Ladies and gentlemen,

Financial and technological innovation in the capital market

1. Where there is demand, innovation will surely follow. The rising global interest in financial technology (or fintech as it is better known) is illustrated by growth of fintech investments which has increased by sixfold since 2008.¹ In 2016, USD$ 24.7 billion was invested in fintech across more than a thousand deals². 
2. The fintech landscape today has evolved past its initial phase of value chain disruption to one of collaborative partnerships between incumbent and innovator. The focus today is moving from where or how disintermediation can happen, and more towards how these innovative business models and state-of-the-art solutions can be scaled up in a safe and viable manner. 
3. This is a role that is increasingly being taken up by established players of the capital market ecosystem, which include investment banks, venture capital firms, custodians, information service providers and market infrastructure. By partnering with fintech firms, these incumbents are well-placed to offer market expertise, scale and connectivity by virtue of the ready access to capital, market data and infrastructure that they possess. 
4. These fintech solutions are changing the way we invest and raise capital, and have a particularly profound impact on smaller businesses and retail investors. Since the emergence of the first crowdfunding platform over a decade ago, we have seen a proliferation of alternative market-based funding platforms intended to serve younger businesses. The World Bank estimates that the global crowdfunding industry could draw up to US$96 billion worth of investments a year by 2025.³ 
5. We have also seen how technology can be deployed to enable cost-savings and added flexibility for an increasingly technology-savvy generation of investors. Robo-advisers minimise human intervention by utilising algorithmic tools, online interface, and in many cases, passive investment strategies to provide cost-effective investment advice and portfolio management services.

The role of regulators: The Malaysian context

1. So what do these trends mean for regulators of the capital market? While market development and competitive innovation should always be industry-driven, the capital market regulator is entrusted with the role of ensuring that such innovation takes place on a level playing field and occurs in a safe and sustainable manner that does not prejudice investors. In other words, while industry should always take the wheel, the capital market regulator is the one paving the road for a safe journey ahead. 
2. These economic needs and market trends that I have just described are also very pertinent and indeed currently happening in Malaysia. As the authority tasked with the dual mandate of regulating and developing the capital market, the SC, through its policies and initiatives, have sought to bring this agenda to fruition.
3. The Malaysian capital market has demonstrated long-term resilience in its growth despite the global environment, having more than doubled over the past decade to a size exceeding two times GDP.⁴ 
4. This growth trajectory has allowed the capital market to remain a significant source of financing for the real economy, with RM105 billion projected to be raised this year. And the resilience of the capital market is supported by the strong buffers of liquidity provided by Malaysia’s fund management industry. 
5. The SC is cognisant that a proactive and proportionate approach is essential to make optimal use of the opportunities and appropriately manage the challenges which have emerged from the changing economic and market landscape. 
6. A key item of our agenda is to ease access to the capital market, by reducing time-to-market for product issuances and increasing operational efficiencies. We have, for example, over the years pursued the incremental liberalisation of our regulatory framework for select market segments which have attained a certain level of maturity and readiness. The Lodge and Launch (LOLA) framework⁵ allows for wholesale products to be offered to the market upon submission of the requisite disclosures to the SC. Another target segment was the unit trust segment, where we have allowed expedited approvals for non-complex funds, and eased the rules for prospectus renewals.⁶
   
7. Another initiative that the SC has undertaken is the introduction of alternative market-based financing channels, which have allowed micro, small and medium enterprises and retail investors to raise capital and invest through equity crowdfunding and peer-to-peer financing platforms. We are pleased to note that there has been 26 successful equity crowdfunding campaigns over the past 2 years, with the peer-to-peer financing segment also seeing encouraging take-up since its launch last year. 
8. A further component of the SC’s market digitisation agenda is the digital investment management framework which was released earlier this year. This will allow for the provision of automated portfolio management services which offer retail investors a cost-effective, accessible and convenient avenue for wealth creation.

1. While the role of capital market regulators has greatly expanded over the decades, a healthy and well-functioning capital market relies on the collective will and effort of its players. 
2. Financial information has been described as the lifeblood of capital markets,⁷ and it is not difficult to see why. On the one hand, investors require information that they can trust so they can make informed investment decisions. And it is rightfully so that they expect the businesses that they do invest in to be continuously transparent and honest about their financial performance and the way their business is governed. 
3. In today’s world of open and interconnected markets, financial reporting that adheres to internationally recognised standards provides the trust and confidence that connects investors from one country to businesses in another. Studies in emerging markets have linked high quality reporting standards to an increase in foreign investment.⁸ In addition, the assurance of quality of financial information contributes to a lower cost of capital as it alleviates the need for a risk premium that would otherwise have been levied by foreign investors and passed on to the business and the country it operates in.⁹ 
4. The importance of financial reporting extends beyond attracting investor confidence and capital. We have seen examples of corporate scandals¹⁰ all around the world, where transgressions in financial reporting have led to economic and reputational fallout, the aftereffects of which may linger for years. 
5. It is for these reasons that accountants play such a vital role in maintaining good corporate governance practices as well as a healthy capital market ecosystem. And I would like to thank the Malaysian Institute of Accountants and the accountancy profession for their contributions thus far. 
6. Moving forward, the SC is in the process of reviewing the Due Diligence Guidelines to enhance the effectiveness of the due diligence process carried out on corporate proposals. The revised Guidelines will provide due clarity on standards and expectations, as well as accountability of each party involved. The review process will involve collaboration with industry as well as legal and accounting professionals.