The 2023 Singapore FinTech Festival (SFF2023) brought a hive of activity and excitement to the region. Financial and compliance leaders came in droves to connect, share ideas, and learn about the latest developments across the financial and regulatory landscapes.
The MCO team had thought-provoking conversations with customers, FinTech partners, and new faces at the event. The use of tech and AI in finance to minimise financial risk and strengthen regulatory compliance was a recurring theme throughout SFF2023.
Here are some of the top discussion points.
How MAS Is Using AI to Keep Singapore’s Financial Sector More Secure
SFF2023 brought forward critical discussion points about the intersection of policy, finance, and technology. At a time when many financial firms are exploring the use of AI, The Monetary Authority of Singapore (MAS) is trailblazing its practical implementation.
The Monetary Authority of Singapore (MAS) published a parliamentary reply on 03 Oct that addressed the use of AI in its supervision of financial institutions (FIs). The regulator says that the advancement of data analytics techniques like artificial intelligence and machine learning (AIML) has “expanded the toolkit for MAS to make better sense of the various risk signals in the voluminous data it receives.”
MAS has already developed tools that use machine learning to improve its risk targeting for supervisory and enforcement actions. The regulator notes that it has “trained a machine learning model, using traits identified by human experts, to analyse market trading data to help enforcement officers identify and prioritise potential market collusion or manipulation for investigation.” This implementation of machine learning (a subset of AI technology) is helping MAS supervisors more effectively identify outliers, such as financial advisory representatives at higher risk of exhibiting bad behaviours.
The regulator has also integrated natural language processing (NLP) models to help its supervisors operate more efficiently. MAS’ use of NLP analyses reports submitted by FIs and immediately flags potential issues for further investigation by its supervisors. Additionally, MAS uses NLP to scan social media, industry reports, and analytical media reports to identify emerging news and developments needing supervisory attention.
Lastly, MAS also uses AI and machine learning technologies to uncover networks of suspicious activity in Singapore’s financial system that show indicators of potential money laundering, terrorism financing or other financial crime activity. MAS says it then proactively engages FIs to “warn them of potential threats and to assess the robustness of their controls”.
It is clear that AI technologies have a long-term role within MAS’ regulatory framework. Mr Lawrence Wong, Deputy Prime Minister and Minister for Finance, and Chairman of MAS, comments, “MAS will continue to explore how latest technologies, including AIML and generative AI solutions, can be deployed responsibly and securely to enhance financial supervision.”
Technology Is Driving Early Detection of Regulatory Breaches
64% of business leaders in Singapore say financial risk is currently their top concern, indicating concerns about the near-term market. This alarming figure is part of the FIS Global Innovation Report, which surveyed more than 2,000 business leaders worldwide and includes Singapore data from executives of financial institutions, securities and investment firms, insurers, fintechs, and other sectors.
According to the report, firms in Singapore indicate a significant investment in AI, with 51% and 57% saying they have adopted AI and generative AI, respectively. For financial firms, the focus on leveraging technology to detect and minimise risk is evident in these findings.
From a regulatory perspective, MAS also uses an augmented intelligence system to analyse suspicious trading activities and provide earlier detection of potential market manipulation.
The regulator says it aims to leverage e-Discovery technology to enhance investigations that rely on large data sets. Outcomes that MAS says the e-Discovery framework strives to provide are:
- Improving the efficiency and effectiveness of handling large volumes of data throughout the investigation process with collaboration, streamlined document review process, advanced search capabilities, automation and data analytics.
- Improving MAS’ ability to adhere to legal requirements when handling documents with sensitive or confidential information.
Analysis and prediction at the early stages of investigation should result in faster detection of regulatory breaches. MAS says the e-Discovery system will also “complement human decision-making abilities through augmented intelligence”.
Additionally, the regulator highlighted its use of e-Discovery in its latest 2022/2023 Enforcement Actions Report. It may be no coincidence that this year’s report revealed 32 more criminal convictions and $18.1m more penalties over the previous reporting timeframe.
See our summary article about the MAS Enforcement Report outcomes for further details.
How Firms Can Use AI to Satisfy Know Your Obligations Needs
The financial services sector is heavily regulated. Within a complex landscape, firms must ensure compliance with the evolving requirements and expectations of regulatory authorities. However, regulators are constantly making policy and compliance requirement changes – often with little notice. Firms must, therefore, stay on top of their obligations and ensure internal policies and procedures align with current regulatory requirements.
For a firm’s compliance team, keeping pace with rapid regulatory change can be challenging. Compliance functions must be across a broad range of requirements, including risk management processes, policy governance, cryptocurrency and digital assets, ESG, consumer well-being and protection, and standards of conduct.
