of Singapore (MAS), which has full functions of a Сentral Bank of Singapore, and much more.
If a financial institution intends to start business in Singapore, it has to be authorised by MAS and then regulated accordingly.
However, there’s news for those institutions who would like to start a bank in Singapore this year. From October 1, 2020, it is expected that new trading banks will be authorised in accordance with the Banking Act (BA) licensing scheme instead of the the MAS Law as it had been before.
Digital banking licensing
Virtual banking is developing in a rapid pace in Asia, and Singapore regulators seek to improve the quality of digital services and catch up with Western countries in this area.
Singapore has introduced two types of licenses: a full digital banking license and a license for working only with corporate clients. A full digital banking license can be obtained by a company only if it operates and has a head office in Singapore. This year, MAS plans to issue two licenses of the first type and three of the second.
An affiliation or a subsidiary?
Foreign banks can open a branch or register a subsidiary in Singapore to obtain a banking license. Please note that the first option is usually used due to the need for lower capital costs.
Please keep in mind that when a foreign bank operating in Singapore through a registered Singapore branch has a significant retail presence in this country, the regulator may require the bank to carry out its retail activities through a local legal entity.
As to the requirements regarding the capital of financial institutions, they vary largely depending on whether the bank is Singaporean or a registered branch of a foreign bank in Singapore.
You can obtain more detailed information about the current capital requirements for each case from our company at a legal consultation on the regulation of financial activities in Singapore.
Prohibitions and restrictions
Although Singapore has earned fame of a safe haven for financial institutions, they are not allowed to or are restricted of doing a certain range of operations. Among these are:
- operations that are not authorised by MAS (with some exemptions, however, that should be studied separately);
- operations with immovable properties, for example, financial institutions are prohibited to get involved in property development.
- property exposure of banks should not exceed 35 per cent of their eligible assets.
MAS carries out a thorough monitoring of the financial situation in every bank registered in Singapore, and takes action immediately should any problems that threaten the bank’s insolvency arise.
The regulator in this case, may take control over the operations of a problem bank. It can also introduce a temporary administration in a problem bank in case the bank shows signs of insolvency. In case the situation can not be fixed otherwise, in the event of insolvency, the problem bank will be liquidated. The liquidation procedure is carried out in accordance with the Companies Act (CA).
In the event that a foreign bank is liquidated in its domestic jurisdiction, CA requires the liquidator of the Singapore branch to sell the bank's assets in Singapore, as well as to satisfy all obligations incurred in Singapore.
СA determines not only how the sale of the bank assets has to be carried out, but its principles and criteria as a whole. The latter are used when sales plans at the level of bankrupt banks are prepared, as well as proposals for individual assets / property pools.
The bank’s assets/property can be sold only if they are included in the liquidation mass of the bank.
Ask our Lawyers
If you have questions about this topic, you can contact IQ Decision UK. Our highly qualified staff will help:
- Understand the requirements of Singapore law;
- Register a banking institution in Asia;
- Obtain a banking license in Singapore.
To sign up for legal advice on banking regulation in Singapore, fill out a special form for quick contact.