MAS chief: Strike balance between stability, growth

Singapore's top central banker has used a speech in Washington, DC, to flag an important new phase in the regulatory framework set up in the wake of the 2008 global financial crisis.

In the eight or so years since the crisis, wide-ranging rules have been imposed to restore stability to the global financial system - and technology is rapidly disrupting the way the industry does business.

Monetary Authority of Singapore managing director Ravi Menon has said that regulators must now evaluate the effects of the regulations set out over the past eight years and fine-tune policies as needed.

Mr Menon was giving a lecture at an event in Washington organised by think-tank Official Monetary and Financial Institutions Forum on Thursday.

With memories of the crisis fading and the compliance burden of new regulation continuing to grow, pressures are mounting to unwind some reforms, he noted.

There are concerns, he added, that reforms have dampened market liquidity and bank profitability.

"We have rightly focused our regulatory efforts to minimise the risk of another financial crisis. But we must continually ensure that we do so without minimising economic growth and opportunity."

Some fine-tuning may be necessary to reduce the unintended effects of reforms while preserving their benefits, he said.

But in doing so, regulators must be careful to avoid pendulum swings that could undermine the gains in financial stability that have been achieved, not to mention prolong and add to the uncertainties facing the financial industry.

Regulators' next challenge is to grapple with rapid technological change by developing a deep understanding of emerging technologies and the risks and opportunities they present, Mr Menon said.

"Financial regulators should not be afraid to work collaboratively with financial institutions or even fintech (financial technology) companies."

Regulation must not run ahead of innovation, he added, as introducing regulation prematurely may stifle innovation and could derail the adoption of useful technology.

And regulators should allow experimentation to facilitate fintech innovation while limiting the risks to consumers and the financial system should these innovations fail, he said.

The regulatory sandbox is a useful device to test new ideas in a confined environment, he noted, adding that Singapore was among the earliest in the world to adopt one.

Aside from regulating fintech, central banks must also look to harnessing this field to better regulate and supervise financial institutions and help them manage their risks, Mr Menon said.

The world also needs to strengthen its management of cyber risk, he added.