Harvesh Seegolam: Digitalisation as a transformative force in banking
Keynote speech by Mr Harvesh Seegolam, Governor of the Bank of Mauritius, at the
Infosys Finacle Mauritius Banking Connect 2022, Turtle Bay, 4 October 2022.
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First Deputy Governor and Chairperson of the Financial Services Commission
Chief Executive of the Financial Services Commission
Chairperson of the Economic Development Board
Vice Chairperson of the Economic Development Board
CEOs and representatives of Banks
Representatives of Infosys
Distinguished guests joining us from Mauritius & abroad
Ladies and gentlemen
Good afternoon.
It is a pleasure for me to be in your midst for this Infosys Finacle Mauritius Banking
Connect 2022. Today's session is highly pertinent due to its special focus on
digitalisation in the banking world. I seize this opportunity to commend Infosys for such
an initiative at a time when going digital is gaining traction in all corners of the globe.
Some time back, the pandemic was at the forefront of discussion in all spheres,
including banking. While it unfortunately resulted in millions of casualties and brought
down the world economy to its knees, it, nonetheless, resulted in a fundamental rethink
in the way we operate. One of its offshoots has been an acceleration in the pace of
digitalisation.
Digital transformation is now a prerequisite for banks' survival. Changing customer
demands together with pressure to reduce costs and increase efficiency are leaving
banks with no option but to use modern technology. Banks must adapt to this change if
they want to be successful. This automatically implies a constant review of the business
models. More importantly, the skill set of the board must be regularly diversified to
include members with expertise on the latest developments. Board membership should
never be viewed as lifelong positions as it might stymie the adoption of new ideas.
Digital transformation has made inroads faster than anticipated. Incumbent banks are
poised to re-invent themselves and embrace new technologies such as cloud
computing, machine learning, artificial intelligence and blockchain. In this digital
revolution, barriers to entry are being eased. Fintech companies are viewing it as an
opportunity to penetrate new markets and use their technological acumen to entice
customers with easy to use digital applications.
Examples of digital transformation abound. Digital adoption concertinaed from years to
months. In Europe, for instance, the digital adoption rate jumped from 81 percent to 95
percent in the aftermath of the COVID-19 crisis. In July 2020, in the US, the Office of
the Comptroller of Currency provided guidance that federally chartered banks may
provide crypto custodial services for Fintech using crypto assets and stablecoins. In
Mauritius, the Regulatory Committee on Fintech and Innovation-driven Financial
Services was set up in 2018 to facilitate the adoption of Fintech and other innovative
services. The Committee identified different priority areas within the Fintech space. The
recommendations of this Committee provided the foundation for the Virtual Asset and
Initial Token Offering Services Act (VAITOS) 2021 which was brought into force in
February 2022. The VAITOS provides for a regulatory framework for new and
developing activities regarding Virtual Assets (VAs) and Initial Token Offerings (ITOs) in
Mauritius, as well as to safeguard against money laundering and financing of terrorism
associated with VAs. With the coming in force of the VAITOS, Mauritius is one of the
few countries to be in compliance with all 40 recommendations of the FATF.
Also, cognisant of the challenges associated with the opening of accounts by new
Fintech players, the Bank has set up a Committee comprising different stakeholders to
specifically look into these issues. The Bank is also updating its regulatory and
supervisory toolkit with respect to virtual assets.
Ladies and gentlemen,
Banking is no more just a brick and mortar affair. It has become a hotbed for innovation
and technological prowess. As an international financial centre of repute, our jurisdiction
has to follow the latest developments and customize them to its requirements. In that
regard, the Bank is supportive of new ideas and recognises that those changes can
drive improvements in how the industry meets customers' needs.
At the recent Governors' Meet held in the context of the 55th anniversary celebrations
of the Bank, I emphasized the importance of innovation in central banking. I ensured
that a panel consisting of Governors and other eminent participants discussed
specifically on this issue. The "Future of Banking Report" for Mauritius was also
officially unveiled. The Report charts out the roadmap for our banking sector in the next
decade and it has extensively covered digitalisation. I would advise the audience to
refer to the Bank's website for a copy of the report.
Let me now take you through the various initiatives on the digital front at the level of the
Bank. We have constantly invested in the evolution of the country's Payment
Infrastructure and can today boast of a modern eco-system. One of the hallmarks of the
digital transformation of the payment space has been the implementation of the
Mauritius Central Automated Switch (MauCAS), a state-of-the-art digital platform for
routing payments among operators on a 24x7 basis. This innovative digital platform
makes banking, e-commerce and mobile payments interoperable and encourages
cashless means of payment. Fintech firms can leverage on this platform to provide
value added services and provide banks with opportunities to collaborate with providers
of emerging technologies.
As part of the digital transformation of the economy, the Bank is also developing an
infrastructure to integrate all Government payments to support digitalisation of
Government services. The work has progressed satisfactorily and the relevant testing
has been completed. We intend to formally launch the project soon.
To facilitate further instant payments, the Bank has also introduced a national QR Code
earlier this year. Branded as the MauCAS QR code, it is designed to be fully
interoperable hence allowing the public to make payments at any merchant location.
On the cross-border front, the Bank has already made significant progress to enter into
bilateral agreement with payment schemes of jurisdictions with which Mauritius has
strong commercial relationships. A first project has been initiated with the National
Payment Corporation of India for retail payments through RuPay cards and mobile
phones. The project is well on track.
