The RBI’s Manoj Singh says Asia is a natural hub for innovative regulation, with Singapore increasingly being recognised for its leadership in fintech
There can be no end to how far innovative thinking can go, provided we know how to use correct multipliers. In the field of fintech, much of the talk is confined to what’s known as innovative regulation driven by the desire to create a conducive environment for the use of technology in banking and finance.
As the experience of some of the Asian countries has shown, regulatory innovation no longer looks like a choice but almost a compulsion. The launch of the Global Finance and Technology Network (GFTN) at the Singapore Fintech Festival 2024 has shown that Asia has the potential to work as a hub for innovative regulation for the entire world.
What’s on the table
GFTN will focus on multiple objectives like fostering global collaboration, acting as a convening forum, offering advisory services, providing access to digital platforms, investing in technology start-ups and many other outcomes that might be read in-between the lines.
Innovative regulations would work like a building block for many of these objectives by shaping the institutional thinking that decides the boundaries of innovation.
What makes Asia so special
In its next edition, the Singapore Fintech Festival, which has emerged as one of the marquee events in the global fintech context, will be completing one decade of existence.
Singapore is not alone. A big fintech cohort led by Hong Kong, Tokyo, Mumbai, and Dubai – each vies for a piece of the innovation pie with their own distinguishing initiatives.
While the credit for first thinking about regulatory sandboxes may lie with the UK, Singapore is the country that propelled the concept of collective thinking in the fintech landscape to a new level throughout not only Asia but the whole world. Much of Asia’s success is still unfolding and islikely to become even stronger in the months and years.
Key ingredients for innovative regulation
A full charter can be written to lay down the basic ingredients for innovative regulation. Some of the key considerations are – a vibrant market having a channel of interaction with regulators, openness of regulators for a debate, learning opportunities for all stakeholders, and feedback mechanisms, to name a few.
At the core of it, innovative regulatory frameworks, like any other governing structure, would require a self-corrective mechanism that is strong enough to avoid unintended consequences. A strong self-correcting mechanism would not be possible without full participation from all stakeholders. Both regulators and fintech players will need to work together.
The core of regulation and supervision
The core of regulation and supervision lies in trust. You need an independent agent to regulate and supervise when the mechanism of self-regulation fails to generate a sufficient level of trust.
In the case of regulating and supervising technology, can this paradigm work differently? Financial regulators and supervisors may be finding it difficult to keep pace with the speed of change in the technological landscape. In such scenarios, could self-regulation be a better option?
In the traditional sense, self-regulation is often compared to putting the fox in charge of the henhouse, with all the risks that come with earthly temptations. However, in today’s landscape self-regulation can embody a commitment to survival and the common good working like an incentive.
In an algorithm-driven environment, much of the future regulatory interactions may happen between machines. It would not be surprising if one of the many machines assumes the primary role of a regulator and supervisor for keeping in check the unwanted behaviour of other machines through the use of Artificial Intelligence (AI).
In a grander scheme of things, this could lead to a new era of innovative regulation, where self-regulation forms the core for ensuring ethical standards, transparency, and accountability – reshaping the regulatory dynamics in unimaginable ways.
What comes out of Asia will shape the world
Many more choices relating to innovative regulatory pathways may need to be discussed and debated, and Asian countries can play a leading role in these discussions.
What makes Asia a natural hub for innovative regulation is a combination of diversity in approach, hunger for growth, and a robust talent pool that supports continuous development.
GFTN is one example of how best to combine different multipliers. In fact, there are numerous other initiatives that stand out as examples, from Singapore’s APIX platform to India’s Unified Payments Interface (UPI), the digital bank framework in Hong Kong, the thriving crypto markets of Japan and South Korea, and microfinance efforts in Bangladesh, among others.
The winds of change are visible in all directions.
In a nutshell, Asia is no longer just about a particular region or country, but a dynamic nexus of innovative thoughts that drive global progress.
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The views expressed are the author’s and should not be interpreted as the views of any organisation or institution with whom the author is associated.