As the Singapore Fintech Festival (SFF 2024) enters its ninth year, technology, ever fast-paced, continues to accelerate. SFF 2024’s purpose remains the same as when it started in 2016: inclusive economic growth. Following the implementation of Project Leap by the Bank of International Settlements (BIS) to “quantum proof” financial services, SFF 2024’s theme revolves around quantum computing and its implications, including various iterations of artificial intelligence (AI).
“Technology is advancing so rapidly. We wanted to create a platform to give early exposure to the stakeholders. Aside from increasing awareness, we want to encourage policy dialogues, as it is only when you find a pathway that balances innovation with regulations that you can create a sustainable way to harness technology to facilitate growth,” says Leong Sing Chiong, deputy managing director, markets and development, Monetary Authority of Singapore.
From the onset, the visitors and participants to the SFFs have in themselves, boosted Singapore’s service sector. SFF2022 had 62,000 participants; SFF2023 broke that record with 66,000 participants. SFFs are not about breaking records.
The SFFs continue to bring together a global community, including regulators, to discuss new technologies and how financial services should or could be regulated in an increasingly borderless financial world.
SFF 2024 will examine the transformative potential of AI and quantum computing in revolutionising financial services and delivering sustainable and inclusive economic growth. Even as regulators, central banks and Big Tech are debating the pros and cons of AI, SFF 2024 will explore the additional complication that quantum computing brings to AI and other forms of cutting-edge technology.
Since the first SFF in 2016, every SFF has revolved around a theme. SFF 2016’s theme was about building the ecosystem. Inclusivity was the theme for 2017, while the theme in 2018 was Asean and financial inclusion, emphasising Asean’s millions of underbanked and unbanked population and the ability of fintech to bridge this gap.
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SFF 2019’s theme was sustainability. As climate change storms continue to rage, new regulations have been introduced on climate risk management, including for financial services entities.
The theme for SFF 2020 was talent, another evergreen subject at the heart of the Singapore economy. Web 3.0 and decentralised finance (DeFi), the 2021 theme, made participants and financial institutions look inward and reflect on whether financial institutions are needed at all. An initial attempt at DeFi was China’s experiment with peer-to-peer lending in the mid-2010s, which ended with the Chinese government’s stricter regulations to protect investors.
SFF 2022’s theme was resilient business models. SFF 2023’s theme was “The Intersection of Policy, Finance and Technology; and AI for good. AI for good?”
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Why quantum computing?
Quantum technology leverages the principles of quantum mechanics to enable faster and more complex computations that cannot be achieved with classical computers. The impact and potential of such technology will be felt across industries, from defence to healthcare to financial services. Firms can already use quantum computing subscription services through cloud service providers and open-source quantum software development kits for technical experimentation.
According to McKinsey, quantum computing use cases in financial services could create over US$600 billion ($791.64 billion) in value by 2035. Potential use cases include risk simulation, portfolio optimisation, quantum machine learning, and cybersecurity. Currently, financial institutions such as HSBC, OCBC and Standard Chartered Bank have been exploring quantum-related use cases in areas like risk management and trading.
Quantum computing can also help provide the computing power needed for AI model training. As generative AI (GenAI) becomes increasingly complex and models get larger, the computing power to train them grows exponentially. With quantum computing, significantly less training data would be required, which would help scale AI models of the future.
“We’re very excited that this year’s SFF will examine the transformative potential of AI and quantum computing in revolutionising financial services and to deliver sustainable and inclusive economic growth,” Leong shares. “The collective knowledge and resources of industry players, academia, and government can help to advance the awareness and adoption of quantum technologies,” he adds.
The risk in quantum computing
According to BIS, while it is still unclear when quantum computing technology might be adopted on a large scale, its potential as a cyber threat to the financial system is already a matter of concern. Malicious actors can intercept and store confidential, classically encrypted data with the intention of decrypting it later when quantum computers become powerful enough to do so. This means that data stored or transmitted today are exposed to “harvest now, decrypt later” attacks by a future quantum computer.
To prepare central banks and the global financial system for a transition towards quantum-resistant encryption, the BIS Innovation Hub Eurosystem’s Project Leap is investigating how to update and replace the cryptographic security algorithms that the financial system is critically reliant on.
“Project Leap makes an important contribution to mitigating the threat posed by quantum computers to the confidentiality of financial data and the stability and integrity of the global financial system. While we do not know exactly when quantum computers will be strong enough to crack today’s encryption, central banks must prepare themselves. Project Leap is a blueprint for how they can do so,” says Raphael Auer, head of the BIS Innovation Hub Eurosystem Centre.
In Singapore, MAS issued an advisory to all financial institutions in February on the cybersecurity risks associated with quantum technology. It provided recommendations for financial institutions to safeguard themselves against the identified threats, including carrying out proof-of-concept trials with quantum security solutions. The central bank also launched a quantum track under the Financial Sector Technology and Innovation Grant Scheme (FSTI 3.0) in July, committing $100 million to provide funding support for quantum projects and capabilities.
