[LIVE] IPS-Nathan Lecture by Piyush Gupta: Balancing Stability, Trust & Innovation in Finance

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[Music] [Music] [Music] Good afternoon, ladies and gentlemen. It is my pleasure to welcome you to the IPS Naden lecture series by Mr. Push Gupta, our 17th SR Nadan fellow for the study of Singapore.

Today, Mr. Gupta will be delivering his first lecture titled "Balancing Stability, Trust and Innovation." Following his lecture, Mr. Gupta will take questions from the audience in a Q&A session. The Q&A session will be chaired by Miss Tioian, chairman of Capital Land Integrated Commercial Trust Management Private Limited.

Before we begin, please allow me to go over some housekeeping rules for the event. Thank you all for joining us at the auditorium today. Please be reminded to switch your mobile phones to silent mode.

The lecture is being streamed live on IPS Facebook and for the first time on the Business Times Facebook and YouTube channel. It will also be recorded and uploaded onto our IPS website and our social media platforms later.

Please submit your comments and questions at any time during the lecture through the Facebook comment boxes or YouTube live chat. For our audience members here at the auditorium today, please step up to the mic during the Q&A session to ask your questions. We will try our best to answer as many questions as we can during the Q&A.

We would also like to hear your views on the event. There will be a QR code on the screen and a link in the feed at the end of the lecture to submit your feedback. Director of IPS, Jenna Stein, will now deliver his opening remarks. Director, please.

[Applause]

Welcome, ladies and gentlemen. As you heard, Mr. Push Gupta is our 17th SR Nadan fellow. The official title of this fellowship is IPS fellowship for the study of Singapore. Something like that. A very grand title, which we inaugurated about 10 years ago in 2014. And in the 10 years, we have had 17 fellows.

When we began, the SR Nadan fellow was usually an annual affair, each fellow delivering about four to six lectures. We then decided that was a bit too much to expect of our fellows, so we reduced it to three or four, if they please. And instead of one a year, we have now two. And it's been a very highly successful series of lectures, and thanks to the generosity of our donors and of course, the continued generosity of our corporate associates, without whom we would not be able to fund or run much of our IPS's programs.

Push is the first SR Nadan fellow from the financial sector. So we thought we might as well begin with the best. He's the closest we have to what used to be called a "master of the universe" many years ago, when I think the term was applied to Alan Greenspan and Bob Rubin and Larry Summers. But the financial sector is 14% of our GDP. And I think it is only appropriate that we have at least one person delivering a series of lectures on 14% of the GDP.

As the title of the lectureship designates or denotes, we established this fellowship to honor our sixth and longest-serving president, Mr. SR Nadan. And I'm grateful that we got sufficient support from a number of donors to be able to sustain this fellowship for this long, and probably in perpetuity. And not only that, spawn a kind of junior series from the fellowship. We have young scholars once every two years or so, presenting their findings in a variety of fields. We'll have one junior SR Nadan fellow soon.

Let me end by thanking Miss Theosen for agreeing to chair the session. The lecture will generally take about 45 minutes to 50 minutes, followed by a rather free-flowing question and answer, which will last at least another 45 minutes or so. For the first time, as my colleague just announced, this is being live-streamed through Business Times Facebook and YouTube platforms, so as to allow a wider audience from Singapore's business and financial community to join us.

So please join me in welcoming Push as the 17th SR Nadan fellow.

Thank you so much, Director. Ladies and gentlemen, without further ado, I would like to invite Mr. Push Gupta to begin his first lecture titled "Balancing Stability, Trust and Innovation." Mr. Gupta, please.

[Applause]

Good evening, ladies and gentlemen. Thank you all for joining me here this afternoon. I'm told this is the first time we're doing this lecture in this facility on this campus. I'm very pleased because I live three minutes away from you. It saved me a bit of a shle. So thank you for that as well.

Big thank you to the Lee Kuan Yew School of Public Policy, the Institute of Policy Studies, for appointing me as a fellow. I knew President Nathan, but not as well as some of you did. I met him a few times, and I was always struck by both his humility but his news, his sense for the public and people. I thought he was a remarkable man in his own way. So it's a privilege to be part of a lecture series that serves to honor him.

Singapore's often been described as an unlikely country, an unlikely nation. So I want to say, in a similar vein, Singapore is probably a very unlikely financial center. You think about financial centers: New York, London, Tokyo. They're architected on a common theme, which is a strong domestic economy, and therefore a financial system that needs to support and grease the wheels of industry, the wheels of commerce, large publications, and so on. Well, Singapore had none of these. And so, not unlike other sectors in the economy, we created a financial sector which was really outside in. We had to obviously look after our domestic system, but that was actually quite unusual.

