Keynote Address By Mr Tharman Shanmugaratnam, Deputy Managing Director, Monetary Authority of Singapore (MAS) at Wharton-SMU Conference On Financial Market Liberalization

Date: 18 Jan 2001

It is a pleasure to be here with you this morning at the Wharton-SMU Conference on financial market liberalization.

Introduction - Facing Change, Embracing Change

2   The MAS and the financial industry have had three busy years. The changes brought upon us have been bracing. The Asian crisis has shaken confidence in the region, led to a shakeout of financial players, downsizing of Asian operations among even strong international institutions, and a retrenchment of activity in both banking and capital markets. Put plainly, Asian financial markets are now very much smaller than they were just four years ago.

3   The forces of change globally have run in the opposite direction, but have been equally profound and disruptive. Institutions are consolidating, both within and across product boundaries. Technology is transforming the entire value chain of financial services, opening up new economies of scale, and demanding new economies of scale for financial institutions. The pace of innovation has increased, shortening business horizons and intensifying competition in virtually every financial business.

4   We decided three years ago to press on and implement a programme of wide-ranging liberalisation in Singapore's financial centre. We did so despite the Asian crisis, but in some senses because of it. Doing so, and decisively, enabled us to earn credibility, and helped sustain growth in a difficult and shrinking Asian business environment. Also, the cost of delay was going up - had we not liberalised within this window, we would have fallen behind the other major international financial centres in ways that would have taken a much longer period to catch up. Had our local institutions not geared themselves for change and competition, they would have lost an important opportunity to remain viable in the new global environment. For some, the opportunity would have been permanently lost.

Financial Liberalisation - The Main Steps

5   We have opened up all areas of the financial sector to greater competition. The aim has been to let market forces have greater free play, shift the MAS' emphasis from strict regulation to effective supervision of institutions, require greater disclosure, strengthen and uphold high standards of integrity and market conduct, and get investors to take greater responsibility for their decisions.

6   The major moves have been done, or are in progress. In banking, the opening up of the retail sector and strengthening of corporate governance of the local banks, is underway. MAS will announce its next set of banking liberalisation measures within the next few months. In securities, commissions have been fully liberalised, ahead of the schedule formulated just two years ago, and access to the Singapore Exchange is all but open. The Exchange, the first in the Asia-Pacific to both demutualise and merge the cash and derivatives businesses, has now been listed. It has made more flexible the listing requirements for companies, recognising that the risk of a business is no longer directly proportional to its size and length of track record. In insurance, we opened up the remaining barriers, in the direct insurance business, in one go.

7   We have increased the issuance of Singapore Government securities, extended the maturity profile and taken measures to boost liquidity in the repo market. We have removed restrictions on foreign borrowers tapping the Singapore dollar bond and equity markets, thereby providing a wider spectrum of investment instruments in Singapore and enabling the capital market to look beyond its traditional economic catchment. In fund management, the rules governing investment of CPF funds have been liberalised, and more funds are now accessible to fund managers from the CPF and, progressively, from the government. MAS has also streamlined the licensing regime and incentive framework for Boutique Fund Management companies so as to encourage the development of an indigenous fund management industry in Singapore.

Adding Value Through Infrastructure

8   Our measures to free up the financial sector are yielding results, in some areas more than others. We will continue to refine our rules and promote competition and innovation, without putting at risk the stability of the system as a whole. As the region recovers, there will be greater opportunity to service its needs. We will also look out for opportunities further afield, and to make ourselves useful to the leading global networks of players and markets.

9   Ultimately, we hope to be a premier centre for financial activity and innovation in Asia. We aim to provide a wide range of global financial services - wholesale and retail; through banking books and the capital markets; on the sell side and the buy side. But few financial centres can achieve depth in every area. We cannot expect to be a leading financial hub in Asia in every business, but aim to provide a depth of capability in some areas and clusters of activity, for example, in asset and wealth management.

