"MAS' Fintech Vision" - Edited Transcript Of Fireside Chat By Mr Chia Der Jiun, Managing Director, Monetary Authority Of Singapore, With Ms Manisha Tank, Broadcaster & TV Presenter, At Singapore Fintech Festival 2024, On 7 November 2024

Manisha Tank: Here we go. This is your first FinTech Festival as MD. How's that feeling?

Chia Der Jiun: Very exciting. It's great to be part of this group. It's really good to be invigorated by the energy of the space, the energy of the people, the energy of the community here. They're all creators, innovators, founders, people doing new things, exciting things, so it's really good to be part of this.

Manisha Tank: The new prime minister – well, not so new anymore – had come to the FinTech Festival some years ago, and had described it as feeling like a rock concert. It rather does, so thank you to Vanessa, who's our resident DJ. It does feel really pumped and energised. 

Thinking of pumped and energised, there were lots of people who were flicking through phones, I noticed, in the audience yesterday, and one of the reasons was, of course, they were following results coming from the US presidential election. Obviously, I'd like to get some of your reflections as we wake up this morning to President Trump in the US for the next four years.

Chia Der Jiun: It was quite spectacular. The results were quite unambiguous, and I saw that the shift towards Trump was quite unambiguous across all the states practically, and across most demographic groups. It's quite a clear result. It does reflect that certain issues are very important to the American voters. Certainly, I think the economy is top of mind – cost of living, state of the economy, immigration – these are very important issues to the American economy. 

I think what matters to all of us now is the direction of policies going from here. This has been well discussed. I think the markets have already pretty much summed it up, what's been happening. We know that equity markets have been up at record highs or near record highs, and this reflects optimism around tax cuts, making them permanent, optimism around deregulation. We also see that the dollar is high, and the yield curve has steepened a little bit, so expectation about inflation remaining sticky because policy is having an inflationary bend. The dollar is high, the yield curve is steepened, and Bitcoin is up. We know why that is so, it is part of a deregulatory sentiment. All this is hugely important, whether, and how big an impact some of these policies will have on growth and inflation. For the global economy, potentially, some of these policies can be restrictive on growth, particularly trade policies, and inflationary, but there are other policies that are pro-growth and potentially pro-supply side. So, tax cuts, if they invigorate more investment, if technology also invigorates more investment, these can be potentially helpful to productivity. We'll have to see.

The sequencing of the policies matter. Some policies will have very near term and quick impact, while other policies like deregulation and tax cuts may take time for investments to potentially help with the supply side. We are watching very closely, because this matters greatly not just for us, but everyone else.

Manisha Tank: It definitely seems very clear cut, the House and the Senate as well, also going the Republican direction, so there is that consistency.

Queen Maxima has just joined us here in front row. Thank you so much. If we could just give her a rousing welcome.

Chia Der Jiun: And Ravi (Menon) as well, who was occupying this seat just last year.

Manisha Tank: We were having certain conversations backstage, and that is a lot of what all of this is about. It's about partnerships, collaborations and important conversations. Speaking of which, let's get back to it.

One of the things I want to talk to you about is MAS’ overall vision for the FinTech sector and the impact that all of the great change is going to have on the delivery of financial services.

Let's first of all get your thoughts on the overall vision.

Chia Der Jiun: Maybe I will just speak around three words – firstly, community; secondly, collaboration; and third, on our capabilities.

On community, I think this week’s Festival speaks for itself – 900 speakers, tens of thousands of participants. There is a very thriving community of FinTech startups and firms in Singapore and now all around the region coming together for this event, so this is one clear manifestation of this network and this community.

Ravi announced the launch of the GFTN yesterday, and that signals a new level of ambition to widen, broaden, deepen this network globally, and therefore to pull these networks together. So, I think that would be hugely beneficial for the ecosystem that we have here, and, of course, the community here at the FinTech Festival. I think that signals a new level of ambition and achievement for the community, so I think that is important.

