BNM logo

MyFintech Week 2019: BNM to establish innovation lab and threat intelligence platform

Whilst officiating Malaysia’s first Fintech Week at Sasana Kijang, Governor of Bank Negara Malaysia (BNM), Nor Shamsiah Yunus, called for a financial system that is relevant, safe and socially responsible.

After pointing out the five megatrends in finance; these five being ASEAN’s rising prominence, climate change risks, rising income inequality, more populism and protectionist policies, and advancing technology; she had said, “These five megatrends and finance are deeply intertwined. While undoubtedly, finance has helped to power the economic rise of ASEAN, its role in contributing to an increased climate risk and in equality, cannot be denied.

“Therefore, as we consider the future of finance we need to contemplate not only how these megatrends may impact finance, but how finance itself can respond to and shape these trends in more positive ways moving forward.”

Relevance, safety and social responsibility

Nor Shamsiah opined that finance is being relevant when it offers suitable, cost-effective and quality financial products and services for all segments of society. “It must also respond to the changing demographics and structure of the economy. “For example, as we move towards becoming a digital economy the financial sector must accord adequate support to innovative SMEs, such as those involved in e-commerce.”

The central bank governor also advised against excessive risk-taking which can create instability. “Finance must not sow the seeds of its own destruction and not serve as an amplifier of risk to the economy. “

There is also greater need for finance to be socially responsible, and because it holds the trust of society as well as have substantial influence over economic agents, financial institutions can and must assert leadership in a world which continues to neglect equitable development and displaced communities resulting from a rapidly deteriorating environment.

Technology’s key role in revolutionising finance

The magnitude of technology’s impact upon the financial system, is now much greater than before. The BNM governor said, “Fintech hold enormous potential to enhance competition, increase productivity, address unfulfilled consumer demand and fundamentally change the way institutions provide financial services – in ways we may not even have fully discovered.”

But she also cautioned against the potential risk associated with technology, for example fintech and big tech firms that pose potential system-wide vulnerabilities, as well as increasing reliance and concentration on third-party service providers to support critical functions, that could increase operational vulnerabilities.

BNM: Balancing innovation and risk

According to Nor Shamsiah, “We are also mindful that the calls we make in regulating and supervising the industry can themselves sometimes, restrain innovation.“BNM’s responses to new financial technologies will continue to be primarily concerned with the risks they pose to financial stability and consumer protection.” Recognising that innovation without stability ultimately destroys value, confidence and the future, BNM has come up with 2 plans of action.

The first is the building of interoperable infrastructures. “This will start with open and fair access to a shared payment infrastructure for banks and non-banks alike.” To fully harness this, requires other elements to be in place, for example a national digital identity system, a framework for open APIs, open banking and a clear cloud policy.

The second initiative is a Financial Threat Intelligence Platform that is slated to be operational by end of the year, and also a dedicated innovation lab. The intelligence platform will collate, analyse and disseminate real-time information on threats and trends, while the lab will create and prototype solutions to clearly defined problem statements.

Nor Shamsiah acknowledged that managing technology risks is not just an operational matter, and that it is a strategic matter with high stakes for organisations, the industry and the economy. “Our response should be commensurate with these stakes.”

Last March, BNM had released an exposure draft for Risk Management of IT in the Financial Services sector. The document is expected to become policy, by around this time of the year. At a glance, the document had touched upon these 5 broad areas, namely: 1. board and senior management responsibilities, 2, designating a chief information security officer (CISO) role 3. data centres 4. cloud services 5. third-party outsourcing.