Banks in Singapore are working with MAS and tech partners on quantum security. DBS, together with MAS, HSBC, OCBC, UOB, SPTel and SpeQtral signed a Memorandum of Understanding (MoU) on Aug 14 to embark on quantum security collaboration and study the application of Quantum Key Distribution (QKD) in financial services.
QKD is a secure communication method for exchanging cryptographic keys only known between shared parties. QKD can help financial institutions protect the exchange of cryptographic keys to address the cybersecurity threats posed by quantum computing.
“DBS recognises both the transformative potential of quantum computing and the associated cybersecurity risks. As this technology advances, we are actively exploring its applications and collaborating with industry partners to harness its power to enhance the future of financial systems,” says Eugene Huang, chief information officer, DBS.
The Aug 14 MoU builds on a collaborative framework for trialling the application of quantum security solutions in financial services. In the coming months, MAS and participating banks will experiment with QKD solutions jointly provided by SPTel and SpeQtral in three areas.
The partners will conduct a QKD proof-of-concept sandbox on financial sector use cases to evaluate its viability, effectiveness and applicability to financial services, and determine the feasibility of using QKD for quantum-safe communications within the financial sector.
Secondly, the experiment will validate the security properties of QKD, such as detecting eavesdropping attempts and preventing unauthorised access or tampering of QKD transmissions. This will help to verify QKD’s capability to provide robust security for sensitive data transfers, and enhance trust in its deployment within the sector.
The third area is to enhance technical competencies through knowledge exchange to equip MoU participants with the skillsets to support the transition towards adopting quantum security solutions when they are commercially available.
“This initiative aims to strengthen cybersecurity within Singapore’s financial sector against emerging quantum-related threats. We are eager to learn from this project and continue exploring the applications of quantum computing in banking,” Huang says.
Although quantum computing is still a nascent space that’s evolving, the banks that are part of the MOU believe QKD has the potential to fortify banks against emerging cybersecurity threats.
“Singapore is demonstrating once more to be forward thinking in the exploration and testing of cutting-edge technologies, bolstering the nation’s reputation as a secure and stable financial hub,” says Tancy Tan, chief operating officer, HSBC Singapore. “HSBC is pleased to join forces with MAS and other collaborators in the banking and technology sectors to trial QKD in Singapore, a key technology in fortifying the financial industry against emerging cyberattacks,” she adds.
Albert Kho, head of group retail and channels technology and operations at UOB, adds, “We are committed to establishing best practices for the industry to utilise this technology and build a secure, quantum-safe data exchange network.”
Additionally, MAS is working with the industry on a proof-of-concept sandbox on QKD to enable secure and quantum-safe file transmissions between MAS and participating financial institutions. The sandbox is expected to conclude by 1H2025 and will help build QKD capabilities for broader application in the industry to strengthen quantum resilience.
“MAS has not set a timeline for banks to adopt quantum security solutions. But we encourage financial institutions to start preparing early for their quantum transition efforts,” Leong says.
AI and GenAI opportunities and challenges
The downsides of AI are becoming apparent. For instance, AI has the potential to magnify fake news. No surprise then, that in Singapore, at the national level, new legislation by the Ministry of Digital Development and Information will be implemented to address the challenges deepfakes pose.
“With new technology, we see new risks. AI governance is as important as AI innovation. The key objective is, therefore, to foster a trusted environment that allows financial institutions to harness the benefits of AI/GenAI while ensuring safe and responsible use of AI and mitigating against risks,” Leong says.
The financial services industry has been using AI models for some time. To support this use, MAS has established governance and risk management structures and processes to address areas such as data, model, technology and cyber risks.
For instance, UOB has indicated that it is looking into the best ways to use GenAI while balancing the risks that come with this new technology. UOB is the first Singapore bank to trial Microsoft 365 Copilot, a GenAI-powered productivity tool.
“We remain committed to adhering to MAS’s FEAT framework and will be guided by its principles of Fairness, Ethics, Accountability and Transparency when deploying new technology in the bank,” UOB says.
At the financial sector level, MAS is taking a multi-pronged approach to facilitating the safe and responsible use of AI. This includes facilitating and elevating AI and GenAI governance and risk management efforts across the financial industry and promulgating industry best practices.
“On the regulatory and supervisory front, two key focus areas this year relating to the regulation of AI and GenAI that MAS has focused on are the cyber risks associated with Gen AI, as well as the need for robust risk management of AI and Gen AI models,” Leong says.
He points out that MAS launched Project MindForge in mid-2023 to examine the impact and potential risks of GenAI technology on financial services.
“In the next phase of Project MindForge, the industry consortium will develop a comprehensive AI governance handbook, aiding financial institutions in establishing and maintaining effective governance practices for their AI systems,” Leong says.
MAS also embarked on a thematic review of key banks’ AI and GenAI model risk management practices this year. “We will distil good practices in an information paper that will be shared with the broader financial sector by early next year. This will cover key areas such as oversight and governance, identification, inventorisation and risk materiality assessment, as well as trusted development and deployment of AI and GenAI solutions. We are also considering issuing supervisory guidance next year,” Leong explains.
