Excerpts from speech by Ong Chong Tee, Deputy Managing Director (Financial Supervision) of the Monetary Authority of Singapore, at ASIFMA’s Annual Conference in Singapore, 1 November 2018
Fintech developments have revolutionized the way financial services can be delivered. Some examples in capital markets include:
(a) In fund and wealth management, the rise of robo-advisory services and AI-driven investment management;
(b) In equity research, the use of AI to generate analyst reports; and
(c) In primary and secondary markets, blockchain-based platforms that can substitute for central trusted parties by providing an alternate reliable protocol for fund-raising, trade execution, settlement and custody.
MAS’ stance towards innovation in financial services
Technology can bring about new or heightened risks when mis-used or abused. So, while MAS is supportive of financial institutions to experiment with technology to harness potential new opportunities, or to innovate existing processes, we also require that they understand and can manage the associated risks. It is this philosophy that underpins the MAS to be among the first regulators in the world to adopt a regulatory sandbox regime.
- MAS’ regulatory sandbox provides a constrained but more flexible space for players seeking to test new technology or approaches before a full launch. Such sandbox pilots are held within defined risk parameters and are time-bound. These restrictions help to limit the impact from unsuccessful applicants but equally important, they allow MAS to also understand the new model up close – how it is run, how the technology or its application is used, how the risks are managed and the value proposition to clients before mainstream use and scalability.
- MAS recently issued a consultation paper on changes to our Recognised Market Operator (RMO) regime. Under the current approach, Singapore-based market operators must be Approved Exchanges if they are systemically important, or else regulated as RMOs. But new forms of market places have emerged – such as trading facilities that make use of blockchain technology or peer-to-peer platforms without intermediaries. Our regulatory framework will need to be flexible to accommodate innovative business models by market operators with rules that are commensurate with the risks including factors such as retail access and scale of business.
- There have been some queries on our regulatory stance towards crypto-currencies, or more generally, digital tokens and ICOs (initial coin offerings). We have issued a public advisory to caution those who “invest” in crypto-tokens to do so with caution and to understand their characteristics including being volatile and non-legal tender. MAS has also issued a guide on digital token offerings last year to explain that our regulatory treatment depends on the digital tokens’ inherent characteristics.
- For utility tokens, which are for restricted usage within a defined set of products or services, these are not subject to MAS regulations. On the other hand, for payment tokens which are designed to be an alternate form of a medium of exchange, the intermediaries processing these tokens will come into our regulatory ambit under the proposed Payment Services Bill. This is to ensure that these providers adopt the necessary measures and controls to manage money laundering and terrorism financing risks.
- Finally, there are digital tokens that represent ownership interest akin to securities, debentures or collective investment scheme products. These will be subject to existing laws under our Securities and Futures Act (SFA) including investor protection safeguards, as for conventional securities.
- Technology is not only an enabler for the private sector. Many financial regulators also actively use technology tools and solutions to augment or improve surveillance, supervision and enforcement actions. More than a year ago, the MAS set up a dedicated suptech office to serve as an expertise hub to support our line supervisors across banking, insurance and capital markets. There are several ongoing projects to support business process automation and the adoption of enhanced supervisory tools and applications. We are also exploring the use of Data APIs to streamline the submission of regulatory data, and “live dashboards” for better visualization of trends and analyses. Our supervisors will also be incorporating the use of artificial intelligence and machine learning to support big data and network analytics in our surveillance and enforcement work. Collectively, these and other suptech capabilities will complement the industry’s drive towards regtech for better risk management and regulatory compliance.
- As financial services increasingly become digital, management of technology-related risks, especially cybersecurity, is paramount. MAS recently issued a consultation paper on a set of mandatory Cyber Hygiene requirements. In Singapore, the new Cyber Security Act also established a legal framework for the protection of critical information infrastructure that include those in our key financial institutions.
- The increased uses of AI and data analytics have also led the MAS to work with industry partners to develop a set of principles that promote fair, ethical and responsible use of data in financial services.