The Monetary Authority of Singapore has drafted up guidelines for a 'regulatory sandbox' that will help financial institutions experiment with financial information technology.

Perhaps in response to the British Financial Conduct Authority's proposal to set up an initiative of the same baffling name, the MAS has laid out its proposals - which, as this publication suspected of the shadowy British proposals when they first came out, does have something to do with IT - with commendable clarity. The bizarre choice of name for the project remains obscure, with the consultation paper not mentioning cats or cat litter once.

The paper's authors write: "There may be circumstances where it is less clear whether a particular FinTech solution complies with regulatory requirements or poses unacceptable risks. The uncertainty may stifle promising innovations, and may result in missed opportunities. The regulatory sandbox will enable [financial institutions] to experiment with innovative FinTech solutions in an environment where actual products or services are provided to the customers but within a well-defined space and duration. For the duration of the regulatory sandbox, MAS will relax regulatory requirements. [The] MAS recognises that failure is often a feature of such experiments and the purpose of the regulatory sandbox is to provide appropriate safeguards to contain the consequences of failure for customers rather than to prevent failure altogether." The so-called sandbox, then, appears to be some kind of waiver for fintech companies.

The way it should work

Let us assume that a financial firm has developed an innovative FinTech solution, using a combination of existing and new technology. Research (conducted rigorously in the lab) suggests that it can plug a gap in the financial sector, and the firm intends to deploy the solution in Singapore. It is, of course, uncertain that all major foreseeable risks have been effectively offset, because there was no precedent to guide the testing. In addition, the firm is still at an early stage of its development and is unable to comply with all legal and regulatory requirements. It applies to the MAS for some form of exemption.

Next, the firm prepares a proposal in accordance with the guidelines which are now the subject of consultation. As the firm does not have a contact point with any MAS Review Officer, it submits the proposal and supporting information to xxxxxx@mas.gov.sg. The MAS receives the proposal and assesses it against some "sandbox evaluation criteria," looking at all legal and regulatory requirements to be relaxed for the duration of the sandbox. It replies within 21 working days and then continues to ask questions. Eventually, if all goes well, it tells the firm in writing to "proceed with the sandbox." The so-called sandbox will then be limited to 50 customers and run for a period of six months while the MAS sees how it affects them and weighs up risks and the action that the firm takes to offset them.

The MAS will be receiving comments from the public up until 8 July - an extremely short space of time which makes the whole consultative exercise seem a foregone conclusion.