Financial Technology Enabler Group (FTEG) Chairman's Opening Remarks at Finnovasia KLSpeaker: Encik Aznan bin Abdul Aziz Venue: Pullman City Centre Hotel, Kuala Lumpur Language: English Speech Date: 20 Mar 2017
It is my great pleasure to deliver the final opening remarks at the inaugural Finnovasia KL, gathering fintech executives, entrepreneurs and investors from all over the world.
Our motivation to promote innovation
Few would dare to dispute the impact of technological change in reshaping the delivery and consumption of financial services. We have reached the tipping point. Where consumers and investors alike, now demand not only ease of use, but personalised digital interaction with their finances.
Fintech has opened up new opportunities, in a way not seen before. It gives:
- The potential to provide value added and customer focus services through the delivery of customised solutions using biometric technologies, big data and predictive analytics;
- The potential to serve “untapped markets” as it opens up opportunity to reach out to market segments which would not otherwise be cost-effective. This is made possible by how agile and able for fintech in ‘monetising data’;
- The potential to improve market and system efficiency for back-end operations. This includes the use of predictive analytics to undertake real time risk simulation and management; and
- The potential to enhance compliance and regulatory productivity by automating mundane compliance tasks and reduce operational risks associated with meeting compliance and reporting obligations.
Our motivation in supporting the development of fintech is in-line with our mandates and functions in the development of sound, progressive and inclusive financial sector while preserving financial stability. Innovation brought about by many exponential technology and advances can be disruptive to many of us – markets and consumers alike. But the power of innovation, if harnessed effectively could contribute to efficiency gains, creation and better access to new innovative fintech solutions. For Malaysia, we are exploring several critical enablers to provide the enabling infrastructure and the framework to maximise opportunities whilst minimising risks to financial stability and consumers.
- Facilitate the creation of Centralised Digital Identity to allow for effective and efficient management of customer due diligence and know your customer process;
- Enabling Open API to allow for technology developers to tap into shared data for development of new and innovative solutions without compromising data security;
- Facilitate the establishment of Community-based Cybersecurity Centre to allow for sharing of threat intelligence, apply best practices and enhance collective capabilities to deal with cyber-threats;
- Enabling the use of Cloud Computing to allow for efficient and secure storage of data without compromising data security; and
- Facilitate the adoption of Distributed Ledger Technology to allow for secure and efficient offering of financial services, particularly in addressing counterparty risks.
We will work very closely with the industry and other competent authorities in those areas and we welcome your support in moving forward, including views and feedback. We also aspire to take our effort to another level. We want to solve real issues that matters to the people. And we want to create impact. This is precisely why we want to engage the public in getting ideas or wish list on what aspects of the financial services that can be improved using technology. We are initiating a call for participation known as “Fintech Hacks”. This initiative is for the public to submit their innovative ideas through our various electronic channels for the improvement of the financial services sector. There are several other related activities in the pipeline that we expect to launch this year. Check out our website, www.myFTEG.com for latest updates.
Myths and misconceptions
Today, I would also like to take an opportunity to dispel some myths and misconceptions on our stance and regulations on fintech.
First, the Bank is not open to new innovation
- As regulator, we have to walk the fine line between safeguarding financial stability and promoting innovation and growth. However, let me make clear that the Bank is open to new innovation. The Regulatory Sandbox that was issued in October 2016 clearly reflects our openness in facilitating value-added and meaningful innovation. With the Sandbox, we are willing to ‘flex’ rules and regulations to enable testing where we deem that the solution contains strong value proposition and the risks can be appropriately contained. This will also allow us to reduce time to market for new innovative products, which under normal process might get stifled by regulatory hurdles. It enables us to ensure that our regulatory framework is relevant and responsive to innovations that can bring game changing outcomes to our financial services sector.
Second, there will be regulatory status quo after the Sandbox
- For us, one of the underlying principles of the Sandbox is also to allow us to monitor and assess whether measures and safeguards in place are adequate to address the risks posed by the innovative solution. We are open to create new regulation or amend existing regulation to allow for such solution to be offered in the market under licensed regimes. The Sandbox allows us to learn from innovators and adapt to new and emerging risks emanating from the offering of new solutions.
Thirdly, fintech company must collaborate with financial institution to participate in Sandbox
- Our Sandbox allows for standalone fintech company to test their innovative solution as long as it is able to prove that it meets the eligibility criteria and that it has appropriate measures and safeguards in place. In fact, most of the innovative applications received for the Sandbox are indeed from the fintech companies. Having said that, fintech company that collaborate with financial institution could gain added advantage from guidance and support provided.
Additionally, it is also a given that only products or services that come under our purview of regulated businesses under our laws and regulations should come to test under the Sandbox. If you are peer-to-peer lending or equity crowdfunding provider you may wish to contact Securities Commission Malaysia.
With the Sandbox, we hope to see game-changing results that unlock the value of technological developments. This is in line with our aspiration to deliver more efficient, innovative, accessible and safe financial services for consumers. With this in mind, we wish to welcome more innovative companies to submit their applications to participate in the Sandbox. We hope to see more innovative ideas that would contribute to Malaysia’s financial services industry, which will ultimately benefit Malaysians and the Malaysian economy, while rewarding risk-taking and creative innovators.
Malaysia is fintech ready!
Before I end my speech, let me put in perspective what Malaysia has to offer in the broader context of fintech growth and development.
We believe Malaysia is uniquely positioned to be the test bed for innovative fintech solutions for emerging markets. A few factors give Malaysia the comparative advantage:
- First, is Malaysia’s leadership in strategic areas such as Islamic finance and financial inclusion. We are ranked highly among the top countries for the development of Islamic finance and we have also been recognised for our passion and commitment to advance financial inclusion agenda. This would naturally translate into our focus and support to fintech innovations that are tailored to serve these agendas.
- Second, Malaysia’s consumers profile and challenges are similar to those in other emerging markets. We are a middle income country with respectable Gross Domestic Product (GDP) growths of 4-5% and sizeable population of approximately 30 million people with high mobile and internet penetration. As such, Malaysia provides an ideal fintech consumer base.
- In addition, Malaysia ranks highly among other emerging markets in World Bank’s Ease of Doing Business. We are ranked 23rd overall in 2016 World Bank’s Ease of Doing Business, one of the highest among the emerging markets.
- Malaysia is recognised for pro-business policies and wide range of incentives to investors.This includes Multimedia Super Corridor’s (MSC) attractive incentives provided by the Malaysian Government.
- Finally, there is strong and holistic support from key stakeholders in driving not only the fintech ecosystem, but also e-commerce and SME entrepreneurship. The Bank collaborates closely with other competent authorities including Securities Commission (SC) and Malaysia Digital Economy Corporation (MDEC) to provide enabling infrastructure and conducive regulatory framework for a vibrant fintech landscape.
All these factors put together make Malaysia an ideal ground for fintech companies to test and validate their solution before moving on to a bigger market.
Naturally, we want to see more Malaysian-based companies coming up and expanding not just in Malaysia but also in other emerging markets, particularly within the ASEAN region.
It has been almost a year since we established the Financial Technology Enabler Group (FTEG). In that short period of time we are starting to observe attitudes shift. However, much is still desired and that there is genuine need for paradigm shift. We must embrace technology and at the same time be mindful of the challenges that come with it. I call upon all of us to have a change in attitude in adapting to the rapidly changing fintech industry.
© Bank Negara Malaysia, 2020. All rights reserved.