A holistic approach to reinventing finance

Singapore stands out as a South East Asian success story - a small country that punches above its weight in economic, geopolitical and financial matters, currently ranked as the third financial centre in the world behind New York and London.

It maintains its position through a combination of shrewd policy-making and a proactive approach to industry collaboration, encouraged by the Monetary Authority of Singapore (MAS), the country’s financial regulator.

The term regulator brings to mind a conservative, compliance-focused institution whose main task is to ensure corporate entities do not put profit before risk. And it does that. But MAS takes a notably progressive approach - one that actively promotes innovation and facilitates collaboration.

“The way our regulator operates is not as a conventional regulator. It’s not only putting up guardrails, protecting the financial ecosystem, but really enabling it. And that’s exciting,” says Shayan Hazir, chief digital officer at HSBC, recently named the best bank for digital solutions in Singapore for 2023.

HSBC, MAS and the wider financial ecosystem in Singapore, are pursuing four technology strategies : namely, generative Al (GenAI), blockchain, quantum computing, and mobilising fintech to tackle sustainability and help plug the $6trillion funding gap identified by McKinsey to achieve net zero by 2050.

Heng Swee Keat, Deputy Prime Minister for Economic Policies in Singapore, expanded on some of those strands - Al, blockchain and ESG - at the 2023 Point Zero Forum (a high-powered thinktank of banks, regulators, and industry leaders brought together by the Swiss government and the Singaporean not-for-profit Elevandi, which focusses on technology innovation and its adoption in financial services).

Central to his speech was the importance of fostering a ‘spirit of collaboration and co-creation [which] will best enable us to ride new waves of opportunities afforded by technology, while collectively guarding against downsides and unintended consequences.

Some of the technologies to which he was referring have, of course, already been widely implemented. HSBC has, for example, most recently deployed Al to help increase the impact of anti-money laundering efforts, working in partnership with Google Cloud to detect and reduce risk and even identify criminal networks.

Other examples include Project Epsilon, a blockchain-based solution targeted to help the real estate industry streamline their end-to-end processes with their suppliers, and the recently-launched Zing, a multi-currency payments app which allows members to send money internationally across more than 30 currencies, and spend across the globe.

HSBC’s Hazir believes there’s much, much more, though, to be achieved by applying all the above technologies holistically and less as siloed, standalone tools.

“We need to breathe imagination and creativity into the design of financial products on a first principle basis,” he says. “Start with the intent of meeting the needs of consumers and corporates, and assessing needs in today’s context.

“Most of the models of financial products are decades-old and need to be reimagined with today’s technology. There is no sense in building new technology based on historic, antiquated design.

“There are significant inefficiencies in old, traditional financial systems, which can be redesigned and rewired, because we have the capability to make them more accessible, scalable, safer and more efficient.”

In effect, he’s saying let’s design products and experiences that are fit for purpose, and then build the technology behind these new capabilities. And that means industry-leading banks and fintechs must create an environment where pioneering technologies like AI, DLT and quantum computing can cross-benefit one another and thrive, says Hazir.

At the same time, they must not lose sight of the real-world problems they are being used to solve. Honing in on the areas of focus for HSBC, he says : “Commercial use cases around blockchain and DLT are extremely exciting, and we’re going to see some amazing innovations in that space.

“Artificial intelligence is not all about generative Al, although it is a ‘tipping-point technology’ that’s brought it into the mainstream and created an opportunity for people to get hands-on with Al. We must however ensure that we provide the right safeguards so it is safe and responsible in nature.

“Then there is sustainability - not only from a perspective of transition finance, but also data and the platforms that are going to make a huge difference in data orchestration and disclosures - which is a very current topic because there are so many different standards.

“Further down the line, but still relevant, is quantum computing. A recent study said that for certain Al-related tasks, a quantum computer was over 180 million times faster than a classical computer - that changes the game for what we can do with data and Al.”

Hazir stresses : “It’s important that we don’t look at these four in isolation but in confluence. That, to me, is what’s missing right now, and is something that we need to push forward.”

There’s the unexploited positive confluence of these innovations, of course, but perhaps Hazir is also encouraging his colleagues to ask more of the ‘what happens when’ type questions about the impact on organisations and society more broadly, when all these innovations mature and exert a combined effect.

It is, after all, at the intersection of technologies, that both great and disastrous things happen. Al didn’t get very far in the commercial world without Cloud and big data, but now look at the potential power for good and, well, not so good, that we’re now all debating.

“We’ve got to whiteboard the solutions now for this future that we are all trying to define together,” says Hazir.

“Whether that’s going to be fintechs, or technology companies, or other banks, we have to be absolutely open to collaborating - and HSBC is fundamentally open to that as being the way forward for all of us.”

HSBC & MAS : pioneering innovations

HSBC is among a number of partners across the finance landscape working with MAS to get to grips with some of the most dynamic emergent technology available.

Project Guardian attempts to bring distributed ledger technology (DLT) to Singapore’s $4trillion asset management industry. The project has three objectives : to run industry pilots with traditional financial institutions and fintechs to understand opportunities and risk areas; assess longer-term transformational impact and aim for safe development of an ecosystem; and establish policy guidelines and a framework.

HSBC, Marketnode and UOB have run a pilot, testing the issuance and distribution of a digitally native structured investment product. If successful, this will allow financial assets to be broken down into their constituent parts, making them more accessible to smaller-scale investors.

Those behind the project are looking to establish a common layer of independent trust anchors, ensuring independently verifiable proofs of ownership. Once achieved, the project seeks to represent securities in the form of digital bearer assets and back these with regulatory safeguards to ensure market manipulation and operational risk are minimised.

Project Mindforge seeks to build a risk framework for leveraging the power of generative Al in the financial sector. Much ink has been spilt highlighting the industries, processes and roles that will enjoy boosted productivity thanks to GenAl, but issues pertaining to data risk, inbuilt model bias and potentially more cybercrime pervade many of these discussions.

With Mindforge, HSBC and MAS set out to define rules for the responsible use of GenAl, with a view to spurring GenAl-powered innovation that doesn’t destabilise or undermine trust. Along with a consortium of industry heavyweights that includes Accenture and The Association of Banks in Singapore, they have defined seven ‘risk dimensions’ for guiding A1 development.

Project Gprnt, pronounced ‘Greenprint’, aims to create a digital infrastructure and ecosystems for green and sustainable finance. It has three objectives: to grow a vibrant green fintech ecosystem in Singapore and beyond; to drive partnerships across various stakeholders in the green finance space; and to develop trusted data flows for ESG information.

A Gprnt Marketplace seeks to connect green fintech and green technology providers to investors, financial institutions and corporates, while an ESG Registry - an initiative to utilise blockchain to record and maintain the provenance of ESG certification - will eventually be built with a view to applying this certification to industries including rubber production, palm oil extraction, aquaculture and more.

This piece was first published in Fintech Magazine on 23 February 2024.