was among the earliest, shortly after the uk. let me outline briefly how the mas sandbox works. the sandbox is available to both regulated financial institutions and unregulated fintech players to test innovative products and new technologies. firms entering the sandbox do not need to meet all the relevant regulatory requirements at the onset. to ensure that the consequences of any failure are contained, the experiments are conducted within agreed boundaries, such as the number of clients, scope of the activity, etc. the experiment is time - bound. if successful, the entity must exit the sandbox and fully comply with all relevant regulations if it wants to roll out the innovative product to the broader market. if the experiment fails, well, we all learn something. regulatory sandboxes not only encourage fintech innovation by providing a safe space for experimentation. they also give regulators an opportunity to learn the risks associated with new technologies and right - size regulation accordingly. in fact, the sandbox is an experiment not only for firms but for regulators as well. harnessing technology to manage risk we must also look to harnessing fintech to better regulate and supervise financial institutions and help them manage their risks. from a regulatory perspective, among the more promising applications of technology is in what is called “ regtech ”, aimed at enhancing the efficiency and effectiveness of financial firms ’ risk management and compliance. we can see regtech advancing in several areas. predictive analytics is being used in stress testing – to assess the ability of large, complex financial institutions to withstand a variety of stresses affecting different parts of the business in different geographies. cognitive computing and behavioural algorithms are being used to monitor and detect suspicious trading and possible misconduct in financial institutions. machine learning capabilities can help to identify subtle patterns in behaviour, which are hard to detect using traditional data analysis. 6 / 9 bis central bankers'speeches in the future, financial regulators will increasingly harness big data to detect and prosecute misconduct, and to identify weaknesses to focus on. in a recent case, the us sec obtained a settlement against a broker - dealer for its failure to adequately train its representatives when they were selling certain complex debt instruments. custom analytics tools, instead of traditional investigative techniques, were used to sift through millions of trading records. they helped identify over 8, 000 retail customers for whom the investment in the debt instruments was inappropriate. this is how 21st century regulation and supervision should look like. strengthening cyber risk management as financial services increasingly move online and fintech becomes

a share of non - bank loans in the us. small banks are trimming product lines and pulling back from certain customer segments. emerging market and developing economies ( emdes ) have expressed concerns that global banks have been reducing their activities in these markets as they review their business models in light of the new regulatory environment. the fsb is keeping a close watch on this. we have rightly focused our regulatory efforts to minimise the risk of another financial crisis. but we must continually ensure that we do so without minimising economic growth and opportunity. fine - tuning regulation we must be careful to avoid “ pendulum swings ” in regulation that could undermine the gains in financial stability that we have achieved, not to mention prolong and add to the uncertainties facing the financial industry. that regulations have imposed costs on the economy is in itself not sufficient reason to unwind them. 3 / 9 bis central bankers'speeches these costs have to be weighed against the benefits of a more stable financial system to support sustainable economic growth. de - regulation has its own costs. having said that, some fine - tuning may be necessary to reduce the unintended effects of reforms while preserving their benefits. regulatory policy must continually seek the fine line between discouraging excessive risktaking and encouraging innovation. we should not be afraid to adjust and fine - tune where necessary. as dan tarullo, former governor of the federal reserve board, says with respect to the dodd - frank act and other regulations in the us, “ some recalibrations and reconsiderations will be warranted on the basis of experience. " 5 there are two key principles to keep in mind as we fine - tune regulations : risk proportionality and global consistency. risk proportionality we need to be mindful of proportionality when applying international regulatory standards. subjecting banks of different sizes, different scope of activity, and different degrees of internationalisation, to the same rules is not appropriate. most of the new regulations were designed with large, cross - border financial institutions in mind. they are a poor fit for smaller institutions – like local community banks and finance companies – that tend to pose fewer systemic risks. here in the us, there are concerns that post - crisis regulations have been unduly punitive on smaller banks and have affected their ability to support small businesses. regulators need to review their frameworks to ensure they remain risk proportionate. they are not starting from a blank slate. in the us, for example, the dodd -