We weren't the only ones who tried it, creating an offshore financial center, if you will. Several other centers did all over the Caribbean. But by and large, they either didn't scale or they picked up a bit of a smell. And therefore, if you had to look back and look for a successful example of a financial center that was able to pull it off, it would have to be Singapore. Quite interesting.

So, as I was discussing with Janadas, you know, what would be a good theme to talk about? Just this fact that, you know, we've been able to do something so distinctive in Singapore. I thought it might be interesting to go back and try and understand what were the conditions that allowed us to build this kind of financial center. But perhaps more importantly, I also think that the nature of finance, and what the world of finance is going to be, is changing very rapidly. And technology is changing everything. It's changing whether through GenAI or through Web3, blockchain, everything's going to change. But finance is likely to change perhaps more than any other sector and any other industry. And the reason for that is very simple: we don't make anything. Our industry is all about bits and bytes. It's about information, and it's about accounting entries, and it's all virtual. So it is very, very amenable to being redefined.

I want you to think about the nature of value. So when people started off in value, to the barter system, you exchange something for another thing, and then you wanted something, a means, a medium of exchange, to put valuations together. So you moved to cowrie shells, and then you moved to metal, to gold and silver. And then Gutenberg came up with the printing press, and so we moved to hund and bills. And then the central bank started using paper. So paper became currency. And then, fast forward, in the 1950s, plastic was a buzzword, and so we all started carrying plastic, and that became value. So value has tended to follow technology, and this has been true for centuries. And therefore, it is logical to believe that this path will not change. As technology continues to evolve, there's every likelihood that value will continue to follow technology, which is, you know, the changes that are likely to happen in the world of finance, therefore, are very, very consequential.

So that was another reason I thought it's worth thinking a little bit about where we are, what brought us, but how do we thrive in this world that is going to come? The future of finance, and what Singapore has learned from its past, does it play out equally as we go forward?

There's a third dimension to this as well, and that is some of the challenges that previous speakers before me have touched on: challenges to the planet, challenges of social inequity. These are real challenges, and as with most other things in life, money is at the center of all of this. And therefore, as we start thinking, continue to think about, you know, how do you build out a financial system? How do you continue to maintain a leadership position at the center? We're going to have to be extremely mindful of how does the financial system serve its role in being able to address some of these challenges.

So, put all of these together, gives you a sense for the title of my series of lectures: you know, how did we arrive where we are, and how do we thrive on the way forward?

By the way, Janadas said, I noted, you said I was the first financial person doing lectures. I'm not sure Ravi Menon is going to be very pleased with that observation.

In these set of three lectures, so this is how I'm going to construct myself. Today's lecture is going to focus on our journey and our rise as a financial hub. In my next lecture, I will talk a little bit about the past decade, about digitization, about the entry of new players, non-traditional players into the industry, about how technologies have already started changing the consumer expectation, the baseline, and how we've negotiated through that and navigated our way through that. In the final lecture, I will talk a little bit about some thoughts on the way forward, you know, where is the world appearing to go, and what might Singapore need to do and look at if you want to navigate that course suitably as we go ahead.

So, one more quick comment. So why is the title of this lecture "Balancing Stability, Trust and Innovation"? Is there an inherent natural conflict between the three? You could argue maybe not, and you can have stability, innovation, and trust. In fact, I will point out in the rest of my lecture that that is what Singapore's secret sauce has been. We've actually managed to do this relatively well: build the trust of people, depositors, investors, create a stability in the system, and yet be able to be nimble about innovation.

But in truth, there is an inherent tension between these three objectives. And the tension comes from the fact that if you want to be innovative, you sometimes have to take some risks. You have to reimagine the status quo. You have to, what the tech industry calls, come up with MVPs, minimum viable propositions, and throw them out and test them. Now, in an industry like ours, it is not that easy to throw things out and test it without creating distrust among the public. You know, "Is my money safe? Are my accounts safe? Is the system safe?" So it's not that easy to innovate and experiment without losing the trust and confidence of depositors. And so that's an inherent tension, very unlike if you are Facebook or Amazon.

And then, finally, system stability is very important. System stability is not just stability of the banking industry or the insurance industry, but as we've seen in the GFC, it's system stability that links the financial sector to the real sector as well. Balance sheet recessions are the worst kind of recessions. And therefore, making sure that you have an eye on keeping the macro environment stable and not letting that fall apart in the face of innovation is another form of tension.

In my 40-odd years as a banker, I have seen this tension play out, and I've seen regulators, banks, and central banks constantly run afoul one way or the other. And so I do think that this is not an easy game to play. And therefore, in this lecture, as I look back, I do want to call out various instances of how we took appropriate risks. Some of them were quite unorthodox, but at the same time, how we tried to continue balancing them, sometimes chronologically, and sometimes even at a common point in time.