Two is collaboration. Now, we started the journey with encouraging experimentation and innovation through setting up sandboxes, and that was hugely beneficial. But really, you get to benefit with innovation, one project at a time, right? So, the impact is a little bit, shall we say, bespoke. Now we are thinking about how to multiply that and have that benefit at scale. With now a different mode of collaboration, we are actively forming consortia with industry, with federal regulators, policy makers, coming together to solve problems. So that has been most evident in several areas. And certainly, we have had this in the sustainability area, we have had this in the digital assets area, which is currently where we are focusing a lot of our time. So, industry consortia, over 20 financial institutions, industry associations, standard setters and international organisations, policy makers, all coming together trying to solve problems for digital assets. We can talk more about that later. Also, for AI, it has been a collaborative approach through the industry to try to understand the risks better and start to identify the issues. So that has been our approach, and I think that has been helpful in scaling the impact.

Third, I will just say capabilities. There are a couple of areas where we think is going to be hugely impactful, and we have focused our attention on those. We are taking steps to put in place the building blocks to help the industry grow, and overcome some of these challenges and pain points. Payments is one area, and it has been a long-standing area over many years. We have been putting in place the building blocks to get this to work. The vision, of course, is low cost, accessible, fast domestic payments, but also cross-border payments. So that has been a multi-year mission and objective, and we are continuing to build on that. The space of asset tokens is also something we are investing heavily on, trying to make progress together with industry. AI as well, and we can talk about that later, and of course, sustainability.

Manisha Tank: Well, let's dig deeper into some of those. And before we do, interestingly, you talked about the community and how important that was. If anyone sees Ravi Menon or anyone who is involved with GFTN, you will see them wearing a big round badge. And you educated me this morning that it's flags of the world, many of them, we joked about, possibly more than the World Bank. But I think that underpins how important community is, it’s a global community, right? 

Chia Der Jiun: Yes, it’s a badge of ambition on Ravi’s chest, as well as Sopnendu’s. 

Manisha Tank: Okay, so let's dig a little bit deeper. I want to talk about global payments. So particularly digital currencies, cross-border. Just when you think payments are fast, they get faster. There's always another platform offering some form of added value, but I think it's important for us to understand how Singapore is going to remain competitive in a landscape that's so dynamic.

Chia Der Jiun: So, you know, we've taken this quite a lot, right? It started with putting in place some of the things such as a national digital identity, layering on that fast payment rails, and then schemes that allow very easy look up and also acceptance of QR codes, PayNow link ups and so on. So, it works very well.

I’ve got a slide to show you where we are with this. And so, this is domestic payments. It looks like penetration is fantastic. Sign-ups are above 90%, merchants’ adoption of QR codes is near 100% so it looks to be near ubiquitous? It is ubiquitous, but it's not seamless. And the problem that now we need to solve is interoperability. So, although a lot of people have onboarded these and can use a single QR code, but a merchant may not have onboarded multiple, different  payment schemes, and so if I'm only on one payment scheme, then I can only accept customers of that one payment scheme. And what we want to do is make them interoperable. Because across schemes, we know that penetration is an asset. So, if you can make that interoperable, then you can walk in with one payment scheme or two payment schemes, and you can pay any merchant. So that's the vision, and we're trying to take steps towards that. And so, what is happening now is that NETS Group and Liquid Group will be launching an interoperable QR payment solution, they will operate and offer separate solutions. With this, merchants don't have to onboard very many different schemes for them to accept a wide base of customers. So that's the vision, to make it much more seamless. So that's on the domestic front.

Cross border has been a different challenge. We have started this journey doing cross border linkages, one at a time. The first one was with Thailand. You know, my esteemed colleague, Governor Sethaput will be speaking next, and Thailand was our very first bilateral linkage between the FAST payment systems between the two countries. And I think it took two years to get that done. And of course, now, we've got several bilateral linkages with Malaysia, India and so on, but it takes time to put this out, and resources. What we've embarked on, the ASEAN countries together with the BIS Innovation Hub, is to work on scaling this in a multilateral way. This is called Project Nexus, and we think it's a game changer, because it is a central switch, and it's a central framework of standards, single framework standards, so that you don't have to form bilateral linkages. Everyone just connects to the central switch and the single framework, and then you can access the whole network. So, I think that's a massive game changer. It will connect up our region quickly, and it can also be the node connecting to other networks in other regions. So this, I think, has the potential to transform cross border payments and make it much more accessible in a low cost, fast way.

