Protection for Consumers of Fintech Platforms and Non-bank Institutions, and Regulations on Liquidity Levels and Responsible Marketing

7 Mr Mark Lee asked the Prime Minister and Minister for Finance (a) how does MAS ensure that financial technology platforms and non-bank financial institutions offering high-yield investment products maintain sufficient liquidity and manage fund withdrawal risks; (b) whether MAS is considering additional safeguards to enhance consumer protection for retail investors engaging with such platforms, given recent liquidity challenges faced by fintech firms; and (c) what measures are in place to ensure that the public fully understands the risks of using financial services from non-bank entities, particularly fintech platforms offering investment-linked products.

8 Mr Saktiandi Supaat asked the Prime Minister and Minister for Finance (a) what steps is MAS taking to ensure financial institutions and fintech companies (FIFCs) provide clear, accurate and timely communication regarding changes to their products and services; (b) what measures are in place to encourage FIFCs to adopt responsible marketing strategies, avoid overpromising on returns or benefits and avoid offering overly attractive promotional offers to customers; and (c) how does MAS ensure that fintech companies adhere to the same standards of risk management and consumer communications as banks.

The Minister of State for Trade and Industry (Mr Alvin Tan) (for the Prime Minister and Minister for Finance): Mr Speaker, with your permission, may I take Question Nos 7 and 8 together please, as they touch on similar issues.

Mr Speaker: Please go ahead.

Mr Alvin Tan: Mr Speaker, investment platforms operating as digital advisers that manage investment portfolios on behalf of customers are licensed as Capital Markets Services Licensees (CMSLs) under the Securities and Futures Act. They offer portfolios which are invested into funds managed by other licensed fund management companies. These investment platforms are required by regulation to keep customers' assets legally separate and safekept by licensed custodians.

The recent incident involving a surge in withdrawals from an investment platform illustrate that the safeguards worked as intended. Customers' assets were properly segregated from the platform and requests for withdrawal were redeemed in an orderly manner, within the standard fund redemption timeframe of three to six working days. Customers received the market value of their investments within the typical three to six days.

In the specific case I mentioned above, the investment platform offered two unique features, which they marketed prominently to customers. First, it offered instant withdrawals for customers, up to a limit per account. Second, it allowed customers to spend on a debit card that was linked to the value of their underlying investments. The platform stopped both these features when the high usage of both these features became unsustainable for it to support.

The conditions and limitations of these features, including the ability of the investment platform to vary or stop these features, were disclosed in the product terms and conditions. However, these disclosures may not have been effective in providing customers a full understanding of the product.

While product features do not always require regulatory approval, there are regulatory requirements in place for robust risk management and clear disclosures, especially where they impact a firm's operations. The Monetary Authority of Singapore (MAS) is reviewing this particular case against these requirements, as well as, more generally, how to ensure investment platforms implement these requirements effectively.

At the same time, we urge customers to fully understand the features, including key terms and conditions, and risks of a financial product, before deciding to invest in it. Customers should also seek professional financial advice on the suitability of a product if they are unclear of its features. We also encourage customers to refer to our MoneySENSE website to learn more about what to look out for in an investment.

Mr Speaker: Mr Mark Lee.

Mr Mark Lee (Nominated Member): I thank the Minister of State Alvin Tan for the detailed reply and MAS' ongoing efforts to uphold trust while supporting innovation in our financial ecosystem. I think the recent fintech incident illustrates that even when a platform is MAS-licensed, many retail users may not clearly understand the regulatory boundaries or even the product risk, particularly in relation to liquidity and withdrawal expectations.

It is not necessarily a regulatory lapse, but I think a communication and perception challenge. And like what the Minister of State Alvin Tan has said, the provider did include disclaimers, but retail users still conflated the offering with bank-like products. And I understand, like what the Minister of State Alvin Tan has said, MAS has worked through initiatives, like MoneySENSE, to promote financial literacy.

