Research on the impact of FinTech would be welcome to guide developments in the field and shed light on the risks they may bring, said Monetary Authority of Singapore deputy managing director Ong Chong Tee.
He was speaking on the industry’s post financial crisis evolution at the Society for Financial Studies Cavalcade Asia-Pacific Conference gala dinner held in Singapore. Turning to FinTech, he talked about the progress in financial inclusion and operational efficiencies that technology innovation in finance had helped to bring about. However, he also highlighted that regulators and supervisors like the MAS, IMF and FSB had to also consider the risks of FinTech.
“There is no contradiction between regulation for safety and prudence vis-à-vis regulations that are open to, or supportive of, good financial innovations. These may be new business models or use of a technology that promote competition, improve customer experiences or simply a more efficient or pleasant delivery of services. So far from adopting a Luddite instinct, many financial regulators have in fact set up dedicated teams to both support and to monitor new FinTech developments,” said Mr Ong.
“But as with any innovation in any era, FinTechs can also bring about new risks. In this regard, international organisations such as the International Monetary Fund, FSB, IOSCO and the Basel Committee have all produced several useful public reports on the potential risks.”
Some of the new risks FinTech has resulted in that Mr Ong mentioned are: digital currencies creating increased vulnerabilities to anti-money laundering and efforts to counter the financing of terrorism; heightened cyber security risks (as FinTechs vary in size and risk management capabilities); potentially greater macro-financial risks given the increased speed of financial transactions and new networks of relationships; and liquidity risks from increasingly open banking and the ease of moving funds.
Mr Ong said that he welcomed more research and studies to guide such developments, though it is still early days to get the full picture of how far FinTech will disrupt how traditional financial institutions work.
“It is probably too early to determine whether and how FinTechs or BigTechs may change the behaviour of incumbent financial institutions. It is also not unreasonable to expect that traditional business lines between financial services, general commerce or telecoms will increasingly be blurred – and activities may concentrate in the biggest institutions with superior competitive advantages including in the areas of talent, customer base, and customer data.
”The FAANGs and BATs of this world – the technology giants – come to mind. These may also have implications for financial stability,” he said.
He noted that the next systematically important financial institution could be a large tech company with roots in e-commerce, and whether such entities require some form of oversight by financial regulators in future may have to be considered.
Another area which is ripe for more research is the impact of the increasing use of AI and data analytics, which MAS has responded to with a guide on a set of principles for fairness, ethics, accountability and transparency for their use.
“Whether and how the increasing use of machine-learning systems (both supervised and unsupervised), algorithms and data-driven insights can affect behaviours and decision-making in financial institutions will be a rich area for research and attention. Regulators generally like the idea of deploying smart systems that can do a better job in risk detection or risk management.
"But what about for business decisions or say, personnel decisions? Whether AI-driven systems will perpetuate bias and discrimination is also ripe for more extensive studies," he said.
Finally, he also highlighted central bank-issued digital currencies (CBDC) as another possible field for researchers to look into.
“The MAS therefore welcomes the opportunity to further engage the research community, hopefully with many of you, so that with your knowledge, expertise and research rigour, we can deepen our collective learning and understanding,” said Mr Ong.