10   The clusters of financial activity that can be competitively centred in Singapore will evolve over time - as global markets themselves are reshaped and redistributed, as the regional environment unfolds and greater depth is achieved in Asian capital markets, and as technology breaks down barriers and opens up new opportunities for Singapore institutions, just as it erodes some traditional areas of strength. We cannot predict this, certainly not well in advance. But neither will our status as a financial centre rest on the specific clusters of products or institutions that predominate at any one point in time.

11   What ultimately defines us as a successful financial centre will be the infrastructure of rules, networks and capabilities that encourages Singapore-based players to seize new business opportunities, that attracts new financial activities to Singapore, and that stimulates innovation on a continuous basis. A resilient and responsive infrastructure (the 'horizontals' that support the 'verticals' of products and innovations) must underpin sustained competitive advantage in financial services.

12   The main underpinnings are not difficult to identify. I will list four sets of factors that are generally acknowledged to define successful financial centres, and which we have sought to build and retain in Singapore. First, credibility. This is essentially a function of the legal and regulatory framework - sound and transparent regulations that respond to the needs of the market, uphold integrity and internationally accepted standards of corporate governance, and which are effectively and consistently enforced. Much of this ultimately rests on a stable political framework and rational economic decision-making.

13   Second, the 'hard' infrastructure of efficient communication networks for information to flow instantaneously and for convenient travel. Increasingly, international financial market participants also choose centres that provide world-class payment networks, which lower transaction costs, shorten settlement time and reduce risk.

14   The third factor underpinning financial centres is the 'buzz', or to be more prosaic, the informal networks of market information that drive financial activity. Which deal is coming up, who is behind the transaction, which corporate is running into difficulty, which country is in for a rally or a shock. You would have thought that the e-mail makes it less necessary for the buzz to be concentrated in financial centres. But financiers have not abandoned their gregarious habits and the best buzz, I am told, is still a product of human conversation, eye-to-eye, obtained, quite naturally, in quality eating and drinking establishments.

15   The fourth and most defining characteristic of a successful financial centre is its substantial pool of highly skilled and innovative manpower. These include both managers and specialists in financial services. They must also include the top quality professionals necessary to support financial activities - in particular, IT specialists and legal and accounting professionals. Someone recently described London and New York, the two leading global financial hubs, as gatherings of a large number of competitive people in an event-driven market, that makes the financial community a hothouse of new ideas. London and New York resemble greenhouses, where new plants grow quicker than in the garden outside ¹.

16   Let me summarise. Our strategies to build a vibrant financial centre in Singapore, as in other major international centres, ultimately rest on the hard and soft infrastructures that add value to financial players, and encourage them to locate business activities in Singapore. Credibility of laws and regulations, world-class communications and payments networks, the buzz created through informal information networks, and the availability of deep pools of talent and skilled manpower are integral to our succeeding as a hub for financial services.

FRAMEWORK FOR DEVELOPING MANPOWER EXCELLENCE

17   Singapore's high quality educational infrastructure and openness to talent, have been critical to its growth as a financial centre. Financial institutions have found Singaporean graduates, all English speaking and mostly multilingual, to be of a generally high quality, and quick to learn. Our openness to talent has also led to a large proportion of financial executives being comprised of foreigners, particularly in investment banking and in the capital markets. The openness not only brings additional talent, but provides, critically, a natural medium for sharpening the skills and ingenuity of Singaporeans themselves. Bright Singaporean and foreign executives, working on deals together or competing for deals, rub their skills off on one another. It is a vastly more favourable environment for Singaporean talent, aspiring to be the best in their fields, than if they had to compete among themselves, in a smaller pool and with less varied experiences.

18   The strength of manpower capabilities in Singapore's financial centre is a competitive advantage, but not a given. As Singapore extends its financial catchment beyond the region, the competition we face in skills and talent vis-a-vis other major centres will sharpen. The quickening pace of innovation in global financial services will also demand a rapid and continuous infusion and upgrading of skills.

