Financial institutions are ramping up investments in new technologies, including Artificial intelligence (AI), machine learning and data analytics on a global scale. In Asia, China is leading the way in investments, but Singapore certainly stands out as one of the best examples in terms of regulatory innovation and adaptation. It comes as no surprise given its solid financial system, supported by savvy consumers, access to talent and capital, and most importantly its outstanding governance. The Singaporean government has implemented several initiatives to keep its financial services industry ahead of the curve and to boost innovation by creating a system where both banks and fintech start-ups can foster and experiment with new technologies in a safe environment.

The Monetary Authority of Singapore (MAS) in partnership with the Infocomm Media Development Authority and the Institute of Banking and Finance have launched a number of initiatives to boost the use of AI-enabled products, services and processes in the financial industry. MAS unveiled its ‘regulatory sandbox’ guidelines, under which it relaxed legal and regulatory requirements, so that financial companies can test and innovative financial products without having to worry excessively about invasive regulations. This also offers an incentive for overseas fintech companies to set up business in the city-state. The FinTech Office, comprising various government entities, including MAS, the Economic Development Board, Infocomm Media Development Authority (IMDA) and Spring Singapore was created in 2016 to advise financial firms on various fintech-related issues, including government grants, and on local regulatory requirements in the finance industry.

For AI technologies to actually add significant competitive advantages to banks and fintech companies, further improvements on existing data processing capabilities and, above all, on regulatory issues are needed. A key challenge for financial organisations is how to continue innovating and growing their business in an environment that is experiencing increased scrutiny, as more regulators around the world are tightening regulation in various areas.

Andrew godwin Director of Studies Banking & Finance Law University of Melbourne Asian Law Centre

Andrew godwin
Director of Studies Banking & Finance Law University of Melbourne Asian Law Centre

Andrew Godwin, Director of Studies, Banking and Finance Law at the University of Melbourne Asian Law Centre, said “To be proactive, dynamic and responsive, regulators need to develop a better understanding of the technology itself and collaborate with the businesses that are developing these technologies so that regulation can be appropriately designed and does not unduly stifle innovation. This is one of the key objectives of the regulatory sandboxes that have been launched in places like Singapore”. It is difficult, if not impossible, to regulate the use of technology itself and one of the challenges with the new technologies and their uses is that they don’t fit neatly into the traditional regulatory categories. Instead, regulators need to focus their attention on regulating those parties that use the technology. Cryptocurrencies and ICOs are a good example of where efforts to regulate should focus on exchanges, platforms and other infrastructure providers. However, this can be a challenge in the case of platforms that work purely in the cyberspace, such as public distributed ledger platforms that operate across many jurisdictions and do not have a centralised management or governance entity. “The next steps in the development of sandboxes are likely to involve passporting arrangements, where countries agree on common standards for the regulation of certain financial products and services and where entities licensed in one jurisdiction are permitted to operate in another jurisdiction”, Mr Godwin added.

Regulators and financial companies in Singapore are working with research institutions to develop a better understanding of the technology itself and conduct research on the policy, legal, regulatory, ethics and other issues relating to AI. The Singapore Management University has set up a five-year research programme, funded by a $4.5 million grant from the IMDA and the National Research Foundation, on AI technologies and data use. In recent years, there has been mounting pressure on banks and other financial institutions to adapt to changes such as the development of a truly open banking system, in which customers are given control over their data and can transfer the data held by a financial institution to a range of third-party service providers and new payment platforms.

The trend in the banking sector shows continuing disintermediation and a key issue is whether financial entities can adapt and transform themselves sufficiently fast in an ever-changing regulatory environment. Financial institutions are increasingly promoting greater data democratisation which allows end users to access relevant information more easily, and gives them more autonomy over their web protection and an overall better customer experience. This, however, comes at a cost for banks as they need to invest more to acquire the necessary capabilities, but it also raises the question of how financial companies can use data to play a more integrated approach to security through the use of new technologies.

Eugene Lee, Head of Business Development at Connectivity Global, said “in the digital age, a company’s behavioural traits and the various organisation practices can easily be understood using security analytics that collect all the data churned from the company. With the data collected the information can be shared among companies to build defence against cyber threats and attacks. Essentially, the purpose of security analytics is to profile companies and analyse data to build a firewall that is comprehensive”.

To ensure that the banking system in Singapore remains safe, the government keeps a very tight rein on cybersecurity, especially as the city-state inches towards its goal of becoming a Smart Nation. MAS has recently announced its plans to strengthen and increase the requirements on cyber resilience in the financial industry by issuing a public consultation on cyber hygiene practices such as strong authentication, controlled use of administrative privileges and proper patch management. Such move is central when it comes to dealing with cyber security, notably in light of some attacks that have resulted in breaches to local bank accounts. To prevent this from happening again, the Singapore’s Cyber Security Agency (CSA) has teamed up with US-based threat intelligence centre to conduct joint cyber security exercises to better protect the country’s financial services sector and facilitate sharing of intelligence information.