Singapore Revolutionizes Financial Markets with Regtech

Money Laundering, Rogue Trading, Terrorism Financing, Bribery, Corruption, Cyber Frauds, and other related financial crimes cost the world approximately US$1.4 trillion to US$3.5 trillion.[1] Financial crimes have left a significant dent on the global economy, and the integrity and stability of financial institutions in the past few years. The financial crimes and the money laundering techniques have become increasingly sophisticated with time, while compliance technology still finds itself struggling to catch up with the fast-paced crimes. In 2011, the United Nations Office on Drugs and Crime reported that less than 1% of the funds flowing through the criminal systems across the globe were believed to be identified and confiscated by government agencies. The report released by them six years later in 2017 reported an equally low percentage.[2]

To combat this problem of financial crimes around the globe, a new subset of Fintech came into play- Regulatory Technology, or ‘RegTech’. The RegTech industry was originally founded after the global financial crisis of 2008 to regulate compliance issues in banks, however, it later expanded to regulatory reporting, identity management and control, compliance and risk management, monitoring transactions, and data management in financial institutions.[3] RegTech industry is expected to grow exponentially in just five years, from US$4.3 billion in 2018 to US$12.3 billion by 2023, at a compound annual growth rate (CAGR) of 23.5 per cent.[4]

RegTech may have found a new global node in Singapore, given its growth in the city-state's financial services sector. The Monetary Authority of Singapore (MAS) has been looking to employ upcoming fintech start-ups to streamline and enhance the country’s financial institutions’ regulatory capacity since 2016. In August 2019, the MAS took a big leap and introduced its Sandbox Express initiative, which helped companies a faster option to test their upcoming innovative financial services in the market. Under the Sandbox Express, companies can start market testing in a predefined environment for up to 9 months, within 21 days of applying.[5]

Singapore received the push it needed to become the front to fight money launderers in 2015, when it discovered that international funds linked to 1Malaysia Development Berhad- a scandal that stretched from Malaysia to the US, had been laundered through Singapore’s banking system.[6] This scandal brought to light the loopholes in the country’s financial practices. It showed the top financial players how tracking all transactions across borders can be an impossible task with the current technology, given their massive volumes. As a result of its involvement in this scandal, the MAS shut down two private banks, including the BSI bank, in 2016, and imposed fines on a number of other banks.[7]

The MAS’ RegTech initiative is not solely related to compliance issues around the globe, in fact, they’ve also been involved in upgrading the present customer experience.

The MAS and GovTech in Singapore have come up with a new initiative- MyInfo. MyInfo enables customers to authorize third-party access to their data digitally. The initiative was started with a pilot project with 4 banks in 2019 which enabled people to open bank accounts through MyInfo. Within just one year of launching the initiative, more than 20 institutions across the country use MyInfo to provide more than 110 services.[8]

In the past decade, Singapore has evolved as one of the biggest trade and financial hub across the globe- making it particularly vulnerable to money laundering and terrorist financing due to large cross border transaction volumes. RegTech’s expansion promises help to financial institutions by assisting them with tech solutions to keep up with the highest standards of compliance. The solutions will essentially help large corporations such as HSBC and Goldman Sachs- companies that found themselves paying billions of dollars in fines in the past decade. Given the rising sophistication and volumes of financial crimes, Singapore lays down an ideal model for governments and financial corporations to follow a RegTech-inclusive ecosystem it plans to create.

[1]https://www.ey.com/en_gl/disrupting-financial-crime

[2]https://www.weforum.org/agenda/2018/01/we-need-to-talk-about-financial-crime/

[3]https://www.investopedia.com/terms/r/regtech.asp

[4]https://www.businesstimes.com.sg/garage/how-regtech-will-help-in-enhancing-emerging-asias-financial-markets

[5]https://www.mas.gov.sg/news/media-releases/2019/mas-launches-sandbox-express-for-faster-market-testing-of-innovative-financial-services

[6]https://www.cnbc.com/2016/07/20/why-the-1mdb-scandal-wont-push-malaysia-prime-minister-najib-out-of-power.html

[7]https://www.reuters.com/article/us-singapore-cenbank/singapore-steps-up-scrutiny-of-shell-firms-to-combat-money-laundering-idUSKCN1V2231

[8]https://fintechnews.sg/25967/regtech/regtech-singapore/