Key FinTech Trends in 2023

The year 2023 saw regulatory bodies supporting innovation and artificial intelligence (“AI”) growth, in addition to pushing forward with FinTech initiatives related to ESG and improving regulatory measures for consumer protection. With the financial sector being an integral part of Singapore’s ambition to be a smart nation, there is a concerted effort to support the development of FinTech and to boost innovation in the sector.

This article highlights the three key FinTech trends in Singapore in 2023:

• Spurring innovation and AI: Regulatory bodies introduced further support aimed at bolstering innovation in AI capability development.
• Advancing sustainability: In 2023, as ESG concerns took centre stage in regulatory agendas, a number of sustainability-focused initiatives and platforms were launched.
• Industry developments: The regulators made strides in the regulation of digital payment token (“DPT”) providers and financial institutions, in particular in relation to consumer protection. The industry also saw further developments in digital currency and asset tokenisation.

I.  Spurring innovation and AI

1.   The Monetary Authority of Singapore (MAS) support for technology and innovation, and upcoming developments

a.  MAS commits up to S$150 million for technology and innovation in financial sector

On 7 August 2023, MAS announced that it will commit up to S$150 million over three years under the renewed FSTI 3.0 to accelerate and strengthen innovation by supporting projects that involve the use of cutting-edge technologies or with a regional nexus. FSTI 3.0 now comprises the following new tracks:

• Enhanced Centre of Excellence track: The scope of grant funding for this track (formerly the Innovation Labs track) was expanded to include corporate venture capital entities, with funding support of up to 50% of qualifying expenses, capped at S$2 million per project.
• Innovation Acceleration track: Under this track, MAS conducts open calls for the use of innovative technologies in industry use cases. Grant funding is provided to support actual trial and commercialisation.
• ESG FinTech track: This track aims to support the development and deployment of projects that address ESG data, reporting, and analytics needs of the financial sector, with funding support of up to 50% of qualifying expenses, capped at S$500,000 per project.

b.  MAS lays foundation for safe and innovative use of digital money in Singapore

On 16 November 2023, MAS announced three initiatives to lay the foundation for the safe and innovative use of digital money in Singapore:

• The Orchid Blueprint: The Orchid Blueprint outlines the infrastructure building blocks required for the sound use of digital money in Singapore - settlement ledger, tokenisation bridge, programmability protocol, and name service.
• Expanding digital money trials: MAS will undertake four new trials with industry players in tokenised bank liabilities, wallet interoperability, supplier financing, and institutional payment controls.
• Plan to issue “live” CBDC for wholesale settlement: MAS will commence the development of CBDC for wholesale interbank settlement in 2024 to complement the financial industry’s digital money trials. MAS will pilot the “live” issuance of wholesale CBDCs which will involve the use of “live” wholesale CBDC to settle retail payments between commercial banks.

2.   Artificial intelligence

a.  MAS launches Financial Sector Artificial Intelligence and Data Analytics (AIDA) Talent Development Programme

On 22 May 2023, MAS launched the Financial Sector AIDA Talent Development Programme. The programme addresses the shortage of AIDA talent by (1) aggregating FIs’ talent demands across various AIDA roles, based on their stage of AIDA adoption, and developing programmes to meet FI needs, and (2) co-curating training programmes and modules which incorporate the latest developments and trends in AIDA, with strong financial sector application.

b.  MAS-led industry consortium releases Veritas Toolkit version 2.0

On 26 June 2023, MAS announced the release of Veritas Toolkit version 2.0, an open-source toolkit developed to enable the responsible use of AI in the financial industry. The toolkit helps FIs carry out the assessment methodologies for the Fairness, Ethics, Accountability and Transparency (FEAT) principles. Published were a white paper was published on the key lessons learnt by the seven FIs which piloted the integration of Veritas methodology with their internal governance framework, and a white paper setting out two additional use cases developed to illustrate the application of the Veritas methodology.

c.  MAS partners industry to develop GenAI risk framework for financial sector

On 15 November 2023, MAS announced the successful conclusion of phase one of Project MindForge. Project MindForge aims to develop a framework on the responsible use of GenAI in the financial industry, and to catalyse GenAI-powered innovation to solve common industry-wide challenges and enhance risk management. MAS also released an executive summary of a whitepaper detailing the risk framework. In phase one, alongside a platform-agnostic GenAI reference architecture, the GenAI risk framework was developed with seven risk dimensions identified. In phase two, the scope will be expanded to involve FIs from the insurance and asset management industries.

 II.  Advancing sustainability

1. Green Finance

a.  MAS launches Finance for Net Zero Action Plan

On 20 April 2023, MAS issued a press release and infographic on the launch of MAS’ Finance for Net Zero Action Plan, which sets out MAS’ strategies to mobilise financing to catalyse Asia’s net zero transition and decarbonisation activities in Singapore and the region. It expands the scope of MAS’ Green Finance Action Plan to include transition finance.

b.  MAS, SGX Group and Climate Data Steering Committee (CDSC) collaborate to strengthen global access to climate transition-related data

On 27 June 2023, the Secretariat of the CDSC, MAS, and SGX Group announced that they have signed an MoU to collaborate on strengthening access by stakeholders around the world to key climate transition-related data. The collaboration aims to synergise across MAS Project Greenprint’s ESGenome disclosure portal and the CDSC’s Net-Zero Data Public Utility (“NZDPU”) global repository of climate transition-related data, allowing companies that report into ESGenome to transmit to NZDPU their data on Scope 1, 2 and 3 greenhouse gas emissions.

c.  MAS code of conduct for providers of ESG rating and data products

On 6 December 2023, MAS issued its finalised Singapore Code of Conduct for ESG Rating and Data Product Providers (“CoC”) and an accompanying checklist for ESG rating and data product providers (“Providers”) to self-attest their compliance with the CoC (“Checklist”). MAS also published its response to feedback received on its public consultation on the CoC and Checklist. The CoC aims to establish baseline industry standards for transparency in methodologies and data sources, governance, and management of conflicts of interest that may compromise the reliability and independence of ESG products. The CoC and Checklist adopts a “comply or explain” approach.