But as fintech products evolve and marketing strategies become more sophisticated, some consumers may be drawn in by branding promotional hooks or platform design despite the presence of legally accurate disclosure. To address this, can I suggest the Ministry consider the following: first, requiring a mandatory plain language risk summary before investors proceed and with the user's acknowledgement; second, strengthening public education on such products; and third, encouraging perhaps tighter industry-led codes of conduct on marketing and promotions?

Mr Alvin Tan: Sir, I thank Mr Mark Lee for his supplementary question. I think he made a really good point about the need to continue to foster trust and also to uphold innovation – and that is what we are trying to do with the fintech sector.

I think this particular episode has shown, in fact, that it is important for companies, and in fact, there are regulatory requirements, as I mentioned in my original reply for companies: first, to put in place these robust risk management practices; and second, to properly disclose their products and the features of their products as they impact the firm's operations.

So, we will do that. We will review this particular case in detail and work with platforms, work with the industry to ensure how to better implement these within these requirements that we have set out earlier on.

The additional part is also with regard to financial understanding of these products. And I think as more products are being introduced to the market, it is equally important for customers to be savvy about these. And we will continue to work with different platforms to promote the understanding of these products; but at the first base, to work with firms like the ones that I mentioned, the broader industry, to say, I think you need to make your disclosure just a little bit clearer and upfront. It is already there, but I think they can do more.

Mr Speaker: Mr Saktiandi Supaat.

Mr Saktiandi Supaat (Bishan-Toa Payoh): Thank you, Mr Speaker. I just have two supplementary questions to add to what Member Mr Mark Lee has spoken about. I thank the Minister of State and also Member Mark Lee for highlighting the innovation that we want to encourage in Singapore in the financial sector and the trust element.

The first supplementary question is, what more can MAS do to strengthen consumer financial literacy, which was highlighted just now by the Minister of State. But I think my question is, there is going to be more of these going forward as we push towards innovation in the financial sector, so whether we can streamline the complaints channel for retail investors and especially for fintech-related grievances. Because this is going to get a bit more complex as we allow some innovation space.

Second, in terms of the increasing use of digital platforms and artificial intelligence (AI)-based marketing by financial institutions and fintech companies, is there a way that MAS can share how it can enhance its oversight to ensure such technologies are not used to exploit consumer biases or obscure risks going forward? I think it is going to get a bit more complex. The Minister of State shared it somewhat just now, but I think with AI-based marketing, especially on the fintech side, how can we enhance our oversight?

Mr Alvin Tan: Sir, we will do, I think, all of the above. Primarily, I think, consumer education is one. For customer complaints, I encourage the consumers and customers, if you do have complaints, to please raise them with MAS. MAS looks into these complaints holistically.

Second, we work very closely with the industry, for example, the fintech firms and the Singapore FinTech Association. I think there is scope for us to work closely with them to see how we can encourage these platforms, as I mentioned in my early reply to Member Mark Lee, to raise the standards and also to better disclose these product features.

Thirdly, I think with regard to more implementation of technology, I think we need to balance between financial innovation as well as regulatory conduct. And I think what is also important is one particular safeguard in this space. If you look at some of the safeguards for this particular case, this particular firm had a CMSL licence for fund management. Consumers can also look into the financial institutions directory to look at which firms and which financial institutions are regulated, and also, consult the Investor Alert List.

But with regard to this particular firm and the CMSL licence, if you look at it carefully, there is a requirement for the segregation of customer funds. So, a segregation of customer funds from the company's money. And that means that there is a segregation where customers' investments are safeguarded. And that is why when customers are requesting for withdrawal, there is an orderly withdrawal because these customer funds are placed under independent custody. They must remain intact – it is a requirement under the CMSL licence – and they cannot be used to meet the firm's liability at any point of time.

So, we have education, we have a good regulatory framework and also implementation. I think these will help us to foster a vibrant fintech ecosystem while making sure that we protect consumers' interests.