Is this an oxymoron or bitter pill for fintech sustainability? Two heads of central banks can confirm the two processes are inextricably linked for good.

Regulation and innovation: together, these two terms sound like an oxymoron because they often impede each other and lead to muted outcomes. But this is no longer the case, opined UnionBank of the Philippines Vice Chairman Justo Ortiz.

Echoing this sentiment, the Chief FinTech Officer of Singapore’s central bank (MAS) Sopnendu Mohanty noted that a collaborative mindset and implementation of balanced and agile regulations can actually forth transformative innovations that benefit economies.

The discussion took place in a digital event fireside chat on “Transformational Regulatory Change to Accelerate Innovation” with the Philippine Central Bank Governor Dr Benjamin Diokno and MAS Chief FinTech Officer Sopnendu Mohanty, moderated by UnionBank’s Justo Ortiz.

The Filipino fintech experience

Topics discussed touched on open banking, the Philippines’ National ID system, blockchain and central bank digital currency among others. Diokno and Mohanty also discussed the regulatory frameworks in the Philippines and Singapore respectively, highlighting the need for a sandbox approach when dealing with emerging technologies.

Ortiz opened the session by recalling how compliance with regulatory requirements paved the path for his bank’s transformation journey, showing how regulators can often be catalysts for innovation. “The only way to handle the compliance requirements in a sustainable, effective and timely way was to digitize our processes so that we could acquire, store, access and report the data in the various cuts the regulators want to see, and that went into our strategic planning exercise,” Ortiz said. 

Diokno emphasized that their Central Bank prioritizes support for banks and financial institutions so that these can deliver financial services to the public using innovative technology. He went on to share three principles to foster an environment conducive to innovation:

  1. Regulations have to be risk-based, proportionate and fair
  2. There has to be active multi-stakeholder collaboration
  3. Innovations should benefit consumers, especially the most vulnerable and those availing of financial services for the first time

Diokno then shared an overview of the Philippine Central Bank’s Fintech Roadmap which focuses on proportionality of regulation based on risk profile and systemic importance. He also discussed improving Central Bank’s capabilities through regulatory and supervisory technology such as AI and predictive analytics. Finally, he highlighted the importance of open collaboration between financial regulators and fintech players and providing a flexible “test and learn” environment to engage and oversee fintech innovators. UnionBank’s i2i, which connects rural banks through a blockchain-based network, was cited as one of the successful initiatives born out of the Central Bank’s test and learn approach.

The Singapore fintech perspective

MAS’s Mohanty shared his view on what a post-COVID19 economy will be like and gave insights on what regulators should look into to respond and adapt to this new normal.

He mentioned that the pandemic has affected businesses in two ways: first, it shifted the focus of digitalization from efficiency and productivity to resiliency and sustainability. Second, it has accelerated the digitalization of all processes. This new digital normal, he said, will make economies more open, connected and interoperable. However, regulators must embrace progressive policies for this to happen.

Mohanty emphasized the need for a National Digital Infrastructure which lays the foundation for fintech capabilities such as the National ID, electronic-KYC (Know Your Customer) and seamless payment facilities. He also noted the need for trusted data exchange at the national level.

Another key component of a connected financial services ecosystem, said Mohanty, is the field of open Application Programming Interfaces (APIs), which can be accessed and consumed by financial institutions and fintechs. This is the first step to open banking and allows more seamless data accessibility among institutions, thus leading to better financial products and services as well as inclusive prosperity.

Mohanty noted that an environment conducive to experimentation and collaboration, matched with regulation that adapts to ever-changing scenarios, can bring forth transformative innovations that benefit economies.