III.  Industry developments

1.  Regulatory developments

a.  MAS proposes framework for digital asset networks

On 26 June 2023, MAS announced the publication of its report titled “Enabling Open & Interoperable Networks” which proposes a framework for designing open, interoperable networks for digital assets. The report also considers how the Bank for International Settlements’ Committee on Payments and Market Infrastructure-International Organization of Securities Commissions (CPMI-IOSCO) principles for financial market infrastructures can be applied to evolving models of digital asset networks. MAS also announced the expansion of Project Guardian to test the potential of asset tokenisation across more financial asset classes.

b.  MAS announces investor protection measures for DPT services, consults on (1) amendments to Payment Services Regulations, and (2) measures on market integrity in DPT services

On 3 July 2023, MAS announced new requirements for DPT service providers (“DPTSPs”) to safekeep customer assets under a statutory trust and other segregation and custody requirements before the end of 2023. These requirements are aimed at mitigating the risk of loss or misuse of customers’ assets and facilitating the recovery of customers’ assets in the event of a DPTSP’s insolvency. MAS will also restrict DPTSPs from facilitating lending and staking of DPTs by their retail customers. MAS also sought feedback on (1) draft amendments to the Payment Services Regulations 2019 to put these requirements for DPT services under the Payment Services Act 2019 into effect, and (2) proposed requirements in a separate consultation paper for DPT service providers to address market abuse and unfair trading practices.

On 23 November 2023, MAS announced the finalised measures relating to business conduct, consumer access and managing technology and cyber risks for DPTSPs on which guidelines will be issued for DPTSPs.

c.  MAS finalises stablecoin regulatory framework, responds to feedback received from public consultation

On 15 August 2023, MAS announced the features of a new regulatory framework that seeks to ensure a high degree of value stability for stablecoins regulated in Singapore. The regulatory framework takes into account feedback received following a public consultation in October 2022. MAS also issued its response to the feedback received.

d.  Consultations on proposed shared responsibility framework for FIs, Telcos and consumers for phishing scams and revisions to E-Payments User Protection Guidelines

On 25 October 2023, MAS and IMDA published a joint consultation paper proposing a shared responsibility framework (“SRF”) for phishing scams. The proposed SRF assigns FIs and telecommunication companies (Telcos) relevant duties to mitigate phishing scams, and requires payouts to affected scam victims where these duties are breached. MAS concurrently consulted on proposed revisions to the E-Payments User Protection Guidelines.

e.  MAS raises stock cap and flow cap on personal e-wallets

On 15 December 2023, the Payment Services Regulations 2019 were amended to implement revisions to limits imposed on personal payment accounts that contain e-money (“e-wallets”) issued by major payment institutions - the maximum amount of funds that can be held at any given time in each e-wallet was raised from S$5,000 to S$20,000 and the maximum total outflow over a rolling 12-month period from each e-wallet was raised from S$30,000 to S$100,000.

2.  Digital currency and tokenisation

a.  MAS publishes whitepaper proposing common protocol for use of digital money

On 21 June 2023, MAS published a press release and a technical whitepaper on purpose bound money proposing a common protocol to specify conditions for the use of digital money such as CBDCs, tokenised bank deposits, and stablecoins on a distributed ledger.

b.  MAS partners financial industry to expand asset tokenisation initiatives

On 15 November 2023, MAS announced the following:

• Under Project Guardian, MAS was working with the financial industry to expand asset tokenisation initiatives and develop foundational capabilities to scale tokenised markets.
• Project Guardian’s industry group initiated five additional industry pilots to test promising asset tokenisation use cases, potentially paving the way for integration across the capital markets value chain. A new funds workstream was lunched focused on the native issuance of variable capital company funds on digital asset networks, addressing tax, policy, and legal considerations while increasing distribution channels for asset managers.
• MAS’ collaboration with international policymakers and FIs to explore the design of a new open, digital infrastructure - Global Layer One (“GL1”) - that will host tokenised financial assets and applications. GL1 will enable tokenised assets to be traded across global liquidity pools, while meeting relevant regulatory requirements and guidelines.
• MAS’ collaboration with the financial industry to develop an Interlinked Network Model (“INM”) which provides a common framework for exchanging digital assets across independent networks. MAS has published a whitepaper titled “Interlinking Networks”.

AUTHOR INFORMATION

Adrian Ang is a Partner at Allen & Gledhill where he is Co-Head of both the FinTech Practice and ESG & Public Policy Practice.
Email: adrian.ang@agasia.law

Alexander Yap is a Partner at Allen & Gledhill where he is Co-Head of the FinTech Practice,
Email: alexander.yap@agasia.law