The Committee stated in January that “it can be patient in beginning to normalize the stance of monetary policy,” and that the timing of any policy shift will be data dependent, based on an ongoing careful evaluation of progress towards the Committee’s goals of maximum employment and 2 percent inflation. 1 Emerging market officials and market participants have expressed concerns that Fed liftoff might spark an undue tightening in global financial conditions, creating a new growth headwind for emerging market economies. These concerns are understandable. The Federal Funds rate has been near the zero lower bound for more than six years. The Taper Tantrum in the spring and summer of 2013 provides a ready reminder of the potential for volatility around actual or perceived news concerning Fed policy. Like other central banks, the Fed’s monetary policy mandate is defined in domestic terms. Yet the Fed takes the potential international implications of its policies quite seriously. In part, this comes from a sense of a special responsibility given the international reserve currency status of the dollar. An outward-looking perspective is also warranted because the international effects of Fed policies can spill back onto the U.S. economy and financial conditions. It is of note that emerging market economic performance during previous Fed tightening cycles has generally been good. During the last three U.S. tightening cycles, EME industrial production growth has come to between 7½ and 10 percent over the 12 months from the start of Fed tightening, while EME export volumes have risen 10 to 15 percent.

In such a case, a review of that regulatory policy may be necessary. There is no one-size-fits-all supervisory answer. It simply means that as regulators, we need to keep abreast with technological developments. Only then, can we exercise thoughtful judgment. The fact that many financial regulators including the MAS have allowed regulatory sandboxes to be set up highlights a preparedness to allow innovative financial models to first be tested within defined parameters. Harnessing technology to strengthen supervision 21 There is a growing area of technology use that will be directly relevant to financial supervision – Regulatory Technology (or RegTech). This is the use of advanced technology systems and algorithms to enhance risk management and regulatory compliance. 22 Many financial institutions have embraced RegTech, such as: Predictive analytics being used in stress testing; Artificial Intelligence and Machine Learning-powered systems to identify money laundering risks; and Cognitive computing and behavioural algorithms to detect suspicious trading and possible misconduct. 23 On the supervisor’s end, the MAS is developing our own ‘SupTech’ to improve and sharpen our surveillance and analytical capabilities. Since about a year ago, we have set up a dedicated unit for SupTech within our Data Analytics Group. 24 The aim is to make greater use of technology and “smart tools” to guide our financial surveillance and supervision functions. To do so, building the infrastructure for our data analytics projects is important. We are putting in place an MAS Private Cloud. This will serve as the foundation to provide computing power to all data analytics projects in MAS.