RegTech Is the New FinTech: The Case of Singapore as a Regional Innovation Hub
It would not be an exaggeration to claim that Singapore and FinTech represent a match made in heaven.
The two favorite industries of the dynamic Asian metropolis: finance and technology, have fused up to become the next big thing driving future industries. Singaporeans have already been banking on both these areas for decades now, in order to edge out their own place in the global finance scene: The little red dot hence has now been well-established as the regional hub for FinTech, competing with Shanghai and Hong Kong to lead the Asia Pacific into the next level of financial infrastructure. What could propel the city-state beyond its counterparts though, is an area that has not caught the headlines just yet: “Regtech”.
“Regtech” is a blend word of ‘regulatory technologies’ being developed to address regulatory challenges for corporations through innovative and convenient solutions. RegTech indeed, seems to be the new FinTech: it’s not a buzzword but is already impacting and transforming regulatory monitoring, reporting and compliance practices around the world – and most prominently in Singapore. Regulation technologies are widely being framed as developing within a subset of FinTech, but it could very well be understood as a hand-in-hand progress.
Since 2016, the Singaporean government was proactively dedicated to utilize FinTech developments to enhance its regulatory capacity: The Monetary Authority of Singapore (MAS) is in the process of merging money exchange and remittance systems law into one legislation, which would enable the comprehensive regulation of old and new payments services. At the time of writing they have further advanced with these initiatives.
This is usually a huge hurdle in many other countries interested in such simplifications of legislation and having rectified that problem rather easily is proving to be a great edge for the city-state in the global RegTech scene. Managing director of the MAS has highlighted the mission to make electronic payments society and this vision follows the release of a consultation paper for a regulatory sandbox, modelled on the one formed by the Financial Conduct Authority in the UK. This initiative aims to ensure that any financial technology service is publicly accessible and is of best practice.
The consultation paper acknowledges that the proposed sandbox cannot eliminate all risks, “as failure is an inherent characteristic of innovation”. The sandbox rather aims minimize the negative impact of any such occurrence. Expanding its reach globally, the MAS has also joined forces with French regulators Autorité de Contrôle Prudentiel et de Résolution (ACPR) and the Autorité des Marchés Financiers (AMF) and last year, along with a partnership with the Swiss Financial Market Supervisory Authority (FINMA).
In its recently published “Report of the Committee on the Future Economy”, the authorities have touched the issue of keeping pace with technology in their regulatory practices multiple times, claiming that “..the Government should identify and focus on areas with high potential for technological and industry innovation… providing clear and updated regulations will be particularly important for the development of these emerging industries, such as MedTech, FinTech and food and nutrition. The regulatory agencies should then systematically collaborate to review existing regulations”.
Besides its governmental use, Regtech enables agile and rather scalable solutions for corporations, as it assists their compliance with increasingly stringent and constantly fluctuating regulations. The chief technology strategist of Hitachi Data Systems claimed in a report that the firm has been using the MAS sandbox to test blockchain technologies that issue and settle checks in Singapore. BearingPoint, a European tech consulting firm operating across the Asia Pacific region, developed a software called “Abacus360 Banking”, an integrated platform for reporting, risk calculation and controlling regulatory KPIs. The software addresses the challenges for banks such as scalability and attaining efficient reporting on time.
Adopting such technologies is proving to be vital, as in the case of the Malaysian state fund 1MDB scandal, which has made headlines in Singapore for quite a while. The scandal stemmed from irregular compliance practives and illustrated to all regional players once again how tracking a massive volume of transactions across numerous banks and national borders can be a formidable task, letting fraudulent activity to slip through the loopholes.
Many startups in Singapore have already came up with creative RegTech solutions. Local tech companies can now provide risk management platforms which make compliance-driven due diligence processes more efficient and affordable. They are also developing complex screening and monitoring tools along with blockchain technology that streamline how new establishments are incorporated, administered and funded.
Awareness of RegTech is quite high in Singapore compared to many other regions in the world. The annual FinTech Festival held in November 2016 shined a significant spotlight on the burgeoning industry, along with the MAS RegTech Forum, the first conference in Asia on Regtech. It seems then, what’s next for global regulatory practices is bound to come out of the Southeast Asian city, adding yet another reason to keep an eye on its rapid progress.