So, let me start with this. Our financial sector has come a long, long way. As Janadas pointed out, it accounts for 14% of our GDP. It's our third largest sector after wholesale trade and manufacturing. We are the home to over 2,500 financial institutions. We have over 200,000 workers employed in the sector. The sector also offers the highest median gross income amongst all local employed people. The growth of the sector has constantly outpaced GDP growth. It accounts for almost 50% of market cap. I mean, basically three banks, DBS, UOB, OCBC – that's not a healthy sign, but it's the fact that it accounts for 50% of the market cap of the stock exchange. And when you compare with the rest of Asia, the financial sector tends to be about 20%. So in Singapore's context, the financial sector is definitely outsized.

It's not just important in the domestic context; it's been extremely important and played a key role in the international scheme of things. So we've actually become a very significant global financial hub as well. We rank number four in the Global Financial Centres Index, behind New York, London, and Hong Kong. We are the third largest foreign exchange center globally and Asia-Pacific's largest foreign exchange center. It is the number two international wealth management center globally in competitiveness, according to the Deloitte International Wealth Management Center rankings for last year, 2024. And some of these strange things: we conduct 20% of the world's energy and metals trade. We are Asia's largest oil trading hub and the world's second largest agri-trading hub. You think about it, you know, Singapore, a hub for agriculture? For what reason? But we are. So when you think of not just domestic impact but a global impact, we are really very, very significant.

Now, our success was not just a result of mere happenstance. Like so many other chapters of the Singapore story, it's a tale of bold vision, a spirit of innovation, openness to new ideas, efficient policy execution, and strong partnership between industry and government. Together, this has enabled a very judicious balance of what I talked about: stability, trust, and innovation.

In previous IPS lectures, Mr. Philip shared how Singapore's bold policy moves and strategic choices have enabled it to transform from a labor-intensive manufacturing economy in the 1970s to a diversified modern economy today. And then my friend Chongm discussed how Singapore has played an outsized role in global trade and the international maritime sector on the back of its reliability, stability, rule of law, effective governance, R&D strength, and again, a wide range of financial services.

In this lecture, I will outline similarities in the growth of the financial sector, showing how bold policy decisions, a willingness and nimbleness to pivot in response to external developments, and a spirit of partnership and collaboration have been cornerstones of Singapore's dramatic rise as a global financial sector.

By the way, some of this, my last caveat, some for you, this is lived reality. I was talking to Mr. Joe Pill earlier, he's here to hear me talking about things that he put into place. But for me, I came to Singapore in the 1990s, so I had some familiarity, but I really settled down here only in the 2000s. So for me, the research into our history was actually very constructive, instructive, and very, very fascinating, and I do think it has some lessons to point to us.

So, our roots as a financial hub can be traced to the creation of the Asian Dollar Market, the ADM, in 1968. So in the late 1960s, many of you know this, the growth of the Eurodollar market, which is US dollar-denominated deposits held at foreign banks outside the US, created demand for an Asian market to bridge the gap in global trading hours between the US and European markets. At that time, Dutch economist Albert Winsemius, then chief economic adviser to the Singapore government, was discussing potential growth areas for Singapore with banker J.D. Van Veen, who showed on a globe how Singapore could provide 24-hour banking between the closing of the US markets and the opening of the European markets.

Now, Mr. Van Veen submitted his proposal to the then Finance Minister, Mr. Hon Sui Sen, who discussed it with PM Lee Kuan Yew. They recognized the significant potential of shaping Singapore into a financial center. With Asia's rapid industrialization and growth at that time, it was an opportune moment to serve as a regional center for Eurodollars and facilitate the flow of global savings into investments in the region. Financial services was a promising growth area, given Singapore's limited land and scarce natural resources. The development of a financial center would also support and complement the growth of Singapore's export-oriented manufacturing industry.

Now, I'm going to come back to this point later in my talk, but you have to reflect that in the late '60s, the notion that the world would become a dollar-denominated world and that Eurodollars would be so significant, so much so the dollar economy would be so significant, wasn't obvious. We were just coming off a world which was a very sterling-denominated world, certainly through till the Second World War. So something to reflect on.

But along with the Asian Dollar Market, we did something which was actually truly novel: the formation of a two-tier banking system in the form of an Asian Currency Unit and a Domestic Banking Unit, ACU and DBU. In contrast to the DBU, which held domestically focused operations and was denominated mainly in Singapore dollars, the Asian Currency Unit was treated by the MAS as a booking account to allow banks to accept deposits and provide loans in foreign currency. The Ministry of Finance also provided a concessionary tax rate on offshore income earned by banks' ACUs. The ACU, which held the bank's offshore operations and was subject to less stringent regulatory rules and requirements than the DBU, grew rapidly. During 1970 to '81, primary deposits expanded at an annual rate of over 60%, reaching $9.5 billion by the end of March 1981. Now, $9.5 billion doesn't sound like much today, but in those days, money that is very, very significant.

