How The Transition Era Will Affect the Global Banking System

[Music] okay thank you so much um the clock is counting and we have 20 minutes firm so we'll we'll move it along so transition era um really excited to be here I'm Brad leevy from Symphony joined by um commissioner fam from the cftc uh also City prior to that um and Matthew and GES from weo and um one connect so we talk about a transition era eras maybe are important to define a little bit so we'll try to bound ourselves uh you know if you think 1980 to 2000 2000 to 20 we'll be focusing on 2020 to 2030 in terms of you know how we're going to try to frame this so uh you know there are multiple transitions taking place between 2020 and 2030 there's catalysts like crypto blowups or pandemics uh Etc um but if we can all agree I think that we're in this huge transition moment we it does feel a bit slopey and uh step function up um and I think some would refer this maybe as a new time in a new era so I'm going to start with uh commissioner fam who is incredibly insightful on this and uh one of the better Regulators globally that I know um you know so the main elements that make up this transition you know you're a broad regulator Etc C there's Global regulations local regulations liquidity across the globe participants that you regulate institutions you regulate so just what is the you know the most important um you know area in this that you think as you do your job and just think about the world right after your disclaimer well thank you so much for that introduction it's a pleasure to be here speaking again at Abu Dhabi Finance week I will give my standard disclaimer which is that the views I share today are just those as my own as an in my official capacity as a commissioner and do not necessarily represent that of the cftc any other commissioner or the US government so one of the things that you may not realize about the cftc is that we truly sit at the intersection of the real economy and the financial markets and in fact we oversee the largest financial markets in the world which is the global deres market so anything that you can put a derivative on whether it's agricultural commodities for food Metals oil and energy to interest rates currencies and more these are all things that the cfdc oversees and we directly regulate the largest banks in the world as well as the exchanges and Clearing Houses so as I think about us being in this uh New Era of transition and what's the impact on the global banking system I mean clearly new markets and new products and I'm excited about the fact that technology is an En for access to markets and into uh previously IL liquid asset classes as well now derivatives are risk transfer products and so I think risk transfer markets are going to be critical as we see the transition to the digital economy when we look at combating serious issues like sustainable Finance for the Net Zero transition and so I think I will be interested to see what Innovations and structuring products might come across the other thing is that a key shift in these TR transitions is is that it could drive a global first approach to markets even as other factors Drive greater localization for operations and Logistics so regulatory Frameworks as a channel for hard power or for soft power is also a strategy that I see is key and an area to watch is that these transitions are creating a technology powerered solution to liquidity challenges in funding and other markets that are occurring with more frequency whenever there's Market stress or dislocation so I wonder will blockchain Market infrastructures create the ultimate liquidity aggregator that could address these issues and finally if we do not find a solution to the recurrent liquidity risk I think we will continue to see Central Bank intervention in markets and you're going to see where the central banks are going to be not just the lender of Last Resort but also the market maker of Last Resort so with the challenging macroeconomic and other conditions the capital liquidity constraints on Banks examples of failures in asset liability management like the regional US Bank stresses I think that all of this provides a compelling case for an increase in private credit or duration matched credit no really and Dove Tails very well with the last panel on the build out of infrastructure with the regulatory overlay and it's very local but quite Global and I I appreciate that point um so GES at weo bank um you know a a digital Bank UAE focused um modern approachable us user friendly very light um you know geared towards somebody who's looking to move you know fast and uh and easily um you know what do you think are the the things that are are driving you know that trend for you what are the most important areas in this uh transition era yeah so how many of you like going to a bank branch anyone who likes going to the branch ah we've got a few but the rest don't yeah that is the number one Trend yeah consumers are changing y uh I think what happens in banking is consumers are going to consume services in platforms they want to consume services on not the ones you force them to go to so the first biggest change I think is that's going to happen is you will still have banking apps but consumers will start accessing services on other platforms like your e-commerce platform yeah or your tilt platform or your entertainment platform so