19   We need proactive strategies to address these challenges. MAS has, in consultation with the industry, developed a framework of strategies to strengthen and sustain excellence in financial manpower. The framework is two-pronged:

• first, the setting up of a Financial Network for Excellence in Training. This will provide a collaborative approach towards financial sector training, and seek synergies within the financial industry and with top quality training providers;
• second, the deployment of the Financial Sector Development Fund (FSDF) to co-fund programmes to enhance expertise and skills of executives in the industry.

The current training landscape

20   The MAS, together with the Institute of Banking and Finance (IBF) and the Singapore College of Insurance (SCI), undertook a study of the training landscape last year. The study was conducted with the assistance of PricewaterhouseCoopers Management Consultants.

21   The study indicated that Singapore currently has a pool of good local and international financial training providers. However, it is a fragmented map, and with emerging gaps between demand and supply in certain critical areas. Users and providers of financial training are not optimizing available training resources. There is scope for closer collaboration and coordination between industry players and training providers to close these gaps.

22   The supply of diploma and basic degree programmes providing entry level core skills that are relevant to the financial sector is not lacking. There is healthy competition amongst the local polytechnics and universities in this area, supplemented by programmes offered by several overseas universities. There is also some duplication in roles, for example, between that played by the IBF and other institutions of higher learning.

23   The main gaps are in more technical, specialized courses targeted at mid-level and senior executives. These include training workshops and courses in new and emerging product lines which require specialist skills and expertise. Going forward, the development of know-how and capabilities in technology for finance, and in e-finance, will be a major imperative for the financial industry as it competes in an increasingly technology-driven environment. The need to equip staff with knowledge of technologies will be required all down the line, from CEOs to bank staff in branches, and across front-office, risk management and back office functions.

24   The challenge is to provide programmes which keep pace with changes, financial innovation and technology. Meeting this need requires rigorous, extended programmes such as the Masters level programmes in Financial Engineering and Applied Finance that have been introduced within our universities. It also requires a range of shorter programmes, tailored to the demands of the day, quick off the drawing board and to the market, and drawing on leading industry practitioners themselves as primary resources.

Formation of the Financial Network for Excellence in Training

25   To help address these challenges, we will establish a collaborative Network to proactively identify emerging training needs, and attract and develop top quality training programmes in Singapore.

26   The new Financial Network for Excellence in Training will comprise both local institutions of higher learning and renowned international training providers. MAS has been in discussion with the 3 Singapore universities, 4 polytechnics, the Singapore College of Insurance (SCI), INSEAD, University of Chicago and the New York Institute of Finance (NYIF). All of them have expressed keen interest in participating in this new Network.

27   The Network will be overseen by a Council comprising leading financial industry associations and players, and leading training providers. The Council will provide a high-level forum for suppliers and users of financial sector training programmes. It will focus on the following areas of collaboration:

• identification of emerging or future needs for skills and expertise in the industry, and the matching of such needs with top quality training programmes or other innovative solutions to meet such needs;
• collaboration among financial industry players to pool together their training demands where feasible, both within Singapore and the region, thereby creating a critical mass of participants for specialized programmes that would be more costly to conduct separately.
• encouraging synergies and tie-ups in the supply of training resources, and sharing of best practices in training. For example, a university may tie up with a specialized market-based training provider to offer a course that builds on their combined resources. There is also considerable scope to draw on experienced practitioners from the industry in Singapore and abroad, to act as trainers.

28   The Council will also serve to advise the MAS on the standards of professional competence necessary for individuals seeking licences to practice in the financial sector (for e.g. as dealers and investment representatives). MAS currently sets such standards in consultation with the industry. The Council would provide an ongoing mechanism for the industry to advise the MAS in updating and refining these industry standards, and to benchmark the various qualifications, taking account of international practices in this area as they evolve. This process will help ensure that financial sector participants have attained the requisite professionalism and know-how to sustain confidence in the industry.

