Opinion: It’s time Asia moves away from ‘ask permission first’ regulations

MAS headquarters in central Singapore / Photo credit: Tech in Asia

Lukas is a TIA Star Contributor and publishes high-value content that serves the Asian tech community. Read more from TIA Star Contributors here.

The central banks in Hong Kong and Singapore are moving toward a more outcome-based framework. This means that regulators set high-level outcomes—such as fair treatment of customers, reliable systems, and market integrity—and firms are expected to deliver.

If other regulators in the region follow their lead, this could transform the sector and improve the lives of millions who would get access to better, cheaper, and more convenient financial services.

When we first launched our service in Singapore, every new TransferWise customer had to visit a small office in the heart of the financial district to get their ID documents verified. This was the first time we ever forced our customers to leave our app and meet us in person, and it was because of regulation.

One year later, the Monetary Authority of Singapore (MAS) had removed this requirement. After 12 more months passed, and they announced a move to a fully outcome-based approach. Singapore has chosen to leave behind the default regulatory approach in Asia, where firms must ask regulators for permission before making any significant change to their product.

Outcomes > tick boxes

In Europe, outcome-based regulation is the norm. If you deliver the wrong outcomes, you will be punished. The spirit of the law matters more than the letter—look at the Financial Conduct Authority’s (FCA) US$292 million fine on Deutsche Bank for LIBOR rigging. The report is based on the bank’s breaches of high-level principles, not specific rules.

No regulatory regime is perfect. Ask any regulated firm—whether in the UK, Australia, or the US—and you can pull together a laundry list of dodgy rules. But overall, an outcome-based approach works much better than the “ask permission first” model prevalent in Asia for three main reasons.

1. Incentive for businesses

The first reason is that it creates the best incentives for firms to achieve the original purpose of the regulations.

If regulators rely heavily on a detailed rulebook, firms can just tick boxes. Then, even with the best of intentions, prescriptive rules will fail to achieve the desired outcomes.

Take financial crime rules as an example. Under an outcome-based regime, firms need to continuously improve their methods—laggards will be punished if, for example, they end up as the conduit of choice for money launderers. If firms just have to follow rules and must obtain permission for any changes, then the techniques used are frozen in time and soon become ineffective.

2. Competition

An unhappy side-effect of the prescriptive approach is that it creates a defensive moat around incumbent firms. Where specific permission is required to improve processes, it means that the incumbents have the upper hand. Their privileged access to the regulator allows them to accrete exemptions that are not available to new entrants, who just have the rulebook to follow.

Spreading the revolution