And a Smart Financial Centre needs smart regulation – that promotes innovation while safeguarding public confidence and financial stability. We are still learning and our approaches still evolving, but let me share with you three aspects of our regulatory response to FinTech. First, using a regulatory sandbox to test new ideas in a confined environment. Second, harnessing supervisory technology, or SupTech as we call it, to carry out supervision in a more efficient and effective manner. Third, strengthening cyber security across the financial industry to make it safer to use new technologies and instil confidence in consumers. Regulatory sandbox MAS launched a regulatory sandbox in June last year, to enable financial institutions and FinTech start-ups to conduct live experiments with innovative financial products or services. These firms do not need to fully meet the relevant regulatory requirements at the onset. To ensure that the consequences of any failure are contained, the experiments are conducted within agreed boundaries, such as the number of clients, scope of the activity, etc. The experiment is time-bound. If successful, the entity must exit the sandbox and fully comply with all relevant regulations if it wants to roll out the innovative product to the broader market. If the experiment fails, well we all learn something. Regulatory sandboxes not only encourage FinTech innovation by providing a safe space for 4/7  BIS central bankers' speeches  experimentation. They also give regulators an opportunity to learn the risks associated with new technologies and right-size regulation accordingly.
Final remarks While the ESRB has a better chance of achieving its mandate now than it would have had earlier this decade, its tasks will be difficult and its challenges considerable. In particular regarding the issuance of risk warnings, the credibility of the ESRB will rest upon the minimisation and balancing of so-called type I errors and type II errors. Type I errors entail the possibility of identifying those risks that subsequently do not materialise, while type II errors relate to the possibility of failing to identify risks that subsequently do materialise. Identifying a long list of potential systemic risks to financial stability could minimise the  BIS Review 115/2009  11  probability of making type II errors but may lead to accusations of “crying wolf”. The opposite could lead to an important risk to the EU financial system being overlooked, which if it materialised, could harm the ESRB’s reputation. Both the rigour of the checks for potential sources of risk and vulnerability, and the quality of the risk assessments (based on the information made available to the ESRB) should have a substantive influence on the credibility and effectiveness of the Board’s work. Addressing the type I-type II error trade-off by selecting which risks merit risk warnings can only be done by combining a comprehensive and strict monitoring of all potential sources of risk with a well-informed and detailed risk assessment.