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Singapore looking at using AI in fight against money laundering, says central bank chief

SINGAPORE: The Monetary Authority of Singapore (MAS) is “most keen” to explore how artificial intelligence can be used in the fight against money laundering, said its managing director Ravi Menon.

Mr Menon was speaking to CNA in a wide-ranging interview ahead of the annual Singapore FinTech Festival where AI will take centrestage. The event will take place from Nov 15 to 17 at the Singapore Expo.

As AI connect the dots across large data sets “beyond the ability of the human brain”, MAS already uses machine learning and advanced data analytics to detect fraud and other suspicious activities.

AI is also used in the processing of voluminous data and information, such as reports submitted by financial institutions and news articles to pick up developments that warrant supervisory attention.

But the recent billion-dollar money laundering crackdown in Singapore highlighted the need for more to be done to strengthen “big-picture surveillance”, said Mr Menon who is retiring in January.

“Money launderers operate across different financial institutions, and you need to be able to join the dots across them.”

Mr Menon noted that AI can, for example, be applied to COSMIC – an upcoming digital platform for financial institutions to share information on suspicious customers or transactions.

Currently, financial institutions are unable to warn one another about unusual activity involving customers given confidentiality obligations. COSMIC – or Collaborative Sharing of Money Laundering/Terrorism Financing Information and Cases – aims to eliminate these information gaps when it is rolled out in the second half of 2024.

AI, and perhaps even generative AI, can be layered on to the new platform for “additional insights” to form “a more holistic picture of the risks facing us”, said Mr Menon.

The massive money-laundering probe also highlighted the need for a “multi-layered defence” across different players in the ecosystem, beyond just financial services. These include real estate agents and corporate service providers where mechanisms against illicit fund flows will have to be strengthened.

Rules on shell companies – or companies with no significant assets – may also need to be relooked, which is why a new inter-ministerial committee has been announced to review Singapore’s anti-money laundering regime, he added.

AI NEEDS “BALANCED APPROACH”

This year’s FinTech Festival will focus on the growth and adoption of AI in financial services. It will, for example, examine how AI can help reimagine the financial system architecture for the underserved, MAS said in an earlier press release.

The choice of AI as the festival’s theme was a deliberate one, given how the technology is at “a watershed moment” amid growing investments, advances in processing power and the aggregation of large datasets, as well as the increase in applications and adoption, said Mr Menon.

“We are on the cusp of something quite big and transformative,” he added, noting that generative AI, which first emerged a year ago, has seen “the fastest rate of adoption compared to any other technology in history”.

But MAS has to have a “balanced approach” to manage both the benefits and risks that come with AI, said Mr Menon.

“Like all technologies, AI brings great promise and great peril. We need to be realistic in appreciating both sides. How can we harness the benefits, and not get too scared about the risks? At the same time, we can’t be too wide-eyed about it and ignore some of the risks.”

FINTECH BOOST TO PAYMENTS, SUSTAINABILITY DATA

Several updates and announcements are expected at the upcoming FinTech Festival, such as in the area of instant cross-border payments.

For one, the MAS will launch a link-up between Singapore’s PayNow system and Malaysia’s DuitNow. This comes on the back of PayNow’s linkages with Thailand’s PromptPay in 2021 and India’s Unified Payments Interface earlier this year.

Another announcement will be on the next phase of Project Greenprint, an initiative by the central bank to tap technology for good sustainability data. Four digital platforms, such as a Singapore-based environmental, social and governance registry, have been piloted under this initiative.

Project Greenprint has “progressed well” but as getting trusted sustainability data remains a challenge, the MAS will unveil details of the project’s next phase of work, said Mr Menon.

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Another area that has seen progress over the past year is in the “atomic settlement” of cross-border transactions.

Noting that real-time cross-border payments do not translate into real-time settlements, Mr Menon explained: “What we have done with India, Thailand and Malaysia is real time payments. That means the accounts of the two parties are updated, and you can spend the money you receive. 

“But the banks have not settled the trade – that takes two days or so – and this is a major source of inefficiency and cost, and that’s where most of the bank charges come in.

“So, we need to also bring about instant settlement, which is not easy with cross border payments,” he said. “That’s where the use of central bank digital currencies comes in.”

As its name suggests, central bank digital currencies are traditional money issued and governed by a country’s central bank, except that they are in digital form.

The MAS has worked with the Federal Reserve Bank of New York to test if distributed ledger technology can improve the efficiency of cross-border wholesale payments and settlements involving multiple currencies. 

The experiment achieved atomic settlement in under 15 seconds, said Mr Menon.

Another project with the Bank for International Settlements as well as the central banks of France and Switzerland also saw “promising” results of instantaneous foreign exchange spot transactions, he said.

RULES OUT JOINING POLITICS

Mr Menon, 59, is MAS’ longest-serving managing director. He started his career at the central bank in 1987, taking on roles in monetary policy, econometric forecasting, banking regulation and others before being appointed managing director in 2011.

Prior to the MAS, he was Permanent Secretary at the Ministry of Trade and Industry and Deputy Secretary at the Ministry of Finance.

Mr Menon described his career at the central bank as “an exhilarating ride” with nary a dull moment. The work on upskilling the local financial sector workforce, for one, has been “deeply satisfying”.

“A lot of effort” went into identifying jobs that may be at risk and what can be done to upskill workers to take on new roles, he said. 

“Despite the rapid digitalisation in financial services that we all thought would lead to a lot of job loss … that, on the contrary, there’s been net job creation above our targets – that is deeply satisfying.”

The financial services industry transformation map, first launched in 2017, had targeted to create 3,000 net jobs each year but that was surpassed with 4,100 jobs generated each year from 2016 to 2020.

Mr Menon also noted the central bank’s efforts and willingness to take on an “early start” with fintech. 

From so-called sandboxes that allow firms to test their innovation in a loosely regulated environment before public release to an emphasis on promoting innovation within the industry, these efforts have given Singapore “a leading position” among financial centres, he added.

The outgoing MAS chief will be succeeded by the Manpower Ministry’s Permanent Secretary Chia Der Jiun, 52, who will be appointed managing director (designate) on Nov 1 this year and managing director on Jan 1.

As for his plans after retirement, Mr Menon told CNA that he is “looking forward to being gainfully unemployed” but hopefully, not for too long.

While he has “not landed on anything specific”, he wants to contribute to three areas he is deeply passionateabout – namely technology and innovation, social inclusion and cohesion, as well as climate change and sustainability.

Asked if being in politics would help him to further these interests more effectively, he replied that politics is not where he sees himself contributing.

“There are many ways you can contribute to human welfare besides being in politics.”

On whether he has been approached by any political parties, he said it is “not very material”.

Additional reporting by Elizabeth Neo

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