Asia Pac regulators have competitive edge but confront innovation challenges
The region’s strong economic growth relative to the rest of the world, deepening financial inclusion and ground-breaking technology, positions Asia Pacific regulators to have a competitive edge on the global stage, according to a Deloitte report.
Deloitte’s 2019 Asia Pacific Financial Services Regulatory Outlook released on Tuesday found that Asia Pacific regulators have actually embraced the challenges to the status quo particularly around technology.
Deloitte senior adviser and co-lead at the Deloitte Centre for Regulatory Strategy Kevin Nixon expects these regulators to focus on “harnessing the dynamism of the region in the coming year” as financial services balance the need to innovate with the safety of the “transformed financial system”.
“Given the regulators are now in the final stages of implementing the post-crisis reforms, along with Asia Pacific firms, they are treating new technologies, open banking models, robust privacy and cyber risk management less as challenges to be overcome, than as a paving the way for the future of financial services,” Nixon said.
The report importantly highlighted the growing impact of technology and innovation on regulators’ remit.
The report noted that firms, regulators, and their customers are considering the opportunities and risks associated with new technologies.
For example, due to the rapid development of AI, machine learning and fintech solutions, these new technologies have actually become mainstream.
“We should not underestimate the powerful impact these technologies will have, not only on consumers, but also on regulation and supervision too,” the report said.
“The pace of technological change therefore demands deep thinking about the appropriate regulation of processes, products, and institutions to avoid regulatory gaps and ensure financial stability and consumer protection.”
These technology developments and disruption have subsequently triggered a debate around the perimeter of regulation in financial services.
The report found that many incumbent firms worry that new technology-driven entrants offer services that lie outside the boundaries of existing financial services regulation and which incumbent firms find costlier to deliver because of a “compliance leakage” from the regulated activities that they are undertaking.
“We expect that these level playing field concerns, along with worries about the role of technology in society more generally, will drive increasing interest in how fintech firms (and cryptoassets) are regulated - or rather, at present, how they are not,” the report said.
“However, we do not expect regulators to “come to the rescue” of incumbents, who will have to look to their own resources to rise to the challenge of competition.”
While Australia is the first country in the region to legislate for open banking, other jurisdictions in Asia-Pacific prefer a non-legislative approach to open banking.
The report found that some of these regulators emphasise the benefits of open banking – consumer choice and innovation, rather than an individual’s right to control their own data.
These jurisdictions have chosen to encourage and help coordinate the adoption of open APIs without going so far as to mandate it,” the report noted
In Singapore for example, the Monetary Authority of Singapore believes that banks opening up consumer data is a “larger good” that has potential to benefit customers. But ultimately something that should be “a ground-up process led by the banks
The report also found that the impact of the Royal Commission and the growing introduction of personal accountability regimes will also mean many regional regulators in the Asia Pacific region expect firms to fully embrace managing culture and implement a holistic approach to risk governance.