Navigating Regulation for Singapore’s Banking 4.0

Singapore banking sector players are tasked with finding a balance between open innovation and regulatory compliance, says Finastra’s Wissam Khoury.

We have heard of the terms “Industry 4.0” and the Fourth Industrial Revolution. The banking sector is undergoing its very own “4.0”, which, for banks, can mean a mixture of going digital, mobile and maintaining low overheads, as well as the utilisation of artificial intelligence and data analytics in powering their offerings.

This calls for a constant refinement of regulations to keep organisations accountable in an era where concerns loom over issues of cybersecurity and consumer data privacy.

An illuminating case of the risks faced by the industry can be seen in the findings from a recent industry report showing that 2019 is set to be a record-breaking year in terms of Personal Data Protection Act (PDPA) breaches, of which financial institutions currently top the table.

As banking moves into the open, banks will need to wrestle with data protection issues – both from a regulatory compliance point of view and cybersecurity measures implementation point of view. Pressure and expectations from regulators are increasing by the day.

On the regulators’ side, we have seen Singapore’s authorities enacting additional measures so they can adapt to the changing landscape. Cyber-risk, for instance, presents ongoing challenges. A survey by the Cyber Security Agency of Singapore revealed that almost half of Singaporeans experienced at least one cybersecurity lapse in 2018, showing the spread of the issue and a degree of urgency in remedying cyber related issues.

In September 2019, a revision to the PDPA introduced restrictions on collecting, using or disclosing National Registration Identity Card numbers. With severe penalties including fines and prison time against any company that violates the new rules, banks will need to work hard to ensure they are clear on where it is appropriate to collect such data.

Furthermore, the Monetary Authority of Singapore (MAS) recently published a set of ‘Cyber Hygiene Notices’ detailing various legal requirements that all banks in Singapore need to follow to minimise cyber-threats associated with technological advancements. The evolving regulatory system is welcoming disruptive technologies but is also establishing safeguards to prevent potential issues arising during periods of rapid change.

The MAS Cyber Security Advisory Panel (CSAP) meeting on 30 September also saw members highlight the need to strengthen the cyber risk culture, monitoring and surveillance, as well as effective management of IT supply chain cyber risks in financial institutions, reflecting regulator’s long-term policy direction on the sector’s cybersecurity priorities.

Arguably, a strong governance culture has already fostered the healthy growth of Singapore’s open banking scene and set the industry on a positive trajectory. The Finastra Open Banking Readiness Index published in 2018 saw Singapore rank highest amongst the 14 markets surveyed in the region, according to industry participants.

Singapore is the pace-setter for leveraging APIs in data monetisation, primarily owing to the maturity of its open API and data infrastructure. Based on the results of an additional survey conducted by Finastra in March 2019, Singapore is also seen as a collaborative hub, with 44% of Singapore financial institutions looking to deploy fintech collaborations in the next 12 months – over double that in the UK (21%) and US (14%).

An underlying message is that creative innovation needs to be accompanied by market stability, which remains a top priority for policymakers. Incumbents and startups alike need to show a track record and prove their operations are scalable and up to standard, while being supported by robust technology. Often this is achieved by working with established technology partners with local expertise.

‘Banking everywhere, never at a bank’, a phrase used by futurist Brett King to describe banking 4.0, opens unlimited space for banking players and regulators. The key consideration for banking players on a quest to gain an edge in the ever-changing market will be to find a balance between open innovation and upholding regulatory oversight of the banking industry.

The future of finance is available for those who are ready to take the leap.

Wissam Khoury is Senior Vice President and General Manager for Asia Pacific, Middle East and Africa at Finastra.

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