The Securities and Exchange Commission (SEC) has underscored the importance of striking a balance between promoting innovation in financial technologies (fintech) and ensuring investor protection and market stability.
Speaking at the 15th Regional Leadership Program for Securities Regulators organized by the Monetary Authority of Singapore last August 23, SEC commissioner Kelvin Lester K. Lee, supervising commissioner of the SEC’s Philifintech Innovation Office (PIO), noted how the Covid-19 pandemic highlighted the role of in tech in making financial services accessible.
“We have witnessed the greater importance of fintech in its role in allowing access to financial services despite restrictions on our movements,” he told fellow regulators during the webinar.
“It is with this realization that we, at the SEC, understand that fintech and innovation now play a large role in the Philippine economy,” he added.
Lee noted the Philippines is primed for fintech innovation as he cited the 2021 Technology and Innovation Report of the United Nations Conference on Trade and Development, which ranked the Philippines 44th out of 158 counties for readiness for frontier technologies and second for information and communications technology deployment, skills, research and development, industry activity and access to finance.
“So, fintech clearly is important for the Philippines,” Lee said. “But of course, to effectively implement and roll out fintech innovations in a particular jurisdiction, we need to discuss the role of the regulators.”
Lee emphasized the role of regulators in managing the benefits and risks associated with fintech, explaining that the rise of new innovations could bring risks to financial stability, market integrity and investor interests.
“It’s a delicate balancing act,” he said. “On the one hand, as regulators we don’t want to stifle innovation. In fact, we want to encourage growth. But on the other hand, we need to be aware of the risks, some of which are very uncertain at this point, that may arise by allowing new innovations to operate.”
Lee said the SEC needs to keep in mind its mandate of protecting investors and the possible risks brought by innovations to the investing public.
“We don’t want to unduly expose investors and the public, and the financial system to the risks that can be brought about by improperly vetted innovations,” he said.
Lee, at the same time, acknowledged that regulating fintech is challenging because it entails foreseeing the risks and making room for them in order to encourage innovation.
“And it’s with all that in mind that we at the SEC, when we have to approach fintech and other digital innovations, we have to approach it very carefully,” he said.
In regulating fintech in the Philippines, Lee said the SEC will adhere to the principle that no one size fits all; adopt an activity-based rather than an entity-based approach; implement principles-based regulations rather than specific rules; and remain technology neutral.
The SEC recently launched the PIO, a new office under its Corporate Governance and Finance Department that will focus on the regulation of the use of fintech in the country.
“Our aim is that through our innovation office, we can regularly touch base with our stakeholders, and we get to learn from each other,” Lee said.
Earlier, the SEC paved the way for new financial investment products and platforms boosted by fintech such as Bonds.PH, which enabled the distribution of government bonds through distributed ledger technology and Landbank’s Overseas Filipino Bank or the OFBank Mobile Banking App.
The OFBank is the country’s first digital-only bank where overseas Filipino workers may invest in government securities. Furthermore, the SEC said it is finalizing its rules on digital asset exchanges, digital asset offerings, and online lending applications.
“Bottom line, our approach at the Commission is that we make every effort to keep an open mind to allow innovations to flourish without losing sight of our mandate to protect the investing public and secure our corporate and capital market sector,” Lee concluded.