This paper offers a critical narrative of the ASEAN+3 economies' tryst with financial globalisation over the last two decades, with a specific focus on the evolution of the region's internationalisation of the financial sector. By applying the ‘Financial Trilemma’ framework, we posit how the recent emergence of foreign fintech players, digital banks, and Big Techs in finance are promoting further de facto financial integration in the region whilst also simultaneously exacerbating financial stability concerns alongside posing other non-financial risks to market integrity, consumer privacy, and data protection. The regulation of fintechs and Big Tech in finance introduces a different type of policy trilemma for regulators across three discrete policy objectives/outcomes, viz. financial stability/market integrity; market efficiency/competition; data privacy/consumer protection. We argue that this necessitates greater regional financial cooperation by the ASEAN+3 economies which inevitably requires regional financial regulators to be prepared to forsake a degree of sovereign autonomy over respective national financial policies and to stave off systemic risks arising from the interconnected nature of transnational digital banking conglomerates.
Policy Implications
- Greater regional financial cooperation is needed to mitigate the contagion effects of possible financial stability risks. This may be facilitated by a revision to or update of the ASEAN Banking Integration Framework (ABIF) to account for digital banks' proliferation and provide harmonised standards on their ownership and operational requirements across the region.
- At the domestic level, greater coordination is required among regulators entrusted with different powers including financial regulators, consumer safety authorities, data providers and anti-trust agencies. The trilemma framework outlined can serve as a broad conceptual framework for regulatory bodies when thinking about these risks.
- A recalibration/rethink of macroprudential policies is needed to take account of the systemic risks posed by the unique business model of Big Techs and incorporate it into the entity-based mode of regulation. Just as large entities are labelled systemically important financial institutions (SIFIs) and subject to higher capital requirements and macroprudential requirements, a similar distinction could also be created for Big Techs in finance.
- Enhanced disclosures by Big Techs and creation of regulatory sandboxes are needed which will allow regulators to fully understand their business models and enable them to learn by doing. For instance, Singapore, Malaysia, Indonesia and Thailand have experimented with regulatory sandboxes to provide hand-holding and support to fintech start-ups whilst concurrently enabling policymakers to develop their own expertise and laws in regulating these firms.
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