So, that's the vision. I have a slide on this as well that shows where some of the bilateral linkages are currently. But with Nexus, you know, we can widen the network extensively and reach other regions as well. So that's on payments, and that's where we are.

It was just announced yesterday by the BIS, that the Nexus Scheme Organisation will be set up in Singapore. There is a lot of work to be done. We’re happy to host the Nexus Scheme Organisation and hope to drive that network.

Manisha Tank: Excellent. I suppose it helps that you already have that existing infrastructure, and that's a multilateral infrastructure to build on. Let's move on to a report that was produced by McKinsey. This is about the tokenised market. In this report, we learned that the total tokenised market capitalisation is expected to reach USD 2 trillion by 2030. The question is, what is MAS’ vision for tokenisation and what strategic developments can the market expect by that time? 

Chia Der Jiun: The potential is there [for asset tokenisation]. I think everyone sees the potential. And in Project Guardian, we work with a variety of global financial institutions, and also those in Singapore. They've experimented and piloted across different kinds of assets. They've tokenised them, they've settled them, exchanged them across fixed income, FX, funds and so on. They know that it works, and the economic benefits are also clear to all the participants. It's going to cut duplication, cut cost, increase speed, but cut time, The use cases are also very clear across multi currencies, payment settlement, treasury management, collateral management, and, of course, security settlement. The use cases are also quite clear.

The challenge is how to get to that potential. This is a collaborative approach for the industry, and there’s an industry consortium, there’s Project Gurdian and also Global Layer One. The idea is – tell us what are the problems that need to be solved in order to scale this, to get this to commercial scale. We have been taking these real pain points, real issues that industry tells us that needs to be solved, and that is where we focused our attention – on how to solve them.

I’ve got a slide to illustrate this. We have to think about problem at three layers. First is at the token layer, where you can represent any asset. You can represent fixed income, you can represent FX, you can represent the fund, you can represent a security, any asset, as a token. But in order to have this exchange, what I call fixed income token, what is the data and attributes it should embody? It should be recognisable to you when exchange it with you, so that we both agree that this is a fixed income token, and we agree that it has attributes that I wish to sell to you and that you wish to buy. That requires work, and industry frameworks and standards are needed, so that we achieve this degree of harmonisation and understanding of regulations for exchange. We have done some of that work already, and the first publications have come up – frameworks for fixed income, framework for funds. But more work remains ahead, and that is critical work.

The second layer is at the settlement layer. When we exchange tokens, we won't exchange a fixed income token for a fund token directly. We will have to intermediate this to a form of digital money that is on chain, so a high-quality settlement asset. I think people will talk about, you know, this could be central bank digital currency, could be tokenised bank deposits backed by the balance sheet of a bank, or it could be a stablecoin. That is the next area that we have to work on, to ensure that we do put in high quality settlement assets into this ecosystem.

We are making a contribution by having set up a stable coin regulatory framework describing the attributes of what a well-regulated, sound stablecoin looks like, and should have these attributes. We are inviting people to make use of this and issue stablecoins that comply with this regulation. There is a lot of interest in this. The regulatory attributes are finalised, and we are now working on legislation.  It is not quite ready, but we are having conversations with those issuers.

Last, is at the infrastructure layer, the chain layer. Here, is a little bit of an unregulated space, and what the industry participants tell us is they need more out of this. Firstly, it needs to be interoperable, so the network set up around chains, and the public chains available today and that many may use, they need to be interoperable across networks, and potentially across different chains as well, so that the tokens and the liquidity around the tokens are not fragmented, it can be connected. Second, this infrastructure has to be compatible with compliance, enabling these tokens and the participants around them to comply with laws and regulations. That is hugely critical to make this programmable and compliance by design. That is where Global Layer One – another industry consortium that has been set up, with a core group of global banks, also market infrastructure providers coming in, working on these problems, and trying to solve them. These are the things that we are working on. We are very excited about the promise in asset tokenisation and these are steps that we are actively taking. 

