On 22 May 2018, the Monetary Authority of Singapore (MAS) began a consultation to seek public feedback on its proposed changes to the Recognised Market Operators (RMOs) regime. The proposed changes are intended to advance MAS’s objective to drive innovation in financial services, whilst protecting investors’ interests.
Under Singapore’s Securities and Futures Act, only RMOs and approved exchanges (AEs) such as the Singapore Exchange Securities Trading Limited (or SGX) can establish and operate a securities market or a futures market. AEs are entities incorporated in Singapore that operate systemically-important markets or that serve retail investors (i.e., investors other than accredited investors, institutional investors and expert investors). Market operators that are not systemically important or that serve only non-retail investors are regulated as RMOs.
MAS applies a risk-based approach to the regulation of AEs and RMOs. MAS recognises that current RMOs and emerging new business models such as blockchain-based or peer-to-peer trading facilities may pose different levels of risks. MAS is proposing to convert the current single-tier RMO regime to a three-tier regime with varying levels of regulatory compliance requirements. Entities adopting the new business models can benefit from reduced regulatory burden and lower costs of entry.
Currently, RMOs cannot serve retail investors. RMO Tier 1 will allow market operators to serve a limited number of retail investors if they comply with certain additional requirements to protect retail investors, such as increased information disclosure, and operational requirements to limit the potential effects of failure. These requirements are more stringent than the current RMO regime. The limits on retail investors will not apply to overseas retail investors or to non-retail investors. Notably, the base capital requirement for Tier 1 RMOs will be S$500,000, a significant reduction compared to the $10 million requirement for AEs.
RMO Tier 2 corresponds to the current RMO regime. Market operators in this tier can serve non-retail investors only. These market operators will be subject to the same regulatory compliance requirements as the current RMO regime. Market operators that are currently authorised as RMOs will be re-classified under this tier.
RMO Tier 3 is applicable to market operators of a significantly smaller scale compared to the current RMO regime. Examples of market operators that may fall under this tier include new entrants that develop solutions for wholesale market participants and market operators that have reached the end of their sandbox tenure and are commercially viable, but whose businesses are not sufficiently developed to meet the requirements of the current RMO regime.
These market operators will be subject to a more streamlined set of regulatory compliance requirements, such as reduced capital requirements and simplified requirements related to technology risk management and outsourcing.
The application process for Tier 3 will also be simplified, requiring base capital of S$50,000 and self-certification against a checklist, leading to quicker review and shortened time to market. However, Tier 3 RMOs will not be allowed to directly access any individuals, including accredited investors (but may do so indirectly through capital markets services licensees) and the scale of their businesses will be restricted by revenue and volume.
Tiers 1 and 3 are available only to Singapore-incorporated entities. Overseas entities are only eligible for RMO Tier 2.
The public consultation will end on 22 June 2018. A copy of the consultation paper can be found here.
