Financial technology or fintech is widely defined as an emerging technology to facilitate and automate the delivery and application of financial services among both private and business customers. Fintech has played an important part in turning Southeast Asian from a historically unbanked region to one of the fastest growing fintech markets in the world. In this article, we will look into a few countries’ policy stance to understand their success.
1. Singapore
The financial regulator in Singapore - the Monetary Authority of Singapore (MAS) is one of the regulators worldwide that respond early to the development of fintech and one of very few countries in Asia that have no specific prohibitions or restrictions on fintech businesses. According to the Network Readiness Index (NRI), Singapore is ranked at number 2 out of 139 countries in terms of most likely to reap the benefits of the digital future.
Over the course of just 2 years from 2015 to 2017, MAS formed of a new Fintech & Innovation Group (FTIG), an International Technology Advisory Panel (ITAP) and a Fintech Office at the national level to promote Singapore as a fintech hub.
Beside Fintech Regulatory Sandbox which allowed the testing of fintech products/services within a well-defined space, duration and more relaxed legal requirements, the MAS also laid down some guidelines, regulatory instruments such as Guidelines on Provision of Digital Advisory Services, A Guide to Digital Token Offerings, E-Payments User Protection Guidelines, and most recently is Payment Services Act in January 2019. These regulations not only to provide guidance for innovative fintech solutions but also to address potential risk, set out responsibilities and obligations.
2. Malaysia
The Malaysian government has been aggressively promoting and providing strong support and accelerating fintech growth over the past three-four years.
In October 2016, the Financial Technology Regulatory Sandbox Framework was launched to provide startups with a live environment to experiment within specified parameters, timeframes and work with the central bank on assessing the fintech "risk" and its potential.
The governmental agencies and regulators have also showed their support for the fintech ecosystem by introducing several other frameworks and draft regulations such as Digital Investment Management framework in May 2017; a policy document on Publishing Open Data using Open Application Programming Interface (Open API) in January 2019; Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019 in January 2019; Public Consultation Paper on Proposed Regulatory Framework for the Issuance of Digital Assets through ICO; Exposure Draft on Framework for Electronic Trading Platforms.
Crypto currency exchanges are temporarily prohibited from accepting new investors and will only be allowed to facilitate the withdrawal or transfer of client assets with the written instruction of the investor, until the regulatory requirements are published.
3. Thailand
Thailand is a comparatively advanced jurisdiction for fintech in relation to many of its peer nations in Southeast Asia.
The Thai Government published a regulatory sandbox white paper and launched the Investment Adviser and Private Fund Sandbox and Clearing and Settlement Sandbox in December 2016. These sandboxes allow new innovative technology to be tested in a limited environment before wider release with specific lenient rules while ensuring stability of financial system and consumer protection. The Thai Insurance Commisson also introduced a regulatory sandbox scheme in June 2017 to allow insurers to beta test insurance technology.
The government is also currently considering a Draft Law on Business Promotion and Public Access to Services Through Financial Technology. The proposed legislation aims to:
· Strengthen public confidence in electronic transactions.
· Facilitate fintech businesses by addressing matters such as data privacy and KYC requirements.
This draft law is expected to be adopted in the near future, but the specific date remains unknown.
Although the use of crypto currencies to purchase and sell goods is legal, “digital asset businesses” are not permitted to operate without a license under the Royal Decree on Digital Asset Businesses, which including brokers, dealers or exchanges for digital assets or crypto currencies, ICO portals.
4. Indonesia
In Indonesia, Financial Services Authority (Otoritas Jasa Keuangan or OJK) is actively planning regulations to nurture the growth of fintech innovation while maintaining the integrity of financial markets and customer protection as there remains a strong need for financial inclusion in Indonesia.
To support the fintech ecosystem and the Indonesian economy, especially companies in payment businesses, Bank of Indonesia established Regulation No.19/10/PBI/2017 on Fintech Companies where fintech providers will be tested in the regulatory sandbox for around a year before they may apply for license.