you start seeing Banks becoming more of a distributor rather than the Sole Provider of services and I think that's started and will continue I think the second big change that happens is you know we often design we spend a lot of time designing an app I think with AI that might fundamentally change because currently we tell you the journey you have to follow I think we as artificial intelligence gets smarter you can Define your own Journey yeah and I I think you start moving towards an era where organizations are truly serving what customers want rather than trying to import paths and Journeys and offers for customers so so to me there's going to be a huge transition focused on serving customers better thank you for bringing in AI I didn't think it would happen on this panel but apparently it does um somebody has to no really uh and and how many people would rather watch a rock concert on TV than go to a rock concert exactly so we'll go to rock concerts and not go to Banks um that's a it's a great point I think a lot of those things are going to shift in life um so Matthew you're um you know pingan if for those of you not familiar a very meaningful very large insurance company and and does a lot of work in digital banking or banking in general in China uh Matthew is in one connect the technology end of that and as a provider and infrastructure and Technology of those businesses Matthew with these tools that these infrastructures that need to be built out and used you know what is your area um and I have a sense that it might be AI related based on our our pred discussions but you know you've done a lot in this space open AI is interesting but not the only thing on the planet and not even that new so what what what do you have to say about the transition and maybe you know in the I bucket thanks Brett um yes so for those of you who do not know who is pingan not only we have you know just one of the largest insurance company in the world we also have a bank uh which serves 130 million customers in China so also quite a large bank and um for those of you who actually do not know the the so-called DNA of our bank uh the predecessor or rather the pan bank today is a combination is a combine of two Banks uh when when China first decided to the So-Cal open door policy you know when Mr Den shoing nomination as a special economic zone he need a policy Bank to support his vision one of his vision is turn China into the wall factory today so he need a bank that supports Finance most of the SNES that involving exporting stuff uh to the rest of world including this part right so so shanen Deelan Bank was at a peak financing more than 80% of smmes that involved in export import mainly export at the time outside of China that sh devel bank is late on about 12 years ago acquired by pan group uh underneath the pan group there was a original quite a tiny uh little Pam Bank as well so the two bank the original PM bank and sdb combin into the PM bank today right so just a bit of um context um we actually you know obviously you cannot talk about uh F Tech without mentioning Aid these days right but we have our own view regarding the so-call Gen U we actually started our own large language modeling about about the same year as the um as open AI so we actually create our own we call it ping and bir you know B directional encoder so we actually view that the the using the encoder you both from Transformers obviously using the encoder is probably a lot more prudent in in a banking scenario rather than the So-Cal uh the decoder right right so even today with the open AI you know the the newly released um turbo right and there's still quite a large percentage that uh chap GT will be buting right and you cannot allow that in a very prudent banking scenario so what we did over the past five years actually we pumping through 35 years of banking data uh through our algorithm so we train our AI to really understand all the different parts of the bank all different product and so so on so forth so to give you some stats um 87% of our call center of pingan bank so in China if you call a pingan bank there 87% of the chance you're talking to an AI without even realizing that right so most of our smart collections within the first week we using AI you know within the first seven days of over and uh we do we do a lot of AI prision marketing as well so a lot of that actually use we actually found that obviously we we have a pingan GPT this as well so we use both pingan GPT and pan bir both both the uh decod and encoded to train but we actually found that that the bir is probably a more prudent way to to apply AI you know I know gen very hot but we have a very different view regarding applying generic AI in a banking scenario so I'll stop there and maybe we can just um drill down on the word banking for a moment I think gas you're in a banking is a big term yeah um I come from more of a cap markets Investment Bank world you're in the digital bank and more the retail consumer maybe user up I know um in speaking to Matthew it's a bit more focused on small medium business and um so maybe if you guys maybe um Matthew if you just talk a little bit about you know the data that you you know there's banking data which is transaction data in money and then there's things that are really being done to get you know with that money which is really what the point is you know like like