The Monetary Authority of Singapore (MAS) today issued two consultation papers to improve market operators’ business flexibility when establishing new centralised trading facilities and speed to market when launching new products. The proposals are part of MAS’ broader objectives to facilitate innovation in financial services by recognising emerging new business models while safeguarding investors’ interest.
New multi-tier regime for market operators
MAS proposes to expand the existing Recognised Market Operators (RMO) regime from a single tier to three separate tiers (namely RMO Tier 1, RMO Tier 2 and RMO Tier 3) to better match regulatory requirements to the risks posed by different types of market operators. A multi-tier RMO regime with gradated requirements can better accommodate the emergence of new business models such as blockchain-based or peer-to-peer trading facilities, and lower the cost of entry for start-up operators.
RMO Tier 1 is a new tier for market operators that serve a limited base of retail investors. Currently, the existing RMO regime does not allow access to retail investors . With this new tier, market operators that do not pose system-wide risks will be allowed to serve retail investors if they are able to meet additional requirements that pertain to retail investor protection. These requirements are more stringent than the existing RMO regime and include increased information disclosure.
RMO Tier 2 is for market operators that qualify under the existing RMO regime. These market operators do not pose system-wide risks, and only serve non-retail investors. The regulatory requirements for this tier will be the same as those under the existing RMO regime. Market operators that are currently authorised as RMOs will be re-classified under this tier.
RMO Tier 3 is a new tier for market operators that have a significantly smaller scale of business compared to more established operators under the existing RMO regime. This new tier is designed to facilitate new entrants that develop solutions for wholesale market participants, or market operators that have reached the end of their sandbox tenure and are commercially viable, but whose businesses are not able to meet the requirements of the existing RMO regime. Under this tier, they will be subjected to less stringent requirements on capital, technology risk management and outsourcing. Their scale of business activity will, however, be capped to limit the impact in the event of failures.
MAS proposes to allow RMO Tier 3 applicants to self-certify their compliance against a checklist of requirements in their application to MAS, given their smaller business scale and more sophisticated investor base . As MAS will place primary reliance on the self-certification by such applicants, MAS expects to complete processing applications within four weeks of submission. All applicants will be required to meet the full set of fit and proper requirements that are imposed on existing RMOs.
Shift to a product notification regime
MAS has set out its intention to replace the current approval regime for the launch of new derivatives products traded on exchanges or centralised trading facilities with a notification regime . To operationalise the new regime, MAS proposes for market operators to self-certify that the derivatives products to be traded comply with MAS’ requirements, and notify MAS no less than one week prior to the product launch announcement. There will be no need to seek MAS’ approval and market operators will be better able to plan their launch timelines.
As part of the self-certification process, market operators are required to identify and mitigate risks associated with the product launch. MAS will supervise market operators to check that they have appropriate internal controls and governance procedures to be able to assess and monitor the relevant product risks and mitigating measures.
Mr Lee Boon Ngiap, Assistant Managing Director, Capital Markets, MAS, said, “The proposals will benefit the industry as market operators will have greater flexibility to choose between different business models with regulatory requirements and compliance costs that are commensurate with their investor reach. They will also be able to launch their products more quickly in response to market demand. These changes are in line with MAS’ risk-based supervisory approach.”