Manisha Tank: It's interesting actually, that was a bit of a theme yesterday as well. You talked about harmonisation. Sometimes, on this stage, we can have very abstract conversations, and part of your mission is to make sure that we bring all of those abstract conversations into a real-world practicality, and we can understand the challenges around that.

Speaking of which, let's talk about Generative AI. This is a huge talking point, and this is a technology that can significantly impact businesses and therefore the world. So, the obvious question really, is around how MAS is going to be able to navigate that and also, what are your thoughts actually? How are you managing this? You can't really, but what are your thoughts on the expectations of financial institutions when it comes to how they're expected to use GenAI?

Chia Der Jiun: We're walking in step with each other. I think the issue is you don't want them to get too far ahead of the regulator, but you don't want the regulator to get too far ahead of the industry either. The sense of coming in too early with regulation that is not quite mature and not quite fully considered. So MAS has been taking these cautious steps. And again, it's been a collaborative approach that we're taking.

The first thing that we did with GenAI or AI is not to come in with regulations, but to set up industry consortium again. The focus and the purpose is to build up capabilities, both in the industry and in the regulator, that's really important. The AI journey, of course, is not new, it's probably at least 10 years in the making. What is new is GenAI, but the financial industry is very familiar with AI, traditional machine learning-based ones, and we have developed new processes and governance around how to manage AI. So, the trick now, is with GenAI. What is the delta? What is new? What needs to be done about it? The first step was to set up a consortium – we called it Project MindForge. We get industry together, sit down with us, and then we work through, what are the risks here? We go through the whole life cycle of this, from data collection, data processing, governance, down to development, deployment, monitoring, performance, and so on. What are the risks around the whole life cycle of that? Can we come together and agree on the common taxonomy and inventory of these risks so that we have a common language to engage each other on? So, that was the very first step, and that resulted in a publication, so we've done that. We did identify some of the additional risks in GenAI. We all know about the greater difficulty in terms of explainability and verification for GenAI. We know the issues around the hallucination accuracy, we know some of the risks around prompt injection attacks, for instance, data leakage and so on. So, it's additional risks that have to be taken into account. Then, the next stage, we're working now with the consortium is – knowing the risks, what does it mean for governance? That's what we need to do now, and the next stage is to publish some good practices in the area of governance, around the use of GenAI.

On the regulatory front, we started a step later, but now the process is in train, and we're working towards a set of guidance on model risk management, covering both the data as well as the model development, and subsequently the model deployment and monitoring work that has to be done to use this well, use this sustainably, and use this responsibly.

Manisha Tank: Okay, still a lot of development and evolution, though, to go on there, so that feedback loop, I would guess, is very important, and the kind of feedback that you'll get at events like this as well will be, I think, feeding into that conversation a little bit further. I think we're going to speak about [and] I'm sure you will speak about it many times in many panels in the coming years.

Let's move on to previous years because you have had experience in the Ministry of what was then the Ministry of Environment and Water, but now essentially a Ministry of Sustainability and the Environment, and sustainability is something that is very close to all of our hearts here in Asia. We only have to turn on the news every day to see the impact that climate change is having on our world, and it's very close by with our neighbouring countries, those in those multilateral groups that you talked about, and we've seen recent typhoons, this kind of thing, so it's very present in people's minds, but to get behind the kind of innovation and changes we need to see, we need sustainable finance.

So, I wanted to get some of your reflections on really, where you sit in terms of what is required and MAS’ role. What is the transformative role, do you think, of sustainable finance? And again, how is Singapore putting itself at the centre of that conversation? 

Chia Der Jiun: That's a critical question for all of us. It's an area where I think we have to remain hopeful, and we have to remain committed. There will be ups and downs with this and we have to see the trajectory of global policy on this.

But clearly, I think the momentum on the side of corporates and financial institutions remains on track. I think the momentum on the side of investors also remains broadly on track. So, we've seen, for instance, sustainable funds inflows continuing to grow, certainly so in the last year, growing quite healthily, around 10%. We're still seeing demand for sustainable loans and bonds growing, so I think that's also positive. We're seeing also policy directions still trending in the right direction. So, some of these, for instance, Singapore has announced its intention to raise the carbon tax over seven years, and other countries in this region have also mentioned the intention to introduce carbon taxes. So, these are all trending in the right direction. I think we'll have to keep the momentum there.

