Small but Nimble: The Future of Regulatory Compliance for Smaller Financial Firms in Singapore

By Grace Wong


In this rapidly evolving financial regulatory landscape, smaller financial firms continue to face challenges in navigating the complex regulatory environment. In recent times, we have seen the Monetary Authority of Singapore (“MAS”) meting out more incentives and grants to smaller financial institutions (“FIs”) to help them undergo deeper transformational business and operations upgrading, innovation and internationalisation. 

Most recently in August 2023, MAS announced that it will commit up to $150m over three years under the renewed Financial Sector Technology and Innovation Scheme. One of the key pillars of the scheme is to continue to support advanced capability development and adoption in Artificial Intelligence and Data Analytics (AIDA) and Regulation Technology (RegTech). Specifically, MAS will focus on promoting AIDA adoption in smaller financial firms and supporting the needs of less digitally mature firms looking to acquire RegTech solutions. 

Generally speaking, the MAS defines smaller financial institutions as those with an employment size of not more than 200 employees. Due to their limited size and resources, it is widely conceded that smaller FIs face unique challenges in navigating a myriad of compliance requirements. As technology continues to shape today’s world and industries, including finance, the future of compliance holds both challenges and opportunities for these smaller players. Smaller FIs have limited resources and face the uphill challenge of a mismatch in the demand and supply of compliance talents and resources available to them.

In addition, regulatory expectations and requirements continue to evolve and become more complex over time. However, with technological advancements, the proactive adoption of innovative strategies can empower these smaller firms to meet regulatory demands sustainably, while remaining agile and competitive.

Embracing Technological Advancements

Today, technological advancements are levelling the playing field for all, particularly smaller companies. The adoption of technology potentially allows smaller FIs to operate with the same effectiveness and efficiency as larger corporations. These smaller outfits are small but nimble. Consequently, they can spring to adopt technological solutions more adeptly and efficiently, without the legacy and institutional baggage that oftentimes come with bigger institutions.

With technology, there can be increased automation and digitalisation of typical compliance processes to streamline operations. Cloud technology continues to be a game-changer for smaller FIs as they offer accessibility, scalability and cost-efficiency, as well as the integration of big data analytics to augment the compliance function further. AIDA can be increasingly adopted as a powerful way to generate insights and facilitate decision-making for smaller FIs. 

Firms can use data analytics to analyse customer behaviour, voluminous transactions and various data points for signs of suspicious activities and anomalies. These insights help in identifying potential compliance issues early and allow firms to take appropriate action. In addition, firms can utilise Artificial Intelligence to assess risks, predict and analyse vast amounts of data, and even pre-empt potential breaches. Further down the line, more advanced applications can harness the power of deep learning e.g. ChatGPT, to provide profound analysis for high-level Q&As regarding complex compliance issues and regulations.  

RegTech: Working Smart

RegTech is a current catalyst driving change in the compliance landscape.

RegTech solutions allow for increased automation and efficiency, removing (automating) manual and highly repetitive compliance tasks to ensure consistency in the quality of work and allow firms to tailor solutions to their specific niche and needs. There can be automated tools to streamline data collection, leading to the centralisation and management of records, allowing for real-time risk assessment and monitoring, reporting, audit trails and more. 

One huge advantage RegTech solutions offer is customisation, where one size does not fit all. Smaller FIs can expect to see an increase in tailored compliance solutions as technology allows for the creation of modular systems, allowing firms to adopt tools that address their specific regulatory compliance needs and concerns. Taken together, the future sees technologies becoming more intuitive and empowering for firms, even more so for smaller FIs who can take advantage of technology to even the playing field.

Outsourcing: Expertise on Demand

Besides employing technological advancements, smaller FIs can up their game by way of strategic outsourcing. Smaller firms can leverage the expertise of third-party providers who specialise in compliance and have the expertise in interpreting and implementing intricate regulatory requirements. 

The outsourcing approach provides access to compliance expertise to supplement in-house capabilities, if any; and offers cost-savings compared to maintaining a dedicated in-house compliance function. This in turn allows smaller firms to focus on their core competencies and business growth, while ensuring that compliance is vested in the hands of specialised compliance professionals.

In conclusion, the advent of technology is a real advantage for smaller FIs in Singapore and presents opportunities like never seen before. By embracing a good balance of technological solutions and compliance services outsourcing, smaller firms can achieve much efficiency and potentially achieve a competitive edge compared to their bigger counterparts. 

Smaller FIs are now receiving more support from MAS for the use of technological solutions to uplift and sustain their firms’ risk management and compliance operations. By staying ahead of the curve and adopting forward-looking strategies, business leaders of smaller companies can capitalise on this technological wave to upscale and optimise their compliance function strategically and sustainably into the future.

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