in the case of block chains or distributed ledgers where the technology is still evolving. Sometimes, it means updating regulation to take account of new technologies and new risks e.g. in the case of cloud computing and robo-advisers, where we issued special guidelines. Sometimes, it means being specific about the risks we want to address and taking a targeted approach to regulation e.g. in the case of crypto assets where we focus on the crypto intermediaries for antimoney laundering purposes rather than the crypto assets. Sometimes, it means taking an activity-based approach to regulation, setting rules for specific activities rather than the entity as a whole e.g. in the case of the proposed Payment Services Bill, where licensees will be regulated according to the activities they conduct because different activities pose different risks. The trick is to identify the risks we are most concerned with and finding the most targeted way of regulating those risks so that the business has maximum latitude to innovate and grow. Now, there is one more approach in MAS’ tool kit and that is the “regulatory sandbox”. The regulatory sandbox facilitates live experimentation of innovative financial services and business models within pre-defined boundaries. MAS is probably the second jurisdiction in the world to introduce the regulatory sandbox and it is one of the most comprehensive ones around.
Despite this advantage, the Bank of Thailand is not complacent and we will continue to prepare our banking sector for future challenges. In this regard, a SWOT analysis of our current financial institutions system reveals that while there was overall improvement in efficiency and soundness, operating costs remained high and financial access gaps remained. Furthermore, there was still inadequate financial infrastructure to support risk management of financial institutions. Meanwhile, future challenges of the next five years would likely come from more intensified competition – not only among banks, but from capital market, both local and overseas. It would also come from more complex and varied needs for financial services, as a result of globalizations and aging population, the shift in resource allocation with greater role of domestic demand vis-à-vis external demand as engine of growth, and finally, capital inflows and external challenges from the global economic crisis. Taken together, these remaining areas of improvement and the need to tackle future challenges have led to the recent launch of the second phase of financial sector reform. This brings me to the second part of my talk: key strategies in the Financial Sector Master Plan Phase 2. When thinking about characteristics that our future financial system is envisioned to have, several keywords come to mind: efficiency, strength and resiliency, diversification, fairness and transparency.