“You can’t run an ecosystem with pure policy”: MAS CFO says regulators need to understand tech

Over the past decade, Singapore has earned its reputation as a fintech hub. Through the collaborative efforts of regulators and industry, the city-state has cultivated a balance between innovation and safety — ensuring that consumers are protected as they enjoy the benefits of emerging technologies.

This is a fine line to balance, one which requires continuous effort. As new innovations — be it blockchain or AI — come to light, they bring along threats which must be addressed as they arise. 

For example, the crypto market has undergone a number of downturns, most recently due to the collapse of companies including FTX. Such events reveal institutional flaws which must be resolved before the industry can move forward. It’s up to regulators to introduce policies that can restore confidence and prevent such events from occurring again.

To do so, there’s a need for active involvement in the industry. Regulators must understand the technology they’re dealing with in order to police it in an efficient manner.

While speaking at a panel during Dubai Fintech Summit 2023, Monetary Authority of Singapore’s (MAS) Chief Fintech Officer Sopnendu Mohanty stressed, “You can’t run an ecosystem with pure policy. [Regulators] have to get their hands dirty in the tech space.”

Mohanty went on to speak about three key strategies which are essential for any country looking to position itself as a fintech hub, and his insights shed light into MAS’ approach to policymaking and regulating emerging technologies.

Driving public-private partnerships

The first strategy emphasises the need for the public and private sector to work together on key industry projects. When it comes to use cases which could change the future of finance, everyone should be involved. 

“As a regulator, you can’t leave tech to the industry itself,” Mohanty explains. If private companies are left to innovate on their own, their lack of guardrails can often spell trouble. As seen with crypto, technology can evolve at a rapid pace and often without the appropriate risk considerations. 

When regulators step in too late, they’re left playing catch-up. As such, they’re forced to curb innovation without properly understanding it, which can do more harm than good. 

It’s important that regulators and the industry come together and create public-private projects. [This] allows the industry to start believing that certain technologies will be accepted by both regulators and customers.

We are the first central banker to publish code in GitHub in the public space. Imagine a central banker putting up code for the industry to engage — that sends a strong signal that you are intending to make a better system.

Regulatory involvement can be a sign that a technology is safe to use, and public-private partnerships can help establish trust and drive consumer adoption for emerging technologies.

Building public infrastructure

The next strategy — a much tougher one to execute, according to Mohanty — is ensuring that key public infrastructure is in place. This includes having highly efficient systems for payment and digital ID among other essentials.

“You have to build these before you even think about being a fintech centre.”

Mohanty believes that fintech companies should be responsible for innovation and building good business models on top of this core infrastructure. They shouldn’t be building the infrastructure itself.

“You don’t want fintech arbitraging an inefficient system,” Mohanty says. “You have to put together public infrastructure in order to avoid this.”

AML and KYC tools serve as an example of this. These are common systems required across financial institutions and should ideally be provided for by the public sector.

“Why should banks indulge in a common project like AML? Why do you want fintechs to solve an inefficient payment system? Regulators should take out these common problems [by developing infrastructure].”

Active intervention

Finally, active intervention is essential for an aspiring fintech hub — “not in good times but bad times,” Mohanty explains. “When the crypto market has gone bad, that’s not the time for regulators to tap out. They should get into the market and understand what has gone wrong.”

After all, it’s these flaws which need to be accounted for. Regulators need to do their part to curb volatile and unexpected downturns.

Mohanty supports the use of public consultations to understand what can be done better in the future, and deems it necessary to get insights from industry members who have ground-level knowledge on the matter.

Crypto aside, this applies to other technologies as well. “If AI goes the wrong way, we should go into the system and understand the risks — that makes a difference to the ecosystem,” Mohanty says. 

Active intervention can help address the lag between technology and policy. “Today, they’re in different cycles. If investors put in money without thinking of regulations and regulators come in after a 10-year cycle, this will never work. Policymakers need to [work with the industry] and improve engagement.”

Featured Image Credit: Sopnendu Mohanty via LinkedIn