29   We aim to have the new Network and its Council in action by the middle of this year.

New Role for the Institute of Banking & Finance (IBF)

30   The setting up of a new, forward-looking, collaborative network of training providers also provides an opportunity for the IBF to review its functions. When the IBF was established in 1975, it played an important and necessary role in providing quality in-employment training for the financial sector. The IBF has served the industry mainly as a provider of entry-level training programmes, such as diploma, core-skill and early-career programmes.

31   The institutions of higher learning and other private training providers are now large providers of similar core training functions. The IBF has therefore decided that it would be timely for it to phase out its role as a training provider and focus instead, on adding value though proactive collaboration with the industry and training providers. The IBF's affiliations and broad membership base within the financial industry place it well to take on the responsibility of running the new Financial Network for Excellence in Training.

32   The re-distribution of IBF programmes to the polytechnics, universities and other private training providers will be carefully implemented. No gaps will be left in the spectrum of financial training programmes currently offered by the IBF. All the courses currently offered by the IBF will continue to be conducted until their completion, with no disruption to course participants.

33   The IBF also currently administers qualifying examinations and certifications for individuals seeking licenses to engage in certain financial activities. MAS and IBF will study whether the IBF should continue to perform this function or whether the role can be effectively undertaken by other institutions.

Financial Sector Development Fund

34   The second prong in our new framework to develop manpower excellence will involve the use of the Financial Sector Development Fund (FSDF) to enhance the expertise and skills of our financial sector professionals.

35   The setting up of the FSDF was legislated in October 1999 as part of the demutualisation and merger of Singapore's stock and derivatives exchanges. The proceeds from the sale of shares in the new Singapore Exchange were to be transferred to the FSDF, where they would be used to support the development and upgrading of skills, research programmes and infrastructure to support the financial sector as a whole in Singapore.

36   With the successful listing of the SGX in November 2000, S$0.5 billion of funds has been transferred to the FSDF. The FSDF will be further augmented when an additional 25% of shares in the SGX (currently held by a special purpose holding company) are sold to investors in the future. FSDF Manpower Development Schemes

37   The FSDF is now ready for operation. The MAS has consulted with the industry on how the FSDF can best be tapped upon to meet the needs of the financial centre. An FSDF Advisory Committee, comprising key industry leaders and associations, has also been set up to advise the MAS on the effective use of the FSDF.

38   As part of our framework to achieve manpower excellence in the financial sector, the FSDF will make available funds under the following three schemes:

• Executive Development Scheme (EDS)
  The scheme will help Singapore-based financial institutions to defray the cost of locally-based training for executive staff.
• Global Enrichment Initiative (GEI)
  The scheme aims to help financial executives to tap on world-class know-how in other leading financial centres. Under this scheme, FSDF will co-fund overseas training costs and living expenses incurred during the training period.
• Training Infrastructure Enhancement Scheme (TIES)
  The scheme will co-fund the costs incurred by training providers in the setting up of facilities for the conduct of world-class training programmes for the financial sector.

Conclusion

39   The quality of manpower will be a defining element of competition between financial centres, more so in future than ever before. Our aim is to promote learning across the financial sector, at all levels, continuously and in pace with emerging business opportunities and risks. It is part of the critical infrastructure that is necessary to make Singapore a superior place to conduct financial activities and to innovate, in other words, to become an Asian greenhouse where new plants of all varieties grow faster than in the gardens outside.

40   The increasing pace of innovation in the industry makes this a challenging task, requiring proactive and collaborative effort within the industry, and with top quality training providers. The two-pronged approach under the new framework for developing manpower excellence - the Financial Network for Excellence in Training, and the use of the FSDF, will help us meet this challenge. We welcome all participants in the industry to join in meeting this challenge.

¹ Philip Augar, "What is London's Future", The Banker, January 2001