Fintech and the Monetary Authority of Singapore: Interview

(Bloomberg) -- Ravi Menon, the Monetary Authority of Singapore’s managing director, has embraced financial technology to create jobs and bolster the city-state’s position as a financial hub.

The central bank is among the earliest adopters of “regulatory sandboxes’’ for fintech companies, a concept pioneered by the U.K.’s financial regulator. That allows firms with new ideas at the intersection of finance and technology to test their products and services before fully launching them. Menon spoke with Bloomberg News ahead of the Singapore FinTech Festival next week.

What is MAS’s approach to fintech?

“While we are a no-nonsense regulator, we are also highly facilitative of innovation because we believe that innovation will increasingly be important for the progress of the financial sector. We want to create an environment that promotes innovation but without compromising soundness.”

Carrot or stick approach?

“It has to be both. If we had a reputation for being a light regulator, we will attract the wrong kind of players. We want to attract the good players. And good players often want to be regulated. Take some of the cryptocurrency intermediaries for instance: the sound, well-managed entities want to be regulated because being licensed by someone like MAS gives them more credibility in the market.”

“I’ve always felt our strong regulatory regime has been a significant positive for our efforts to grow and develop the financial sector. Most of the time, it’s not a trade-off. It is how the two — regulation and promotion — work in concert to create an environment that promotes innovation while ensuring safety and public confidence.”

How will the Fintech Festival help?

“By providing a platform like the Fintech Festival and bringing together large numbers of fintech startups and financial institutions and venture capitalists, we create an opportunity for networking, collaboration and matching money with ideas. Let me cite two examples.”

“The first is a startup using an artificial intelligence solution for compliance management. It was a finalist at the Festival’s Hackcelerator competition in 2016. As a result of the exposure they gained at the event, many financial institutions approached them to help them solve their compliance problems. The start-up has now expanded into regional markets and is doing well. The second is a fintech start-up that had an innovative way to offer banks competitive forex rates. It was able to use the FinTech Festival to gain recognition in the market.”

“We didn’t invest in these firms. We didn’t relax any rules for them. But we provided a platform for them. We invited them, got them to network, brought other parties to connect. These are things a facilitative regulator can do without any compromise to prudential standards.”

How did the “sandbox” idea come about?

“The concept originated in the U.K. where the regulators wanted to create an environment for fintech start-ups to experiment safely within boundaries. We quickly latched onto the concept and independently came up with guidelines on how to operationalize it. The basic idea of the sandbox is to experiment in a live environment. This means there are some risks but the risks are contained.”

“We’ve extended the regulatory sandbox concept to not just fintechs but financial institutions to experiment as well. We have an application process and we put the entities through the sandbox after we agree on the parameters. Many other regulators have developed regulatory sandboxes over the last three years. There are different regulatory sandboxes out there.”

Will fintech be your legacy?

“Everything MAS does is work-in-progress. There is no finite point at which we declare this is our legacy and everything is great from now on. This is a process of continuous improvement. It’s in the nature of innovation that you always do something better.”

Read more about Ravi Menon, the Monetary Authority and fintech.

“There are many exciting things happening in the technology area. It’s not a question of legacy but an ongoing process of innovation. You need to have that mindset and culture across the financial industry. But because this industry is inherently riskier than other industries, we need to do this innovation in a prudent way.”

What issues concern you the most?

“Cybersecurity is probably the biggest. Monetary policy normalization, capital flows, currency volatility — these are things we are used to dealing with. If you look at the banking system, consumer issues, property market, these are things that are bread and butter for us. We worry about them as we should but you kind of know what to do if things go bad. And you also kind of know what you need to do to minimize the chances of things going bad.”

“With cyber, we just don’t know enough. I don’t know enough; and most bank CEOs, if you ask them, they will say they don’t know enough. Cyber risk is a relatively new phenomenon. So even as we push hard on the technology frontier, we are mindful there are technology related risks and cyber is preeminent among them. Not a day passes by without some serious cyber incident somewhere in the world.”

--With assistance from Andrea Tan, Haslinda Amin and Richard Lewis.

To contact the reporters on this story: Yoolim Lee in Singapore at yoolim@bloomberg.net;Chanyaporn Chanjaroen in Singapore at cchanjaroen@bloomberg.net;Stephanie Phang in Singapore at sphang@bloomberg.net

To contact the editors responsible for this story: Robert Fenner at rfenner@bloomberg.net, ;Marcus Wright at mwright115@bloomberg.net, Reed Stevenson

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