On the other side, OJK published POJK No.13/POJK.02/2018 on Digital Financial Innovation in the Financial Services Sector as the legal umbrella for all types of fintech, effective from 16 September 2018. Any fintech companies that are not yet regulated by other authorities must apply to OJK to go through the regulatory sandbox process and get registered. The key dimension of this regulation is aimed at creating a responsible digital finance innovations with a robust security system, good governance, and compliance with customer protection, anti-money laundering/terrorism financing rules.
Regarding prohibitions, the Central Bank of Indonesia strictly prohibiting the use of crypto currency as means of payment.
5. Vietnam
Fintech business activities in Vietnam so far has not had a legal basis to operate on, has not been prescribed in the Enterprise Law, nor classified in business lines according to the 2014 Investment Law. Except fintech operating in the intermediary payment sector, which is the function of the State Bank as provided for in the State Bank Law 2010, Decree 101/2012 of the Government (amended in Decree 80/2016) on non-cash payments.
However, within the first half of 2020, The State Bank of Vietnam (SBV) has finally published a draft Decree on the Experimental Mechanism for Financial Control (fin-tech) in the banking sector in early 2020. According to the draft of the new Decree, fintechs are expected to participate in testing activities in the fields of payment, credit, peer-to-peer lending, customer identification support, and an open application programming interface (Open API), innovative application solutions (such as blockchain), other services supporting banking activities (credit scoring, savings, capital mobilization,etc).
6. Philippines
In recent years, the Philippines government has formulated policies to achieve greater financial inclusion and push innovation in the financial services sector. In 2017, the regulator signed a fintech agreement with the Monetary Authority of Singapore to foster fintech collaboration.
For several years, the Philippine Central Bank (BSP) has taken a “test and learn” or regulatory sandbox approach towards new technology in financial sector. Conditions for this “sandbox” option are made on a case-by-case basis.
In addition to establishing the National Retail Payment System (NRPS) and NRPS Framework to facilitate a transition to an electronic retail payments platform, a number of new regulations has been launched, such as Circular 944 specifically defines virtual currency, requirements for virtual currency exchanges and adequate safeguards; Circulars 938 and 942, which enhanced supervision of pawnshops and money service businesses in anticipation of these service providers expanding the use of electronic payments. The Philippine Securities and Exchange Commission (SEC) also seeks to regulate ICOs with its release of the updated Proposed ICO Rules and regulation of virtual currency trading in the near future.
While there is no specific prohibitions on fintech businesses, due to lack of regulations, virtual currency trading platforms cannot operate and commodities futures trading, which involves trading of asset-backed tokens is also currently suspended by the SEC.
7. Myanmar
Financial inclusion is one of the top priorities for the Government of Myanmar as the country moves ahead with its economic transition, aiming to increase financial inclusion from 30% in 2014 to 40% by 2020.
In March 2016, the Central Bank issued a regulation on “Mobile Financial Services” (MFS) to create a safe mobile financial services regulatory environment in Myanmar. Mobile network operators and non-bank financial institutions can now apply for an MFS license to provide electronic money transfer and other tech-based financial services within the country.
To support financial inclusion, the Myanmar Ministry of Planning and Finance, in partnership with UK-funded DaNa Facility, and the United Nations Capital Development Fund (UNCDF) Myanmar, has set out ambitious goals through its Financial Inclusion Roadmap, a strategy referred to as Making Access Possible (MAP). A technology innovation program called Fintech Challenge Myanmar was also designed in May 2019 to spur innovation in financial services to promote greater financial inclusion.
In conclusion, in order to maintain leading international edge like Singapore or improve financial efficiency and promote financial inclusion like the rest, countries and regulators of Southeast Asia cannot separate themselves from the worldwide trend and delay on launching sufficient frameworks, experimenting grounds for investors since regulation is undoubtedly a key issue when it comes to digital finance. And surely, whether Southeast Asia becomes a future fintech hub depends heavily on regulators’ ability to maintain balance between encouragement for growth and stability.