The COVID-19 pandemic has accelerated the demand and adoption of regtech solutions in the region. Why?

The regtech landscape in Asia Pacific faces the challenge of bridging the divide between developed and developing economies in the region, and this has been particularly highlighted as COVID-19 accelerated the adoption of regtech solutions in the region.

This insight was revealed in Enterprise Ireland’s recent The State of Regtech in Asia Pacific Report, a comprehensive and independent analysis on the APAC regtech landscape, specifically on the regtech adoption across 10 key APAC markets, and the latest opportunities and roadblocks facing regtech players in each of these markets.

DigiconAsia discussed the findings of the report with Kevin Ryan, Director for ASEAN, Enterprise Ireland.

Kevin Ryan, Director, ASEAN, Enterprise Ireland

How has Covid-19 impacted the Asia Pacific regtech ecosystem?

Ryan: The impact of Covid-19 on Asia Pacific has been mixed, on one hand, severe disruptions in supply chains, manufacturing, and migrant movement have hindered economic output. Whilst on the other, it has compelled the financial services sector to see the value of digitalisation as a necessity.

Despite the economic and social challenges that the pandemic has created, the fintech industry seems to be, for the most part, faring well and indeed helping the financial industry and economies around the world get back on their feet.

The immediate shift to remote working as governments mandated lockdowns was a strong digitisation push for banks, and compliance was no exception.

This catalyzed the rapid growth of the regtech sector in Asia Pacific. It has become a way for organisations to improve their services in response to changing business and consumer needs.

On the other hand, the remote-working phenomenon presented a myriad of opportunity for cybercrime and hacking threats, and this has prompted huge investment in critical IT systems particularly around protecting customer data and funds.

Another impact would be that in Asia Pacific economies which are not core financial centres, some flagged that regulatory tightening moves were delayed as regulators focused on more urgent lending and liquidity issues.

What are some key regulatory trends and developments driving the financial industry in Asia Pacific?

Ryan: Undoubtedly, regulators catching up and acting on crypto-related activity is a theme for 2021. They are no longer adopting a wait-and-see approach and in some markets like China, it is a high-pressure environment for crypto.

Fintech upstarts who may not have deep experience in compliance can expect to be regulated based on the risk-level of their activities and have less opportunities to operate in regulatory grey-zones.

There is a continued wave of digital banks starting up in Asia, with Australia and Hong Kong leading the way with multiple neo-banks in operation domestically. Singapore, South Korea and Taiwan are expecting multiple launches in 2021, and Malaysia accepting 28 applications for 5 licences.

Executive accountability guidance is also on-trend with Singapore publishing guidelines at the end of the year.

Regulators are expected to increasingly scrutinise data protection conduct by institutions holding customer data, amid tightening legislation updates and high-profile leaks.

How are the relevant governing bodies and Irish fintech companies promoting regtech adoption in the region?

Ryan: Singapore and Hong Kong are among the most active.

The Monetary Authority of Singapore (MAS) for example introduced the Regulatory Technology (regtech) grant scheme and the Digital Acceleration Grant (DAG) scheme to bolster Singapore as an attractive market for global regtech players.

In Hong Kong, the Hong Kong Monetary Authority (HKMA) has expanded its Banking Made Easy initiative to facilitate regtech developments focusing on anti-money laundering (AML) and counter-terrorist financing (CTF) surveillance technologies, regtech for prudential risk management and compliance, and study on machine-readable regulations.

HKMA has developed a knowledge hub, to serve as a central repository of all regtech-related content and knowledge sharing for the wider financial services industry in Hong Kong.

Some Irish regtech providers such as Fenergo act as industry thought-leaders, promoting industry best-practice on financial compliance among banks. 

What is your perspective on the outlook for Asia Pacific’s regtech ecosystem in a post-pandemic world?

Ryan: It is encouraging that regulators are becoming increasingly forward-thinking and dynamic. While risk will always have a role to play in the industry, the lessons learned from events such as the 1MDB scandal, Wirecard collapse, Luckin Coffee and Hin Leong Trading show that there is a myriad of opportunities for regulators to better protect consumers and the broader financial system.

According to Enterprise Ireland’s The State of Regtech in APACReport, it is worth keeping in mind that technology ecosystems in the different Asia Pacific economies will evolve at a varied pace, given differing regulatory drivers for regtech adoption. This is especially evident in the wake of the Covid-19 pandemic that has further reinforced differing domestic priorities and exacerbated the economic and technology gap in Asia Pacific.

This presents an opportunity for regtech companies to demonstrate their agility in adapting their business models and in innovating for solutions that keep pace with varying market development levels as well as their respective needs. Regtech providers can also show regulators what can be achieved locally in aspiring to global best practice through the use of technology.

It is clear that as regulators raise the bar on market players, it will become increasingly difficult to meet the standard without significant investment in technology capability, both internal and from vendors.