Regulators from Japan, Sweden and Singapore came together at the Singapore FinTech Festival to talk about what they’ve learned in the journey of change and technological advancement – both in financial regulation and in the wider social setting.
Much like the financial institutions themselves, regulators collect, analyse and study large amounts of data. With algorithms and data scientists becoming increasingly sophisticated and accurate day by day, the question must be asked: Is data truth is the gospel truth?
It is a question that regulators grapple with, something Mr Ong Chong Tee, Deputy Managing Director at the Monetary Authority of Singapore (MAS), calls “algorithmic veracity of data”. “Do we need to apply judgment to the data, or is the idea to not to apply judgment to it, take the human out of the process? Are there embedded data biases, or prejudices in the data that has been input? We need to think through how we actually use this data, both for inclusion and exclusion reasons,” he said.
Data collection and innovation also brings into question customer protection. While striking the balance is a difficult task, the JFSA takes a different approach to resolve the issue, according to Mr Motonobu Matsuo, the Deputy Director General of Credit and Insurance Systems at JFSA: “We leave the details to the financial organisations, as they have well-established systems and processes for security. Our focus is on keeping our open API system secure, by just setting a standard for banks and FinTechs to follow.”
This system was introduced through an amendment of the Banking Law in May, which obligated banks to disclose open APIs, while simultaneously introducing a registration system for companies connecting to the banking system. The aimed to increase collaboration between FinTechs and incumbents, allowing for more innovative financial services to be introduced, while maintaining the high security standards that the incumbents have established.
Staying ahead of money laundering and terrorism funding
In terms of data privacy, however, there is a more recent wrinkle – guarding against money laundering and terrorism funding. Mr Erik Thedeen, Director General at Finansinspektionen (Sweden’s Financial Supervisory Authority) noted that data privacy legislation in Europe was formed when the discussions surrounding AML and terrorism funding were quite different in scope. “So when it finally was introduced, several years later, it felt too strict,” he said.
However, a survey conducted in Sweden a few years ago also discovered that banks were not quite up to date with AML and anti-terrorism funding practices. “Now the current aim is to make these measures more efficient through digitalisation,” he said.
Interestingly, the legal code in Sweden was not quite up to speed either, he added. “It is only considered to be a robbery if you physically steal cash from a person. If you take his credit card or his PIN and use that to access his bank account, that’s not robbery.”
Panel moderator Conan French, FinTech Advisor at the IIF, also pointed out that the entire concept of data privacy as a human right needed to be re-thought. “People are happily giving away their private information just so they can look at the latest funny meme.”
Going without bills
“People are predicting that Sweden will be cash free in 5 to 7 years,” said Mr Thedeen. “It has positive aspects in terms of anti-money laundering and fraud, but has social implications, that is frequently discussed by regulators and policy makers.”
The concern is whether using physical currency is a human right – if every business migrates to a cashless system, what happens to the people who do not adapt?
Mr Thedeen noted that the country moving towards cashless was not a government initiative, so it is not an issue the regulators can resolve with ease. This evolution was natural, as Sweden is a good environment for FinTech innovation. “Sweden is 2nd or 3rd for fintech investments in Europe. We have a lot of early adopters, so it is a good testing ground for FinTechs,” he said. “The next step is for us to catch up with the digitalization of Sweden.”
Staying in the race
The idea of ‘catching up’ to the rapid digitalization of a nation’s population – as is happening in Sweden, Singapore and Japan, is shared by the MAS. However, Mr Ong explained that it is not enough to simply adopt new technologies and use them: “We don't want a bunch of PHDs in an ivory tower. We want change to proliferate in our organization, which will make the tools we use more impactful.”
From an operational perspective, the MAS is pushing out better data visualisation tools, and are exploring network and text analytics. “Ultimately, we want to bring up a sense of digital literacy in the organisation, which will spread to the population at large,” he said. A