Here's what you need to know about the proposed 'regulatory sandbox' for fintech in Singapore

The framework leads to two potential issues.

In an aim to create a conducive regulatory environment for nurturing the growth of financial technology ("FinTech") firms and a fast-evolving, sophisticated FinTech ecosystem in Singapore, the Monetary Authority of Singapore ("MAS"), released a consultation paper on the proposed guidelines for a "regulatory sandbox".

When legislated, this framework will enable financial and non-financial institutions to experiment and develop new FinTech solutions in a safe environment.

Public consultation on the Regulatory Sandbox closed on 8 July 2016, and the final guidelines are expected from the MAS in the coming months.

Here's how  law firm Hogan Lovells differentiate the current regulatory framework versus the proposed regulatory sandbox:

Current FinTech regulations largely reflect existing FinTech products and services available in the market. Financial institutions are free to launch new technology solutions without consent of the MAS, provided they have conducted their own due diligence on such products and all legal and regulatory requirements have been complied with.

This framework leads to two potential issues. First, where a FinTech innovator has an idea for a new product or service, it may not fit neatly into the current regulatory framework, and the innovator may be uncertain as to whether the product or service complies with existing regulations but reluctant to approach the MAS for guidance to avoid regulatory scrutiny and
potential costly compliance actions. This uncertainty could stifle the creation of new products or services.

Second, it may be clear that a new FinTech product or service does not comply with the letter of current MAS regulations written to address concerns around prior or existing products or services, but these regulations may not be appropriate for the new product or service.

The MAS aims to address these issues by creating a platform for engagement and a compromise space between the MAS and innovators, where original solutions can be tested against relaxed regulatory rules that are defined on a case-by-case basis. 

The MAS can relax regulations in the Regulatory Sandbox because it can also set limitations on the innovations in the Regulatory Sandbox (for example, how many customers the product can be tested with, and the duration for testing the solution) thereby limiting the potential exposure if a solution in the Regulatory Sandbox fails.