Just this year, we’ve seen the Monetary Authority of Singapore (MAS) update policies and advisements such as:
- A Ban on Payment for Order Flow (PFOF) to reduce CMS broker conflicts of interest.
- New Expectations of Financial Institutions' Advisory Activities for public company IPOs.
- Revisions of FAA and SFA Competency Requirements to ensure FI’s representatives remain “fit and proper”.
Firms operating across multiple jurisdictions face an even greater task. Trying to keep up with the sheer volume of information can be daunting for any compliance team.
At SFF2023, there was much talk about how firms could more effectively satisfy Know Your Obligations (KYO) requirements with emerging technology. In particular, the incorporation of AI technology within horizon scanning tools gained much interest from delegates attending the event.
MyComplianceOffice (MCO) already uses Natural Language Processing (NLP) within our regulatory Horizon Scanning tool. NLP is a form of AI technology that incorporates computational linguistics with machine learning models to understand large amounts of human-written text.
Part of the Regulatory Change Manager (RCM) module, MCO’s Horizon Scanning tool reads legislation and regulator’s rules to understand and identify obligations that apply to financial firms. The module’s NLP engine extracts and classifies relevant obligations from regulatory rulebooks, quickly identifying requirements that would take many human hours to sift through, extract the relevant data, and understand the implications.
By reviewing and categorising critical sources of information, including regulatory news, legal documents and enforcement actions, the RCM module provides firms with an automated approach to meeting obligations and ensuring regulatory compliance.
Client using the RCM gain:
- Daily regulatory alerts and updates.
- A wide range of global regulatory coverage.
- Access to a regulatory reference library.
- The ability to set custom rules and preferences.
- Links to internal rules and policies.
With its wide range of global regulatory coverage, one of the RCM module’s key benefits lies in its ability to conduct complete AI-based tagging of documents. Regulatory updates are intelligently analysed and tagged by the system so users can search and work on the most relevant items without needing time-intensive manual tracking.
AI-Driven eCommunications Surveillance
Another recurring discussion topic at SFF2023 was the use of AI-enabled technologies to identify high-risk communications.
Employees within financial firms are now communicating across multiple electronic devices using numerous applications, such as WhatsApp, WeChat, Facebook Messenger, and many others. Bring Your Own Device (BYOD) policies add even more complexity, making eCommunications surveillance an increasingly difficult task.
When implementing or reviewing eComms surveillance processes, firms should pay particular attention to the following areas:
Reporting
- Have adequate record-keeping processes in place to provide maintenance of surveillance records and documentation.
- Ensure proper storage of all voice and eCommunications data to enable fast reporting if further investigation is needed or if requests from regulators are received.
- Make periodic reports with surveillance metrics available for senior management to review.
Analysis
- Analyse key data sets (such as trade data) in conjunction with voice and eCommunications data to help detect suspicious patterns and behaviours.
- Define your internal processes around when the analysis of suspicious activities should be escalated and the actions that should be taken.
- Review and analyse the quality and accuracy of alerts, closures, and escalations.
Automation
- Your surveillance process should be automated to help compliance teams analyse and identify potential issues data most effectively. Don’t leave breaches falling through the cracks due to manual processes.
- Make sure automated alert processes match your criteria and assessment for flagging potential issues, your escalation policies, and the closure of alerts and escalations.
Communications compliance software can help your firm prevent, detect, and measure potentially harmful, unethical, or unlawful messages from being sent.
MCO’s AI-driven eComms Review module detects and measures potentially harmful, unethical, or unlawful messages and even helps prevent the sending of those messages. The solution automatically identifies unapproved communication channels and regulatory risk and prompts employees to change their language as they type words and phrases that trigger compliance policy exceptions.
Leveraging Technology to Minimise Financial Risk
As the pace of technology innovation continues at a blistering speed, financial firms must understand their technological capabilities in detecting and deterring unethical and illegal behaviours of employees – and their options to enhance risk mitigation.
By leveraging RegTech (Regulatory Technology) solutions such as MyComplianceOffice (MCO), firms can more effectively identify financial risk and help prevent regulatory enforcement actions.
MCO provides a consolidated platform for compliance teams to uphold regulatory compliance requirements and reduce risk across various areas, including:
- Trade surveillance
- MNPI disclosure
- Personal account dealing
- eCommunications surveillance
- Close personal relationships
- Attestations, registrations and licences
- Outside business activities
- Gifts, entertainment, and hospitality
Request your no-obligation demonstration of the MCO platform or further explore strategies to reduce risk and strengthen your overall compliance management process with our complimentary eBook, The Ultimate Guide to Conflicts of Interest.
