Many new technologies intelligently used can help to reduce risk. Take for example DLS. •  Decentralisation reduces concentration risk. A cyber attack cannot bring down the entire system because every player has a copy of the ledger. •  Speed of transaction verification reduces counterparty risk. This could potentially translate to lower collateral requirements, better capital optimisation. •  Imagine clearing and settlement in seconds rather than days. •  But mind you, these are still at proof-of-concept stage. There is still no scalable market-wide solution in place. But contrary to what DLS advocates proclaim, it is not without risk and may even introduce new ones. •  The public DLS is susceptible to malwares being uploaded into the system. Blockchains are not hack-proof. •  And as all data are replicated to very node in the system, there is a risk of compromise of privacy. So, each technology must be evaluated on its own merits. •  And we must also consider which financial activity it is being applied to –  blockchains in clearing and settlement systems are very different from blockchains in trade finance or e-KYC. Second – adopt a risk-based approach to FinTech innovation in the unregulated sector. Regulation must not front-run innovation. •  Introducing regulation prematurely may stifle innovation and potentially derail the adoption of useful technology  MAS applies a materiality and proportionality test. •  This means when the risk posed by new technology becomes material, then regulation comes in.
Ravi Menon: FinTech – harnessing its power, managing its risks Panel remarks by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the Singapore Forum, Singapore, 2 April 2016. *  *  *  FinTech is fundamentally transforming the financial industry. •  The smartphone is becoming our bank. •  Computer programmes are offering investment advice. •  People can now lend directly to one another online. Technology will replace many jobs in finance but will also create exciting new jobs. •  Calls for new and different skill sets – understanding technology and the ability to work with and harness the power of machines and algorithms  •  As someone in Silicon Valley put it, “the geek shall inherit the earth”. Unregulated FinTech companies are now providing many financial services. They will challenge traditional financial institutions (FIs), disrupt and even displace some of them but will not replace them. •  Banks and insurance companies have something that unregulated entities do not have – trust. Trust based on a track record of performance. •  FIs are not sitting still. –  They are actively harnessing technology to enhance product offerings and improve efficiency. –  They are setting up in-house FinTech units to replicate the start-up mentality. Many global banks have set up “innovation labs” in S’pore: Citibank, StanChart, UBS, HSBC, to name a few. And insurance companies too: Aviva, Aon, AXA, MetLife.