On 29 September 2017, the Monetary Authority of Singapore (MAS) released a public consultation paper to relax the anti-commingling rules for banks. This is a follow-up from the Minister for Finance’s announcement in June 2017 that these rules will be further adjusted. See our previous post on the announcement here.
Since the introduction of the prohibition on banks to carry out non-financial businesses more than a decade ago (the anti-commingling rules), the banking landscape has evolved. Technological advancements have disrupted traditional banking business models. Today, consumers can access financial and related non-financial services seamlessly. Banks are also facing competition from non-financial players who are leveraging their large user bases to provide e-payments and other financial services.
MAS acknowledges this new environment, and recognises that the anti-commingling rules can be simplified and adjusted. MAS’s proposals will allow banks to broaden and better integrate their financial services. Crucially, the adjusted rules will continue to ensure that banks remain focused on their core banking business and competencies, and avoid potential contagion from the conduct of non-financial businesses (the core policy objectives).
The following are the key proposals under this public consultation paper:
- Streamlining the conditions to carry out non-financial businesses. Currently, banks are allowed to carry out non-financial businesses, but only upon compliance with certain minimum requirements. These requirements are onerous and include the requirement to obtain prior approval from the banks’ parent supervisory authorities. MAS proposes to simplify the rules by removing this requirement, subject to certain conditions. The primary condition is that the aggregate size of all non-financial businesses cannot exceed 10% of the bank’s capital funds. This is to limit contagion risks and ensure that banks remain focused on their core financial business.
- Broadening the scope of permissible non-financial businesses. MAS acknowledges that the online purchase of goods and services and the use of e-payment services are becoming increasingly integrated. Many non-financial entities are also starting to deliver financial services through their online platforms. MAS proposes to broaden the scope of permissible non-financial businesses to enable banks to better compete against such non-financial players in this new digital economy.
- The proposal allows banks to engage in: (i) operating online platforms that match buyers and sellers of consumer goods or services; (ii) sale of consumer goods or services via online platforms; and (iii) any business incidental to (i) and (ii) including the provision of logistic services to deliver goods to consumers.
- MAS also proposes to allow banks to engage in: (i) sale of software or systems originally developed by the bank for its financial business; and (ii) entering into tie-ups to sell or provide products or services (which the counterparty will be solely responsible for delivering or performing).
- Sharing of name, logo or trade mark of a bank. Currently, MAS’s prior approval must be obtained for any use of a Singapore incorporated bank’s name, logo or trade mark apart from otherwise licensed activities. This is to avoid reputation and contagion risks and minimises confusion to the public. However, MAS recognises that such placements is a commonly accepted avenue of advertisement. They are also typically done on an ad hoc basis and are short-term in nature. Hence, MAS proposes to allow such placements on any event sponsored by the bank, subject to approval by the bank’s board of directors.
In this digital economy, non-financial players such as e-commerce platform providers are gaining increasing market share in providing financial services to consumers. Their ability to integrate financial and related non-financial services mean that consumers receive a more enhanced experience. MAS’s proposal to relax the anti-commingling rules is timely and would allow banks to better compete. Ultimately, the consumers should benefit, as a more integrated and effective user experience should result.
Nonetheless, the core policy objectives of the anti-commingling rules remain. The integrity and stability of the financial system needs to be preserved, and the proposed non-financial business cap of 10% should ensure that banks remain focused on their core competencies. Thus, a balance needs to be struck between ensuring these policy objectives and providing banks with greater flexibility. The public consultation closes on 15 November 2017, please let us know if you require any support in preparing your feedback.
With thanks to Jeremy Tan