Singapore FinTech Festival (SFF), dubbed the Woodstock of the fintech world, is here again in its eighth iteration. As a curtain-raiser before the event from Nov 15 to 17, thousands of participants are expected to throng the bars and restaurants of Club Street for free booze and bites, just like the musical extravaganza.
Instead of megastars in the pop music world and rock bands, participants will get to listen to their favourite fintech “idols” like international World Bank president Ajay Banga; International Monetary Fund managing director Kristalina Georgieva; and chairman and CEO of Ant Group Eric Jing, giving presentations and featuring in panel discussions.
First held in 2016, the annual SFF has become the largest of its kind in the world. While the pandemic necessitated a hybrid format in 2020 and 2021, the physical event which resumed the following year saw a record 62,000 participants attend the festival.
What have the SFFs accomplished? For one, the event has scale and gives a boost to the Singapore economy. “It’s not easy getting 60,000 participants from over 100 countries to come to Singapore for the SFF,” says Leong Sing Chiong, deputy managing director (markets and development) of the Monetary Authority of Singapore, in an interview with The Edge Singapore. To stay attractive, the SFF has an annual theme to help the wider financial ecosystem chart the relevant agenda.
In SFF 2016, its first year, it was building the ecosystem. Inclusivity was the theme for 2017, while the theme in 2018 was Asean. SFF 2019’s theme was sustainability. The theme for SFF 2020 was talent, another evergreen subject at the heart of the Singapore economy. Web 3.0, the 2021 theme, made participants and financial institutions look inward and reflect, followed by last year’s theme on resilient business models.
This year’s theme “The Intersection of Policy, Finance, And Technology”, includes the question: “AI for good. AI for good?” AI is already being used by banks including the local banks but generative AI or GenAI may require more debate.
See also: SFF 2023 spurs discussion on generative AI and the future of finance
Whatever the case, the themes of the SFFs in years past have brought economic benefits to Singapore and Asean and this year’s festival is seen to do the same.
“The SFF has advanced global fintech and innovation by bringing the best global minds in the community together to deliberate, debate and educate. It has facilitated global dialogues on key topics, from inclusivity to sustainability to Web 3.0, and then this year, AI for good,” says Leong, who oversees the markets and investment, development and international, fintech and innovation groups at Singapore’s central bank.
Fintech attraction
Leong believes that hosting the SFFs has helped enhance Singapore as a fintech hub as bridges are built connecting policy, finance and technology. First, by connecting fintech upstarts with capital via raising funding from investors. Second, by bridging policy and regulation with financial innovation. Third, by connecting fintech solution providers with established financial institutions on the lookout for ways to sharpen their competitiveness. Lastly, through technology for in- clusion where SMEs and underbanked folks can enjoy better access to a broader range of financial services, benefitting economies as a whole.
MAS, as both the regulator and industry developer, supports collaborations between banks and fintechs. For example, under the Financial Sector Technology and Innovation (FSTI) grant scheme, eligible fintechs can work together with financial institutions (FIs) to pilot early-stage development of new solutions in areas such as AI and data analytics, ESG fintech, regulatory technology (RegTech) and innovation acceleration. In August, MAS announced it would commit up to $150 million over three years for the FSTI.
Various ties have been formed. For example, Oversea-Chinese Banking Corp (OCBC) is in a partnership with ADDX to distribute its first tokenised equity-linked structured note. In September 2022, DBS Group Holdings partnered FinLync to transform its corporate finance and treasury services by aggregating global banking APIs (Application Programming Interface) to deliver embedded real-time payments and cash management. This will provide a simpler and more efficient way for corporates to digitalise their corporate treasury functions by leveraging DBS’s extensive API suite Rapid.
In 2018, United Overseas Bank U11 (UOB) invested in and partnered Israel-based Personetics to create more engaging AI-based solutions for its customers across Southeast Asia by parsing transaction data. These insights, via UOB TMRW, provide customers with real-time, personalised and insightful guidance which helps to improve the way they save, spend and make better financial decisions.
Also in 2018, UOB launched Avatec.ai with Pintech Technology Holdings. Avatec uses AI to assess the credit quality of potential customers. In the same year, UOB teamed up with RegTech firm, Tookitaki, for a holistic machine-learning solution to detect suspicious fund flows more quickly.
“MAS has been unequivocal in encouraging fintechs to work with conventional financial institutions, including our local banks. They each bring something different to the table. fintechs have shown how new financial products and services can be delivered seamlessly to customers. Banks, on their part, have used fintech solutions and deployed these to their wider base of banking customers,” Leong says.
More than just numbers in league tables, the fintech ecosystem has introduced a new and fresh dynamic in powering the growth of Singapore as a financial centre, creating better-paying jobs. After all, technology and innovation can only be useful if they serve people, businesses and the economy.
