Special Remarks by
Tan Sri Ranjit Ajit Singh
Chairman of Securities Commission Malaysia
at the SCxSC Digital Finance Conference 2016
in Kuala Lumpur on 3 November 2016

 

Introduction

Yang Berhormat Datuk Johari Abdul Ghani,
Second Finance Minister of Malaysia
Distinguished guests,
Members of the media,
Ladies and gentlemen,
a very good morning to everyone.

1. Welcome to our SCxSC (“SC by SC”) Digital Finance Conference 2016 themed “Capitalising Entrepreneurship”.
2. Allow me to first of all thank the Honourable Minister of Finance 2 Datuk Johari Abdul Ghani, for gracing us with his presence this morning and kindly agreeing to deliver the keynote address at our conference.
3. I would also like to thank our panel of distinguished speakers – many of whom have flown from abroad to be with us here in Kuala Lumpur.
4. I am also grateful for the support of our fellow partners in today’s event, namely; (i) Cradle Fund, (ii) the Malaysian Business Angels Network (MBAN), (iii) Malaysian Digital Economy Corporation (MDEC); and (iv) Our registered equity crowdfunding (ECF) operators for their contributions towards making this conference a seamless coordinated effort between both the public sector and private enterprise. I would also like to make a note of appreciation to the media in continuing to work with us in promoting the SC’s efforts on Digital Markets.
5. I am particularly delighted to see that we have once again been able to attract such a large crowd of close to a 1000 to the SCxSC conference, with a wide cross section of participants – from the financial services industry, digital innovators, entrepreneurs, government agencies, VC / PE investors and members of the public.
Ladies and gentlemen,
Digital Finance for Emerging Markets
6. The growth of Digital Finance, FinTech or whatever moniker you choose to use is undoubtedly changing the face of the world’s financial markets and will drive changes that are yet to be fully reflected. Digital Finance has led to the introduction of new business models and solutions which have contributed to the enhancement of the financial market landscape, including greater efficiency and better risk management.
7. It is estimated that since 2010, more than USD$ 50 billion has been invested in FinTech startups, with $ 22 billion in 2015 alone. This is not including internal investments made by major financial institutions and technology giants who are developing their own internal digital programmes.
8. If we look at the emerging markets, its potential effects can be even more profound. In recent work the SC Malaysia led, as part of our leadership of global emerging markets,  it has been shown that Digital Finance has brought about greater financial inclusion and democratising finance in a range of ways which has led to many emerging markets now placing much more emphasis on the growth of this area.
9. This is driven by several factors including (a) strong demand for alternative financing for SMEs and new investment avenues for investors; (b) Widespread adoption of internet devices and social media,(c) Change in population demography towards a more technology savvy and connected generation of consumers, and (d) Less burdensome legacy systems to allow for the leapfrogging of technologies
10. In 2012, it was estimated that Digital Finance could unlock significant opportunities for emerging markets, with integration of digital technologies projected to increase GDP by approximately USD$ 6.3 trillion and create 77 million new jobs over a decade.
Ladies and gentlemen,
SCxSC 2016
11. Being mindful of these trends, the SC in 2014 made key amendments to our capital market laws to introduce a new regulatory framework to facilitate the establishment of some of these alternative market-based financing platforms. With this in place, Malaysia was the first market in ASEAN to launch Equity Crowd Funding (ECF) as a new segment to meet the financing needs of start-up businesses and SMEs, and designed a regulatory safe harbour to allow interested operators to register under the framework. As part of our efforts to instill public awareness on alternative market-based financing and digital initiatives in the capital market, we hosted the inaugural SCxSC Conference in 2014. A year later at SCxSC 2015, we announced six registered ECF operators for our market.
12. This year, we have also expanded the scope of our forum to include additional topics of interest such as Peer-to-peer (“P2P”) financing, robo-advisory services and distributed ledger technology (“DLT”).
Ladies and gentlemen,
SC’s Digital Agenda for the Capital Market
13. The SC remains strongly committed in embracing the Digital Revolution as an engine of growth for our capital market. We have crafted a digital agenda designed to achieve the following objectives:

  • Enhance access to financing
  • Increase investor participation
  • Augment our institutional market; and
  • Develop synergistic ecosystems
14. In looking at access to financing we have looked at the role of markets to support financing needs for entrepreneurs and small businesses. According to some estimates, the Malaysian SME sector has a staggering financing gap of more than RM 80 billion. We believe that market-based financing including ECF and P2P may provide alternative solutions to address the financing needs of our SMEs.
15. Since ECF operationalisation in mid-2016, we have witnessed the encouraging take-up of innovative local SMEs seeking financing on the ECF platforms. Within a space of six months, a total of RM 8 million has been raised for 11 Malaysian businesses1through the registered ECF operators. This includes a mix of both tech and non-tech companies, across different sectors such as Retail, GreenTech, Human Resources, Education, Wedding Planning and even Speed Dating. Other than those listed, the platforms have also received widespread interest from across 38 different sectors2. Some of the issuers have also managed to attract foreign investors as well, for instance 50% of the funds raised by one of the deals came from overseas investors.
16. There are sixteen entrepreneurs and SMEs currently in the midst of their ECF fundraising round today, and you will be able to listen to them as they pitch during this conference.
17. Beyond ECF which is targeted at early-stage financing, the SC introduced the framework for P2P Financing in April this year to help SMEs raise working capital or capital for growth.
18. Later this morning, we will be announcing the approved P2P platform operators. The successful operators comprise of existing P2P players from other markets, local techno-preneurs and financial services professionals. We find that these operators each draw on their unique strengths, either through partnership with local banks, facilitating foreign direct investment, offering Islamic financing, micro-financing and invoice financing, or leveraging data analytics to generate unique insight into SMEs.
19. Our second objective within the digital agenda is to enhance investor participation. Our internal research shows that the average age of our investor is 45 years old, and out of those aged below 30, less than 5% have participated in investment activities. While most people would associate the below-30 demographic as more digitally-inclined, further research has shown that the Digital Generation is not just limited to millennials, but extends across age demographics. This rapidly emerging investor segment is active on social media, largely self-directed and yearns convenience and greater accessibility to interact with their financial services providers through multiple channels. We believe that our Digital Markets initiatives can provide new assets classes and investment services which would cater to their needs.
20. For example, even in the brief operational history of ECF, the asset class has resonated well with younger investors. Of the ECF investors so far, 48% have been aged 35 and below3.
21. As part of the objective of more investor participation, we will next year be introducing our regulatory framework for Digital Investment Services, which will allow approved licensees to offer automated discretionary portfolio management which some may term robo-advice, to the public. This would offer a more cost-effective, accessible and convenient channel for investors to manage and grow their wealth.
22. The third key objective of our digital agenda is to address the needs of the institutional markets. Information related to our OTC Markets, for example our secondary bond market, rates and credit market are highly fragmented amongst different sources and not easily accessible. To introduce greater transparency and spur further growth in these markets, we are currently working on a central information repository which would be readily accessible by market participants and investors.
23. While intermediaries, financial institutions, start-ups and exchanges may be the main drivers of Digital Markets, there is still an equally important need to develop the surrounding ecosystem service providers which are also key players in the value chain. These ecosystem providers include custodians and trustees, rating agencies and information vendors. A digital ecosystem, which forms the basis of the fourth objective, will allow faster and more seamless access to data and services, thereby creating a more transparent and efficient marketplace as a whole.
24. Today, our capital market systems are built on multiple ledgers, or systems of record which require constant reconciliation. With blockchain technology or distributed ledger technology (DLT), there could potentially be a single ledger which is distributed across all parties in the value chain and kept in sync near-real time. DLT could be leveraged to build a more resilient financial infrastructure, more effective clearing, settlement and depository functions and new methods to encode legal agreements and obligations. In short, distributed ledger technology within the digital agenda could be an enabler towards synergistic ecosystem development.
25. For instance, we believe that DLT could help evolve our infrastructure for the unlisted and OTC markets. Using our ECF market as an example, a distributed ledger could be used as an “equity register” for equities of SMEs raising funds through ECF, and this register could later form the foundation for a secondary market for ECF equities.
Ladies and gentlemen,
Emerging Risks and Regulatory Concerns
26. While we advocate the benefits of Digital Markets, it also presents new forms of risks and challenges relating to fraud, mis-selling, liquidity and dealing with provider failure, among others. The anonymity and borderless nature of digital innovation may also amplify the risk of misconduct in these activities. At the same time, the growing interconnectedness of firms and activities also raise concerns over potential systemic risk.
27. The SC is taking a cautious approach to new emerging technologies as we continue to monitor real world implementations and understand the inherent risks associated not just with the technology itself, but also the business model built on top of the technology. Any continued implementations would also likely require mechanics for proportional regulatory oversight as trust and confidence form the bedrock of the capital market.
28. As one of the steps towards addressing cyber threats, we have published our Guidelines on Management of Cyber Risk to raise wider awareness and put in place measures to improve industry-wide resilience.
Ladies and gentlemen,
aFINity
29. We are also adapting and enhancing our industry engagement model in order to be more attuned to the emerging trends as well as the first signs of risk or untoward behaviour from our Digital Markets operators. Launched in September 2015 at the World Capital Markets Symposium, our “Alliance of Fintech Community” (aFINity) programme seeks to provide regulatory support and catalyse greater interest for development by entrepreneurs and investors into the Digital Markets sector. The underpinning objective of aFINity is to provide policy and regulatory clarity on new areas to promote responsible financial innovation.
30. There are currently 75 aFINity members as of October 2016 and they represent a wide spectrum of stakeholders; from large financial institutions, technology providers to innovative start-ups. I strongly encourage everyone present today to sign-up as a member of aFINity to jointly explore and develop our Digital Markets.
Ladies and gentlemen,
CONCLUDING STATEMENTS
31. The SC’s commitment in facilitating the adoption of new digital technologies and business models into our market are intended to drive further growth of our market for the benefit of all our market participants, and to better support the growth of our nation’s economy. We hope to receive your continued support and participation in our Digital Markets initiatives, and look forward to bringing your innovations to our market.
32. To all of you, I offer these parting words from Mark Twain:“Twenty years from now, you will be more disappointed by the things that you didn’t do than by the ones you did do, so throw off the bowlines, sail away from safe harbor, catch the trade winds in your sails. Explore, Dream, Discover.”
Thank you very much.

1 As at October 2016

2 Data provided by the ECF operators; sectors include e-Commerce, Retail, F&B, Education, Property, Mobile Apps, Healthcare and others

3 Data provided by the ECF operators; 346 investors in total have participated in the live ECF deals