My Opinion: Leveraging Technology to Strengthen the Integrity of the Malaysian Market

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As the financial services industry continues to grow in terms of the complexity and volume of data processed, the adoption of technology to improve regulatory compliance (regtech) has grown from a tool that large enterprises can use to streamline transactions. operations and reduce costs to an effective compliance requirement. However, there is still a lot of confusion about what exactly is called regtech and how it can be used effectively.

To begin with, it is important to distinguish between regtech and supervisory technology (suptech). Regtech refers to the applications of technologies that support the compliance of regulated financial institutions with regulatory requirements. These technologies monitor trade, prevent market abuse and meet reporting obligations. In contrast, regulators use suptech to oversee capital markets and their participants.

Why adopt regtech

Indeed, regtech enables both regulated entities and regulators to make better use of data and transform day-to-day oversight into actionable information that can be used to protect consumers and the financial industry as a whole. Typically, regulators promote a mix of regtech enablers to help drive their implementation in their given markets. These include:

• Accelerators, or “technology sprints”, which support the development of innovation for the internal needs of authorities in terms of both regtech and suptech.

• Regtech information sharing which results in regular interaction with the industry and facilitates industry-wide discussions on Regtech innovation through forums, newsletters and festivals.

• Regulatory guidance that helps high technology companies navigate regulatory requirements.

• Regulatory “sandboxes” where new regtech products or services can be tested in a controlled environment.

Existing Malaysian forums where regtech are promoted, such as the Malaysian Securities Commission SCxSC Fintech conference, could be further expanded through events such as hackathons or techsprints.

In the UK, where regtech has been more widely adopted by capital market intermediaries, we have seen a significant reduction in compliance costs, the ability to identify issues or negative trends earlier in their manifestation, and better data to support remediation and discussions with the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA).

What regtech could mean for Malaysia

As we examine the megatrends shaping the Malaysian economy, from the growing movement for climate action to the rise of the stakeholder economy and greater technological and digital acceleration, it is more important than ever that financial services markets operate as efficiently as possible. The relationship between regulated entities and oversight bodies will continue to strengthen as more data sharing is required and facilitated in real time. The use of advanced analytics to monitor the markets will become commonplace.

There is an emerging ecosystem of new technology providers in Malaysia’s financial services industry, including businesses ranging from payments, e-wallets, markets, lending, crowdfunding and remittances to richtech, l ‘insurtech, proptech and regtech to blockchain / crypto and AI / data. solutions. This ecosystem will provide the cross-pollination of ideas necessary to promote innovation and the development of new technologies applied to Malaysian capital markets.

The increased use of regtech will enable Malaysian capital markets to emerge stronger from the pandemic by enabling financial institutions to improve and adapt new technological solutions to the ever increasing requirements for compliance within the financial services industry. As in other rapidly evolving countries, new regtech solutions can enable Malaysian financial institutions to improve their regulatory reporting, risk management, identity management, control, compliance and transaction monitoring.

In fact, within regtech, several participants in Malaysia have already started deploying regtech solutions in areas such as Know Your Customer (KYC), anti-money laundering filtering and transaction monitoring. The SC and the various market players should continue to engage in identifying areas where regulatory technologies have the greatest impact and could be effectively adopted by capital market intermediaries in the country.

With state-of-the-art regtech solutions, Malaysia’s capital markets will be more efficient and efficient. In turn, they can play an increasingly important role in the country’s future, enabling prosperity and encouraging inclusion.

How capital market intermediaries can embrace regtech

As capital market intermediaries continue to become more complex and their systemic profile similarly grows, they will have to adapt to new data-intensive demands. Their investors and counterparts too.

Specifically, some key factors have led to increased oversight of market intermediaries and a need for innovative regtech solutions packages, including:

• Increased awareness of the interconnectivity of customer networks and the system-level impacts of a loss of service (including indirect impacts to regulated customer activities such as reconciliations and portfolio valuations).

• Strong strengthening of requirements for handling and distributing large volumes of customer data, real-time or benchmark (including authorization protocols and license agreements).

• Emerging examples of vulnerabilities within suppliers / intermediaries that impact customers in regulated markets.

• Push supervisors for clients to strengthen third party risk oversight, including monitoring and questioning intermediary performance against defined business requirements / service level agreements.

This demand combined with Malaysian entrepreneurial and technological spirit has already resulted in an ecosystem ready to respond to and develop significant start-ups and scale-ups in the regtech space. But this is only the beginning. Three opportunities exist to further improve regtech adoption:

1. Facilitate a regtech ecosystem through coordinated knowledge sharing, alignment of priorities and enabling infrastructure. Create both the sharing forums as well as the infrastructure required to share information between private and public sector entities in real time.

2. Promote and enable more data sharing through legislation and regulations. This will remove friction from the system and improve information sharing from the private to the public sector, between financial institutions, and between regulators and supervisors. Greater use of privacy protection technologies will also ensure that the demands for greater data sharing are balanced with the need for individual privacy.

3. Finally, by providing financial support, via government grants and by promoting investment in venture capital and private equity. This will entail the investments needed to attract entrepreneurs to the space and create a supporting ecosystem that will allow businesses to thrive through seed investments in large-scale businesses.

As recent successes in other markets highlight, Malaysia should promote greater adoption and financial support for regtech, while reducing administrative barriers to start-ups and scale-ups. The more the use of regtech technologies expands, the more robust and efficient the country’s capital markets will become.


Lisa Quest is a Senior Partner at Oliver Wyman and Co-Head of Public Sector Practice for Europe

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