In Singapore, digitally-enabled financial services have become so ubiquitous that users are outraged when banking services are disrupted by outages. Just ask DBS, Citibank and OCBC among others.
“Societal changes and economic developments have changed people’s expectations of financial services. They want to be able to access these services when they need them and want these services to be delivered seamlessly,” Leong says.
AI for good?
Indeed, the fintech ecosystem, being constantly challenged to meet the ever-higher expectations of users, is always on the lookout for new technologies it can adopt.
AI, a concept that has been around for decades, gained popularity over the past year as newer self-generative capabilities open up a new world of applications once thought impossible.
Both UOB and DBS are using AI and machine learning (ML). UOB TMRW uses various AI programs to nudge customers to perform certain activities and for credit assessment. DBS uses 100 AI and ML algorithms to analyse some 15,000 customer data points to generate seven types of “nudges” in the form of personalised product recommendations for its 3.5 million retail and wealth customers.
AI typically goes hand in hand with ML. AI enables the computer to “think” independently like a human and perform tasks while ML enables the computer to “learn” enough from past data or trends to carry out specific tasks or predict future activities.
Currently, there is no global regulatory standard on the use of AI in banks. In 2017, the Financial Stability Board (FSB) established an AI/ ML working group to identify the potential risks associated with the use of AI and ML. The Basel Committee for Banking Supervision (BCBS) published a 2018 discussion on the implications of fintech developments for banks and supervisors, including a section on AI and ML.
Leong has identified five aspects to pay attention to. First, AI systems involve processing large volumes of data which could potentially include personal and sensitive information. Second, incorrect or suboptimal decisions could be made, based on inaccurate data or misleading insights.
Third, AI is a tool and not a substitute for human judgment and decision-making, as articulated too by UOB’s group CFO Lee Wai Fai. Fourth, AI algorithms often operate as black boxes, which means the results produced may not be transparent or easily understandable. “This lack of interpretability can make it challenging for financial institutions to explain or justify decisions based on AI analysis. For financial services, transparency and explainability is crucial,” Leong reiterates.
Last but not least, cybersecurity. Cyberattacks could damage AI systems and models, and cause data breaches, fraud, or unfair and discriminatory practices.
In 2018, Singapore introduced the so-called Feat principles, (Fairness, Ethics, Accountability and Transparency) to guide the development of AI in the financial industry. Underpinned by this guide, MAS has worked with 31 industry players to create the Veritas Toolkit to address the potential risk of bias when applying their AI systems, such as credit-scoring models.
The toolkit also evaluates AI transparency and accountability to help ensure responsible and ethical use. “Overall, the toolkit is a valuable tool for financial institutions to improve their AI governance capabilities and achieve responsible AI usage,” Leong says.
MAS is also careful to point out that AI is not a silver bullet and has pitfalls. GenAI, as opposed to conventional AI, relies on neural network techniques such as transformers, generative adversarial networks (GANs) and variational autoencoder (VAE). The latter is a generative AI algorithm that uses deep learning to generate new content, detect anomalies and remove noise.
GenAI, which is rapidly evolving, can both transform and disrupt the financial sector, Leong notes. By automating manual tasks, personalising customer experiences, and generating new content and ideas, GenAI can empower financial industry practitioners to improve efficiency, increase customer satisfaction, better manage risks and develop new products and services, which is good news.
However, there are a few key risks. “First, we need to be watchful of how GenAI models produce results. For example, results could be generated from biased data, with models deeply ingraining the biases during the reinforcement learning,” Leong says. Second, GenAI models might “hallucinate” and generate spurious facts. Third, there are ethical and legal implications relating to the creation of deep fakes or the propensity of AI to generate the content of others as their own. “Fourth, we can expect bad actors to use the technology for hacking and scams,” he warns.
In June, MAS launched Project MindForge to explore the risks and opportunities of GenAI for the financial sector. In Phase 1 of the project, the MindForge team is developing a com- prehensive GenAI risk and governance framework and more details will be announced at the SFF, MAS says.
Fintech, digital assets and regulations
The approach towards AI is but another indication of the constant balance MAS strikes as a regulator. MAS has broadly adopted the position that regulations should not front-run innovation. Therefore, its trials and pilots often involve multi-disciplinary teams including those from compliance and risk management. “It is with this deep involvement of multiple stakeholders that allows for the understanding of opportunities and risks, and the development of appropriate rules to ensure that there is a good balance between reaping the benefits while mitigating the risks,” Leong says.
For example, Bitcoin was created in 2008, before SFF. Bitcoin, in turn, led to a plethora of blockchain-enabled crypto assets including crypto coins, crypto funds and NFTs or non-fungible tokens. Blockchain, a form of distributed ledger technology (DLT) is also the backbone of exchanges such as DBS Digital Exchange (DDEX), MarketNode and ADDX.