you we also have a digital bank so mainl China we have Pam bank which is huge we also um you know granted one of the first uh eight digital banking license by Hong Kong Ma you know by Neils and his organization so so our uh digital Bank in Hong Kong unlike most of the uh digital Bank out there they focusing on retail we trying to focus onme which is actually went on initiated by Hong Kong M May what we did actually you know data using trying to use data as a collateral so we built a We call we call a tra link taping to the custom data I don't know whether you know that in Hong Kong about 300,000 smmes so oneir is focusing on crossb trade so basically they buy from China mainland China and sell to the rest of world including this part right so if that's our Target customer and we actually realize that you know quite a large percentage you know 33 32% to be precise they never borrowed before from any of HSBC or standard chapter so their credit history is zero you run a TransUnion Equifax return with a zero credit so what we do is we're taking data such as a simple form like custom decoration form that we can suck in obviously using oci AI stuff right you message data it contains so much relevant information because nobody no SM in their right mind is going to order so much from their supply right so very typical traditional supply chain Finance kind of idea but really messaging data to pump into our alternative credit scoring I know you very big on 100% credit credit risk risk management is really the heart right of a of a bank that nothing has changed but you with the help of a bit of AI um we we can lend to people that never borrow before without even asking for financial statement so far our n ratio for the past five years you know running in Hong Kong is less than 1% so you know that's really using dat and pulling it back to commissioner fam so you hit right up front on the point that a lot of these technologies will increase the ability to provide credit um so more credit but probably at lower risk over time because it could be managed more seamlessly more digitally more data driven versus I have an opinion on whether somebody's a good credit uh and it'll be sort of a one truth view of whether something can be paid or is paid so you made that credit point the point on small and medium businesses doing actual trade and then needing a bank and currency and trade Finance inside of that how do you see and obviously as a cftc commissioner it's more of a Market's view of the world but you also have a very clear view of energy because the nature of the Commodities Futures Trading commission so how do you link and you brought blockchain into that I believe which again I'll use the the blockchain word uh which hasn't brought up as much lately but it is absolutely part of the fabric of what we're talking about so if you can just maybe talk a little bit about the you know how you see the expansion of credit based on blockchain where it's also data driven the CME and entities that you are around a lot have a lot of data I think our view of data in the industry sometimes is Market data which is quite different than the rest of data yeah so what I think is interesting is a lot of the focus uh when you look at blockchain technology has been on crypto assets and sort of an alternative asset class and speculation but I think if you look at what the greater promise of blockchain might be It's actually an upgrading Financial Market infrastructure it's a tech upgrade it's like moving from paper to electronic to now digital tokens so what's exciting about that is the fact that it can provide greater access to liquid asset classes and so we're just talking about how do you upgrade the traditional Financial system how do you do tokenization of real world assets whether we're looking at real estate or the financing of real estate or you're looking at trade Finance like you mentioned anywhere where you have a very uh High touch intensive uh chain back and forth a lot of paper those types of documents uh anything with complex operational risk that's where the blockchain technology could really be an improvement to that and you mentioned data so with blockchain technology it can create an easier way to obtain that data let's talk about uh trading markets which the cfdc oversees you know right now the process to obtain uh trade reporting is so laborious to get it from a trade repository there's a lot of issues with data quality and therefore the data utility and there's issues around the amalgamation of this trade data but if you consider that you could have a regulatory node on even a permissioned blockchain network then The Regulators can have realtime access to this data and it can improve Market surveillance and other oversight functions so I think again if you consider that the real uh value ad or the real promise of blockchain Technology might just be in the fact that you're getting better pipes and plumbing that kind of boring story is actually what I think should be getting more attention for what it means for again Global markets a global Market's first perspective with about five minutes um so and I think that we'll come back back a little bit to the um are The Regulators overseeing pipes and plunging markets or are they actually part of it my view is in the future they're part of that they just have a different role in their Persona in that so just