Ladies and gentlemen,
The evolution of the banking sector needs to be accompanied by changes in the
relevant legislative and regulatory frameworks to capture new trends and at the same
time protect customers. In November 2020, I established a multilateral Fintech
Committee comprising various agencies to chart a roadmap for the financial industry to
embrace fintech and adapt the regulatory framework accordingly. We have been
updating and revamping our frameworks to align to the new environment we are
operating in.
We continue to ensure that the legislations and regulations are regularly reviewed and
amended to reflect changes in line with the new environment in which we operate. One
such innovation relates to the licensing of digital banks. At the full height of the
pandemic in 2020, the Bank was empowered to license digital banks, that is, banks
which can carry on banking business exclusively through digital means or electronically.
Thereafter, the Bank put in place, with the assistance of the IMF, a conducive licensing
and regulatory framework for digital banks in Mauritius and issued its Guideline for
Digital Banks in December 2021.
In line with best international practices, the Bank introduced, in its Guideline, a
phasedin licensing process for digital banks wherein they are subject to a restricted phase
during which these new entrants conduct operations in a flexible but controlled
environment. I have some encouraging news to share with you in the field of digital
banks. The Bank has received enquiries on the setting up of digital banks from a cohort
of well-established foreign banks and we look forward to the licensing of full-fledged
digital banks in the near future.
The digital journey cannot be complete without digital customer on-boarding which may
entail ML/TF risks if not properly managed. The Bank is a proponent of the use of
technology for customer end-to-end digital experience while, remaining committed to
FATF recommendations when it comes to combatting ML/TF. The country has an
infrastructure, the InfoHighway, which gives access to databases of information
/documents relevant to KYC process as well as a digital document wallet service
containing documents which may be used for KYC.
The Bank is leveraging on the Infohighway to facilitate access to digital KYC documents
against independent, reliable source data, in line with the requirements of the FATF.
This is another project on which we have been working in collaboration with most
stakeholders and which we aim to pilot in the near future. The Bank is also establishing
a framework for the use of technology, adequate governance, processes and
procedures that provide appropriate levels of confidence and produce accurate results.
Ladies and gentlemen,
As pressure accentuates on commercial banks to reduce costs, the use of cloud
computing is becoming increasingly popular. It allows expenses to be turned into
smaller operational expenses which are more easily managed. Further, with cloud
computing banks are only charged with what they use and therefore may be more
effective than spending on relatively large IT infrastructure. Cloud-based services being
a novel area, it is, thus, imperative for regulators to translate their expectations to the
industry.
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Last month, in the margins of the celebrations of the 55 anniversary of the Bank, the
Bank introduced a Guideline on Use of Cloud Services after extensive consultation with
the industry, cloud service providers and experts. This guideline has created a level
playing field by coming up with a minimum set of requirements that must be followed by
all regulatees before having recourse to cloud-based services.
Ladies and gentlemen
Let me reiterate that the Bank will always have an open mind and open-door policy as
far as the use of innovative technologies is concerned provided that the risk
management process is adequate. We are conscious of the importance of innovation in
financial services.
The Bank is also working on the establishment of an innovation hub and digital
lab. The main objective of the innovation hub and digital lab is to foster innovation and
the use of emerging technologies in the provision of banking and financial services.
In parallel, the Bank is enhancing the framework for Regulatory Sandbox Authorisation
together with the Financial Services Commission to create a more conducive
ecosystem for fintech, regtech or other innovation-driven financial services.
Ladies and gentlemen
I am optimistic about these technological changes. In particular, I see benefits for
customers and the prospect of a more competitive banking sector, which should
encourage banks to pursue useful forms of innovation. However, you will agree that
innovation comes with new forms of risks. The more we foster digitalisation, the more
we make ourselves open to attacks through digital means. As such digital channels are
relatively new to staff and customers, they may not be aware of the security issues to
which they may be exposing themselves. There is therefore a need to consolidate the
knowledge concerning Information Technology and Cybersecurity Risks, through
running of regular outreach programmes, to ensure that staff and customers alike are
able to carry out their transactions in a safe and secure manner.
To this end, the Bank is developing a cyber-security strategy as well as relevant
frameworks for incident reporting, information sharing and testing for the banking sector
with a view to enhancing the resilience of the financial system to cyber risks. A draft
Guideline on Cyber and Technology Risk Management has been issued to all banks for
consultation and is currently being finalised.
I am aware that the road to digitalization also entails recourse to third party service
providers. This could result in a risk of concentration in the market for the provision of
third-party services to banks as they tend to rely very heavily on the services of few
providers for their technology-related outsourcing. Such heavy reliance on a few players
across the market could contribute to systemic risk. It is important, therefore, for banks
to have a holistic perspective of the risks involved and how they can be mitigated before
deciding on the adoption of a new technology, process or even product.
Ladies and gentlemen
My address will not be complete if I omit to cover an aspect that concerns every citizen
of our planet - climate change. We are facing grave dangers ahead and the rise in
temperature must be limited to 1.5 degrees Celsius for us to even have a fighting
chance. The financial sector is a massive consumer of energy and digitalisation can, to
some extent, reduce the global carbon footprint. Sustainability is attracting attention
from all stakeholders and the time is now ripe to embrace sustainable principles. If you
miss the sustainable bus, it will be at your own perils. At the level of the Bank, we
launched our Climate Change Centre last year to speed up the transition to a greener
financial system.
We are fortunate that we are able to meet physically in Mauritius due to the easing of
travel restrictions. I seize this occasion to encourage the foreign participants to take
some time out of their schedule to visit the island.
With these words, I thank you for your attention.