Begin With the Correct License - A MAS license application in Singapore starts with a fundamental consideration: What financial service is the business looking to offer?
A large number of financial activities in Singapore fall under the regulatory oversight of the Monetary Authority of Singapore (MAS), which licenses a wide range of activities based on the nature of the business and applies the applicable laws and regulatory framework. For Alder Compliance example, if a business is in the payment services space, it may be licensed under the Payment Services Act; if dealing in fund management, then under a capital markets services licence; and if involved in digital tokens, then under various regulations depending on the nature of the business operations.
Many applications run into problems here because although a business may identify itself as an information technology provider, its actual day-to-day activities may invariably be those of regulated financial services. MAS considers actual activities rather than labels when deciding regulatory standing. Proper analysis should be given to mapping out all business activities and their implications before filing any application forms.
Check If a License Is Necessary
Not all FinTech businesses require a MAS license.
There are business models, such as technology providers offering software, infrastructure and support, which do not constitute a regulated activity in accordance with MAS guidelines. However, others, although technology-driven companies, require a licence because they conduct regulated business. Proper analysis should be applied to verify whether any exemption may apply and whether a different regulatory framework could apply.
A platform for transacting with investment products, for example, needs to determine where it will stand in the financial transaction, whether as a technology provider, intermediary or agent of a regulated entity, and distinguish activities such as merely supplying technology from providing services that may be subject to MAS regulations, facilitating transactions, and so on.
For this reason, the first step before drafting the MAS application paperwork is a detailed licensing review, wherein the full details of the business's proposed activities, customers, cash flow and roles in transactions are documented. This can then be compared with the applicable regulations to ascertain if the business needs to be licensed and under which segment or licence.
Start Preparing the Business Plan Early
A weakly prepared business plan can add significant stress to the license application process. MAS wants a clear and comprehensive picture of the business, including products to be offered, target markets, revenues and revenue streams, day-to-day business procedures, relevant technologies and control mechanisms used to manage and operate the business.
It needs information that can be easily understood and translated into practical processes, rather than flowery words describing a corporate profile.
For example, a business in payment services needs to document in its MAS application details such as transaction flows from client to service provider, how funds are held by the business, systems in place for monitoring suspicious transactions and where MAS would come into the transaction process.
Governance Is Important
Who sits at the helm is a critical consideration for a MAS license application. Appropriate management and governance structures should be demonstrated. Individuals expected to participate in the leadership of the entity will be examined in terms of their capability, qualifications, relevant experience, integrity and trustworthiness to take up defined roles.
Critical roles such as Compliance Officer, head of risk management, officer authorised to approve critical decisions and similar positions must be designated. It is highly unlikely that these key positions can simply be filled at the last minute once the application is already in progress.
This aspect has to be properly developed and clearly explained in the initial documentation before filing MAS application forms.
Compliance Must Be Considered From the Beginning
A MAS license application has to be viewed in relation to long-term compliance requirements. Depending on the activities a particular regulated entity intends to carry out, there will be specific policies and procedures required by MAS, such as compliance with AML/CFT requirements, customer due diligence, sanctions, transaction monitoring, complaints handling and record-keeping requirements.
Policies need to be specifically aligned with the real day-to-day operations of the business.
Generic documentation found on the internet should be treated as an example only; little practical value will come from copied documents that are not designed to fit the applicant's own operations.
For example, a transaction-monitoring policy must be specifically formulated to reflect the types of transactions carried out by the applicant, the system used, customer risk segments and triggers for intervention.
Technology and Cybersecurity Are Critical Areas
These aspects represent crucial areas for any FinTech business. The applicant must understand what technologies it uses, control mechanisms for system access, methods of handling data, system failure procedures, business continuity methods and all security precautions relevant to managing systems within the Singaporean regulatory framework.
If a business outsources its systems management and support to a third-party service provider, the extent to which it can exercise controls, together with the manner in which security incidents and failures are handled, must also be addressed to assure MAS that the systems are robust and properly managed.
A regulator wants a clear insight into how systems operate, rather than complicated technical documents; the focus is confidence.
Financial Resources and Capital Requirements
Depending on the regulated activity, some entities will have requirements to hold certain financial resources or net worth. These requirements will be dictated by the particular segment or licence under which a company operates.
This will be determined by MAS and the relevant calculation methods laid down under the regulations.
One must also consider the operating financial costs after obtaining the MAS licence. These may include payroll, costs associated with running operations, regulatory compliance staff, IT infrastructure and IT personnel.
The forecast cash flow of a business from commencement onwards needs to accurately represent future viability for MAS approval of the licence.
Anticipate Regulatory Queries From MAS
After the MAS application is filed, regulatory queries about the business model, ownership structure, governance arrangements and internal controls will undoubtedly be raised by MAS.
Such information is usually requested by MAS when additional clarification is required. This process may comprise several rounds of back-and-forth communication as MAS personnel take time to understand the substance and depth of a proposed business model.
Respond promptly and constructively to requests for supplementary materials or clarification, and avoid superficial information that might prompt subsequent questions.
Common Errors in MAS Licence Applications
The most common mistake in MAS application processing is the selection of an inappropriate licence based on the applicant's activities and industry label.
Another issue is failure to be completely transparent with financial information, such as financial forecasting for operations after receiving the licence.
A lack of detailed descriptions of business operations, governance arrangements and internal controls will prompt questions and may in turn delay the acquisition of the MAS licence.
The application therefore needs to be presented in sufficient detail. Generic responses to questions will be obvious, so clear, business-specific information is key.
Get the Application Ready Before Filing
It will be prudent to consider various aspects relating to business models, licensing scope, company structure, board of directors, key persons, cash flow plans and projections, internal compliance policies, technology and IT security policies, customer protocols and a multitude of supporting documents as part of a comprehensive application process before final filing.
The business plan, internal policies and procedures for compliance and operational risk should be aligned with the proposed products, services and technology systems.
Inconsistencies in applications can lead to additional regulatory queries and delays.
A MAS application is more than just filling in paperwork; the focus should be on presenting MAS with a business that is ready to commence operations.