In terms of how the private sector and the financial community needs to work at this, I think we'll have to think about it in a few levels.

One, is that the capabilities need to be continually developed. We don't want capabilities to be a bottleneck. So, one of the first things that we have done, is to study the skills that are required in this area, so that when you do your loans and your bonds and are providing financial services across the board, you are able to have that layer of expertise that allows you to do so and to advise clients, whether they're corporates or investors on how to do so sustainably.

So, we've identified the skills that are needed, and there's now the initiative with the whole industry to really roll out the training that's needed to upskill the financial sector professionals, so that they're able to do all the structuring. So that's the first thing, and it will take, you know, the next couple of years to get this fully done, but there's already a great new structure of expertise here, and they're providing a lot of this into the region. The second thing is that we've got to keep momentum going through some regulatory actions. So, certainly, mandated climate disclosures will be part of it. They won't reach all corners of the economy quickly enough, I think that's the main issue. You always start with largest companies, the listed companies, and it will take time to filter through the supply chain and down to the smallest companies. And so, it will be some years away, but necessary to start this journey and keep the momentum.

Then, on the financial institutions side, it is also important for them to start the journey in terms of building the capability, in terms of how to engage their financing chain – not just the supply chain, but across all customers. And the way we prompt their thinking is to ask them to undertake transition planning, that they should all get started on this journey. We are not telling them the ambition level they should set, that is for them to consider, but really start the journey, build up the capabilities. Have these conversations with your supply chain, with your facilities, how are you decarbonising and what other pathways there are? So that is an important step to take.

Coming back to this point about disclosures, and that it is not going permeate every corner of the economy very quickly, there is a residual data gap that is a huge issue. So, banks would have difficulty engaging their customers, and customers have difficulty engaging the supply chains in terms of gathering all of that data. And so, it is an issue, and I think it is something that we all have to apply our minds to. I think the community here would be very helpful if they could apply their minds to this and find models to do this. So, MAS and GFTN have made a small contribution in this area. We’ve talked about this before, we launched Gprnt – this is an attempt to simplify, automate this data collection, enable even small companies to be able to start this journey of gathering data on their kind of exposures, and reporting them in a simple and automated way. But we need more help with this.

Manisha Tank: Yes, they need more help with this. So, feedback loop, it would be great if everybody contributes. We don’t have much time left, so I just wanted to finish on one quick little question. So, I had a question about quantum, but we won’t have time to cover it. I want to just put a question to the audience. Raise your hand if you think you know what quantum is all about? Like, literally, two or three hands up. Thank you, to those of you. I think what it underlines is either you're too shy to raise your hand, or it is an acknowledgement that we still have so much to learn.

So, while you are here, MD, what would you most like to learn at this year's SFF?

Chia Der Jiun: I've arranged to do a walk around after our session today. I’ll stay of course, for Governor Sethaput and Queen Maxima’s sessions, but I want to get a good feel about what the latest ideas are and what people are seeing and pushing and, you know, dreaming of. So, I think that's important. I don't have a particular area that I'm going to look at. I’m going to be very open minded, and I’m here to learn and absorb. 

Manisha Tank: That's great.

Chia Der Jiun: I might just leave one word about quantum. I think it's not too early. I think that's the thing that most people have in their minds. Because quantum computers are still in the lab, let’s be very clear about this, still in the lab and not at commercial grade and scale. But is it too early? No, it's not too early, especially on the security front. So, we have been warned about hackers already doing harvesting of data so that they can break it later when quantum technology is fully available. So, it's not too early, we have to look into security, post quantum encryption, as well as quantum key distribution. MAS is experimenting with those. In terms of use cases, quantum is going to give you that compute power that is just exponentially greater than classical computers, and so, it's not too early to think about how potential use cases could be there. It's not there yet, but useful to start the journey.

Manisha Tank: Well, if you want the resources to learn about quantum, this is the place to do it. We’ve got various stages where you can deal with it. But in the meantime, MD, I just want to say thank you so much. I know you’ve got a full slate and that you’ll be meeting lots of people today, so it was great to have this conversation with you.