to talk a little bit about the you know this era that we're in we're in 23 25's around the corner 2030 is not too far away J from your perspective just the next couple of years as a digital Bank building here what do you think is is that tangible future State that's not too far out in the sort of one to twoe you know Horizon yeah I think uh look for us the next few years help expand the pool of banking yeah there Still Remains some underserved segments whether it's credit or anything else I think that expands with both the banking apps we deliver or embedded Finance yeah so now you start seeing uh a lot more happening with blockchain and some of the other capabilities I think the fundamental shift is you have more confidence whether it's as a consumer you get insights to make the right decisions yeah so you have more confidence in managing your money or whether as an institution you have more confidence in the stuff you're doing because now it's either on blockchain or it's realtime data or you can mash up a lot of data to manage risk yeah so I think the next two years you start seeing a lot of confidence building on both sides yeah which helps the whole Revenue pool of financial services grow yeah so trust has come up a lot and Trust of tech Trust of Data Trust the process and we have a lot of work to do but it's the data is accelerating the transactions are accelerating we'll have no choice choice but to build more trusted systems um Matthew we spoke a bit earlier about being uh incremental um you know people maybe long Vision but we you know smaller things that make a difference in in in the near term you know what are you thinking about there in terms of you know what of a a meaningful project you could work on in the next six to 18 months I mean you hidden nail on a head right you mentioned trust right so so they there is one beautiful technology blockchain which is a zero trust design right so we actually found application of blockchain in crossborder supply chain Finance uh because we obviously have been on Bank we build the largest SM Landing platform in China but also with our digital Bank in Hong Kong we use data as a collateral right using trade data as a collateral um by the way we also build S Landing platform for adgm that's why I got invited to speak on this day so what I'm trying to do is actually connecting this platform because I I I think this is actually one of the government Chinese government's initiative trying to Foster the so-called crossb data sharing right so trade is very important you know under the b r initiative so what I'm trying to do is building up what I call a digital trade Corridor uh starting from connecting Hong Kong Ma you know what we did with Hong Kong Ma and adgm so we're connecting maybe just a simple tokenizing of an accounts receivable versus trying to tokenize the whole blockchain through the yeah so unlike the SS security which called sub so we want to use is using uh to blockchain tokenized accounts receivable on that digital trade Corridor which obviously deal with a trust issue that's really what we're doing yeah yeah commissioner we can close off with you what do you think is in that near term from your perspective and and maybe Beyond and and how regulators and the markets will uh you know what will they what's the action in the next year or two so what I appreciate about some of the discussion today is talking about two key shifts uh that people are seeing with um all of the technology that is available so one of them is around the fact that you're having just an explosion in New Markets and new products for Financial Services I mean really sort of innovation is the is your creativity is the limit your imagination is the limit another one though is how with uh Technologies like blockchain you're really seeing instantaneous Financial transactions and instantaneous Financial transactions means yes everything is faster everything is real time but also means that transmission of risks is also real time and that's something that we saw with uh social media and again the US Regional Bank stresses earlier this year so what I see is uh two key trends to expect from Regulators so first of all just as uh my colleague said up here uh risk management has to be at the core of your business when you think about a universal Commercial Bank in both uh wholesale and Retail markets I think there's two main jobs one risk management to support the economy through credit creation those are the core functions of a bank and so with that understanding Regulators are going to have heightened regulatory expectations and much more Super visory scrutiny over new markets and new products and then the second Trend that I see for Regulators is really looking at how do Regulators step up their game how do Regulators stay ahead of the curve how do Regulators really upskill from a talent perspective how do you compete with the private sector when you're looking at these issues and I also think that with uh the shift broadly in our lives to a digital economy and Virtual Worlds Regulators are going to be more focused on technology service providers whether that's traditionally through third party risk management by Financial intermediaries or whether it's even direct regulation we look forward to working you as a provider thank you ladies and gentlemen thank you to my panel commissioner fam GES and Matthew than you