What will the financial world look like in 2028?

Ravi Menon, Managing Director of the Monetary Authority of Singapore, engages in this so scenario planning for financial sector in 2028.

The speech is titled:  Financial regulation – 20 years after the Global Financial Crisis. Mr. Menon says in these 20 years we have also seen another crisis in 2023 which he terms as  Global Cyber Crisis of 2023!

Mr Mark Gould, Acting President, Federal Reserve Bank of San Francisco, Ladies and gentlemen, friends and colleagues, good morning. And welcome to the Symposium on Asian Banking and Finance 2028. 

It was 13 years ago, in 2015, that the Federal Reserve Bank of San Francisco and the Monetary Authority of Singapore (MAS) began this collaborative journey of organising this Symposium.

  • Let me, on behalf of MAS, thank Mark and his colleagues at the San Francisco Fed for the fruitful partnership and warm relationship over the years.

This Symposium began in 2007 to consider the lessons learned from the 1997 Asian Financial Crisis.

  • Since then, we have lived through two other major crises – the Global Financial Crisis of 2008 and the Global Cyber Crisis of 2023.

Today, I would like to take stock of the evolution of financial regulation over the last 20 years, since the Global Financial Crisis.  I think three broad themes characterise this journey:

  • first, fixing the fault lines that led to the Global Financial Crisis;
  • second, managing the risks posed by FinTech while harnessing its benefits;
  • third, defending against systemic cyber risk.

He looks at several ongoing and futuristic themes. One actually feels it is more a speech on technology than finance

For instance on DLTs:

Experiments in applying distributed ledger technology to financial services began about 15 years ago and gathered pace from about 2018 onwards.  The early days were characterised by both hype and fear.

  • Popular imagination and regulatory concerns were focused on so-called crypto currencies or assets – essentially crypto tokens which assumed a life of their own as means of payments or investment assets outside the distributed ledger.
  • But the euphoria did not last long.  Crypto tokens failed to achieve scale as more people realised that they did not have the properties of either currencies or assets.
  • Today, crypto tokens are confined to specific purposes and limited ecosystems.

But after several false starts and failed use cases, the underlying distributed ledger technology or DLT started making significant inroads in the financial industry. 

  • Essentially, DLT made financial transactions and processes more efficient, more transparent, less risky, less costly. 
  • The three areas that saw the biggest transformations were in compliance, trade finance verification, and cross-border payments.

As DLT systems became more pervasive, they began to assume properties of critical infrastructure with systemic implications.

  • There were information security-related risks as well as operational risks associated with interoperability across multiple platforms.  
  • While strong cryptography is a feature of DLT systems, they are not immune to cyber-attacks through the widely distributed network of participants.
  • And old-fashioned risks like not having enough liquidity to settle transactions can potentially lead to gridlocks in DLT systems which could, in turn, cause systemic risks.

The trigger for a co-ordinated regulatory response to DLT came in the cross-border payments space. 

  • In 2020, the Bank of Canada and Monetary Authority of Singapore successfully piloted a cross-border DLT-based system that achieved almost real-time fixed income securities trading and settlement.
  • Under the Global Payments Accord of 2024, central banks agreed to upgrade their real-time gross settlement systems to a DLT-inspired infrastructure with a view to connect these systems for safer, faster, and more efficient cross-border payments and settlements.
  • This called for internationally accepted standards for DLT-based payment systems.

The FSB and standard-setting bodies worked closely with the newly-formed International Organisation for Distributed Ledger Standards to design a supervisory framework for DLT.

  • DLT networks that performed key market functions like clearing and trade reporting were required to meet specified standards for settlement finality and the security of digital asset custody.

In the end he says, time will tell whether I was anyways close to these scenarios..

Everything said here about the future is pure imagination; it is neither a forecast nor a recommendation, by me or the Monetary Authority of Singapore. My intention is merely to paint a plausible scenario for the future of financial regulation, as food for thought for this Symposium. In all likelihood, the Symposium of 2028 will find my account lacking in imagination or realism or both.  The truth will be stranger than fiction.

Good stuff..

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