Digital assets is a wide term. It encompasses a bank’s banking app, a digital bank, APIs, AI, ML and so on. In particular, tokenised assets on a blockchain such as DDEX or MarketNode enable accredited investors to hold assets such as fractionalised properties or bonds. MAS’s regulatory frameworks are designed to encourage experimentation in tokenisation and the growth of tokenised assets.
More often than not though, digital assets have come to refer to blockchain-enabled assets such as “crypto coins”. Cryptocurrencies are not treated as a medium of exchange (money) in Singapore.
Because blockchains and DLT represent decentralisation, crypto assets are decentralised. Hence, they are often exploited for money laundering and terrorism financing (ML/TF) activities.
Cryptos and digital payment tokens (DPTs) are regulated under the Payment Services Act (PSA) and the Digital Token Payments Act. The PSA is a flexible framework for the regulation of payment systems and payment service providers in Singapore. It requires a business providing a payment service to obtain a payment licence. Seven payment services are defined in the PSA, namely: account issuance service; e-money issuance service; cross-border money transfer service; domestic money transfer service; merchant acquisition service; DPT service; and money-changing service.
Under PSA, DPT service providers need to be licensed by MAS. They must comply with anti-money laundering requirements and are obliged to perform customer due diligence and to file reports of suspicious transactions with the Commercial Affairs Department.
“One regulatory aspect of fintech we’ve been focusing on is digital assets. We are watchful of risks in five key areas — money laundering and terrorism financing (ML/TF), consumer protection, market conduct, financial stability, tech and cyber risk,” Leong says. “When we first designed our regulatory framework for digital assets, the focus of our regulations was on addressing ML/TF risks.”
Over time, as the digital asset ecosystem grew and evolved to include more participants and activities, market conduct and consumer protection risks became more prominent. This necessitated firm action from regulators globally.
Last October, MAS consulted on a set of regulatory measures to reduce the risk of consumer harm from speculative trading in cryptocurrencies. The proposed measures covered business conduct, consumer access, technology and cyber risk management. MAS quickened its policy response on segregation and custody requirements in July with a new consultation to address market integrity risk and unfair trading practices in cryptocurrencies. “Together, these measures will help raise the standard of business conduct and consumer protection in this space,” Leong says.
MAS is not wielding its regulatory stick at the entire crypto space. Stablecoins, a form of DPTs designed to maintain a constant value against one or more specific fiat currencies, are increasingly emerging as a separate class of digital assets. MAS sees good potential for them to perform the role of a credible medium of exchange in the digital asset ecosystem, provided they are well regulated to have a high degree of value stability. MAS finalised its stablecoin regulatory approach in August this year.
By doing so, MAS hopes to further support the healthy development of the digital asset ecosystem. “Our priority is to foster a high-quality fintech as well as digital asset ecosystem. This is one where the players understand the need to achieve high standards, which in turn generates trust and confidence amongst market participants, customers and clients. This is aligned with how MAS has promoted growth of the financial sector over the last few decades, by striking a good balance between growth and regulation, because that is the only way to generate high quality, sound and sustainable growth,” he adds.
Fintech’s future
Meanwhile, fintech will continue to attract funding and generate new technologies. According to KPMG, RegTechs have embraced the use of AI and automation to develop more robust real-time compliance platforms; RegTechs are now looking at GenAI as a mechanism to further enhance their real-time compliance monitoring, assessment, and decision response solutions.
Cloud security continues to be an active area of cybersecurity funding, driven by companies grappling with how to keep their data secure in the cloud or across multiple cloud providers. In recent years, regulators, such as those in the EU, have also increased their focus on cloud security.
Interest in AI and GenAI-driven solutions is expected to accelerate, KPMG says, but it is the giants like Microsoft and Google that are experimenting with GenAI. “Singapore in particular is seen as a strong forerunner given it already has regulations in place, including its Payment Services Act and its Digital Token Payment Act, and is in the process of issuing regulations related to stablecoin issuances,” says KPMG in its Pulse of Fintech issued in July this year.
Savills has also rated Singapore fourth in its global fintech index. “Cities which do well in the index have strong and resilient fundamentals in terms of their lifestyle factors, demographics, and business environments. These factors, plus the strength of its finance and technology sectors, make Singapore a regional, and world, leader in the fintech space,” Savills’ analyst Charlotte Rushton says.
More than just topping a fintech hub ranking, the SFF has provided banks and other financial institutions with new modes of delivery of financial products. Financial initiatives under the SFF umbrella also provide better-paying jobs and expand the scope of financial services delivered across Asean, which is likely to improve lives and livelihoods for years ahead.
“Ultimately, our vision is to try to consistently bring about a virtuous cycle between policy, innovation and regulation, and hope that such a virtuous cycle can shape the future of finance, and uplift economies and societies,” Leong says.
