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APAC Regulators Driving Digital Transformation

The pandemic has made it abundantly clear that digital transformation is no longer optional, says Fenergo’s Rachel Woolley.

We often refer to the Global Financial Crisis of 2008 as a turning point for the financial services industry, after which there was a sharp rise in regulatory requirements placed on banks in order to improve transparency. Similarly, the global COVID-19 pandemic will no doubt be remembered as the defining historical moment which forced banks around the world to switch to digital overnight.

The COVID-19 pandemic has not only altered the way banks do business, but in some instances it has meant banks have been unable to service new clients altogether. Mandated work from home requirements and multiple branch closures have left banks that relied on manual and in-branch onboarding processes high and dry; separating those with existing digital capabilities into the ‘haves’ and ‘have nots’ of the banking world.

In addition to a strain on already tight resources, the global pandemic has prompted a sharp increase in COVID-19 related fraud and financial crime, with criminals exploiting heightened anxiety and vulnerabilities during the pandemic. Not only have banks had to deal with inadequate legacy systems that aren’t equipped to manage a predominantly remote workforce, but they must also deal with the evolution in financial crime.

In response, financial regulators across APAC have actively encouraged financial institutions to explore alternative ways of doing business, promoting the adoption of regtech and digital technologies as a best practice during this time of disruption.

Regulatory push to digitalise

Prominent financial regulators within APAC, such as the Hong Kong Monetary Authority (HKMA), the Monetary Authority of Singapore (MAS) and the Australian Transaction Reports and Analysis Centre (AUSTRAC) have all been touting the benefits of digital transformation throughout the pandemic.

In a recent newsletter, the HKMA acknowledged that while technology helps to enhance the overall customer experience, there is also a risk that technological advancement may be exploited by criminals. It suggested that financial institutions invest in regulatory technology (RegTech) in order to efficiently comply with anti-money laundering (AML) and counter-terrorism financing (CTF) requirements, citing remote account opening, transaction monitoring, automation of risk management practices, and network identification as some of the best use cases for such technology.

In Singapore, MAS has published guidance to the financial services industry and consumers alike, encouraging the use of digital financial services and e-payments. Indicating long-term support for digital operational resilience, MAS also launched a series of financial supports intended to encourage and support the adoption of digital solutions.

As Australia went into lockdown, AUSTRAC recognised the difficulties social distancing placed on meeting customer verification obligations. The regulator recommended that financial institutions implement digital onboarding wherever possible, providing a detailed list of alternative ways to verify customer identity.

Similarly, the Financial Action Task Force (FATF), the global money laundering watchdog, released a statement encouraging financial institutions to adopt financial technologies during the pandemic, particularly contactless payment options and digital onboarding processes to help reduce the spread of the virus. The FATF also highlighted the importance of considering flexible measures in line with a risk-based approach, encouraging financial institutions to consider its guidance on Digital Identity to embed “trustworthy digital identity systems” into payments infrastructure.

Just as the ever-increasing number of regulatory requirements have helped shape the financial services sector since the 2008 financial crisis, regulators are once again acting as agents of change. By encouraging the adoption of digital technologies, they will play an active role in completely transforming the banking industry.

Challenging mindsets

Despite the obvious benefits of digital transformation, it is not quite as simple as flicking a switch. If it were, every bank in the world would already be fully digitised, their processes perfectly automated with minimal human input.

The fact is, however, that digital transformation isn’t just about the technical changes; it’s about disrupting processes. Yes, new technologies can streamline existing processes, shaving weeks’ worth of work into a series of clicks. But automating these processes also means you remove decision making powers from people, and that in itself poses its own set of unique challenges. Digital transformation can enable responsible automation and should be aligned with a risk-based approach that enables finite resources to focus on areas that require subject matter expertise.

However, despite an understandable resistance to change, this pandemic has made it abundantly clear that digital transformation is no longer optional.

We don’t know how long the pandemic and resulting social distancing measures will last. But it’s unlikely that when life returns to normal, banks that embraced new technologies during the pandemic will revert back to manually driven processes. Similarly, initial research suggests that customers have embraced a digital mindset when engaging with their financial services provider.

Not only will financial institutions be finally reaping the rewards of faster processing times and increased efficiencies, but customers would never relinquish the seamless customer experience that digitised processes and automation offers them.

Financial regulators may not see eye to eye on every issue, and regulatory requirements may vary from country to country. But the push for digital transformation is a message that unites regulators across APAC – and indeed the world. There has never been a better time to adopt innovative technology that will automate and transform processes for compliance and onboarding. For those that fail to do so, the future will remain uncertain.


Article by Rachel Wooley & Regulation Asia

Rachel Woolley is Director of Financial Crime at Fenergo.

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