As of March 1981, there were 120 ACUs, including eight operated by local commercial banks and 77 by foreign commercial banks. The segregation of international and domestic banking activities by the ACU and DBU aimed to safeguard financial stability by mitigating risks of fund flows into the ADM impacting domestic monetary policy. It also shielded domestic banks from larger foreign financial institutions while allowing these institutions to participate in Singapore's financial services sector.

The formation of the ADM and ACU was highly unorthodox at that time. While Hong Kong was largely recognized as the main regional financial center, the Hong Kong authorities opted not to grow an offshore market in Hong Kong due to concerns that an offshore market would drain liquidity from the domestic market. In contrast, Singapore's development of an offshore market was a conscious decision to serve as a platform to orchestrate flows of regional savings into regional investments. It aimed to diversify the Singapore economy to include an international center, an international leg, as part of a larger shift towards becoming more outward-oriented, in recognition of the limitations of our small domestic banking market. It also allowed Singapore's financial sector to play a key role in serving the growing demand for foreign currency transactions and foreign exchange needs of a rapidly developing Asia. It attracted multinationals to set up regional treasury and financing operations in Singapore, thus boosting our trading hub status.

The ADM, in turn, led to the subsequent and rapid growth of the foreign exchange market. You can see that the Singapore International Monetary Exchange was founded. The SIMEX was founded in 1984 as the first financial futures exchange in Asia, boosting Singapore's provision of advanced risk management services to global investors. Together with the Chicago Mercantile Exchange, SIMEX pioneered the first international exchange linkage by establishing the world's first mutual offset system, a 24-hour trading system which remains widely used even today. SIMEX also launched several world firsts, such as introducing the Nikkei 225, the MSCI Taiwan futures contracts, the first Japanese and Taiwanese equity index futures created in Asia.

Moreover, actually, savings played a very key role in times of crisis. During Black Monday in 1987, where the crash in global markets resulted in a lack of markets to price index futures, many markets did not open that day. SIMEX took a decision to remain open and is still recognized today for doing that and making sure that price transparency was available. So, on the back of all this, Singapore today stands as the third largest foreign exchange market in the world and the largest foreign exchange center in Asia, having overtaken Switzerland in 1992 and Tokyo in 2013.

Again, I talked about the bet we made on the US dollar. We also made a bet on the regulatory possibility of two sets of regulations: a set of regulations for the international approach we wanted, and a different set of regulations for the domestic market. So in our history, we have been able to be quite adroit about leveraging, taking bets on trends, and leveraging regulations in a way that was to the advantage of our overall system.

Fast forward to the 2000s. I call it the "second wind." Through the late '80s and '90s, the MAS took a relatively conservative regulatory approach to safeguard the stability of the financial sector by facilitating its controlled development. It prioritized the resiliency of the system and risk minimization to protect depositors and investors and uphold trust in Singapore's markets. High potential standards were imposed, and only reputable foreign institutions were allowed entry. While this approach, along with Singapore's strong economic and financial fundamentals, allowed Singapore to weather the 1997 Asian financial crisis relatively better than other Asian economies, there was recognition that the world around us was changing.

As then Deputy Prime Minister and MAS Chairman Mr. Lee Hsien Loong noted, "We cannot simply extrapolate this success or the policies which have produced it into the future." Key drivers of change included technological developments, growing cross-border competition, and a structured trend towards greater industry consolidation.

First, advancements in information technology and telecoms allowed financial institutions to introduce new products, services, and distribution channels. Markets were also becoming increasingly globalized, with technology enabling global trading 24/7, as well as free flow of capital. Second, intense cross-border competition, enabled by both technology and regulatory liberalization, led to more efficient financial systems globally. Third, financial centers were undergoing consolidation, especially the emergence of London as Europe's key financial center. And there was a concern or a belief that you might start seeing more similar consolidation in Asia as well.

At the same time, the Asian financial crisis highlighted potential risks that Singapore would have to manage should it open the system, including its inherent vulnerability to external shocks and the risk of contagion. So, in 1997, a Financial Sector Review Group was formed to conduct a comprehensive review of Singapore's financial sector. Private sector committees were commissioned to examine issues such as banking competitiveness, banking disclosure, corporate finance, and the stock exchange. The review resulted in a new approach to supervising and developing the financial sector with three key thrusts: one, liberalizing the financial sector; second, reviewing the regulatory and supervisory framework; and third, taking a more strategic and proactive approach to development.

This was a bold move. As Mr. Lee Hsien Loong put it then, "Changing policies is never easy. It is harder to change policies which have been extremely successful and which continue to yield results than policies which have failed and must clearly be abandoned. Yet we have to look ahead and prepare for major changes in our operating environment." While the MAS had been conservative in its regulatory approach towards banks and financial institutions, which had enabled Singapore to remain relatively unscathed by the financial crisis, changing external conditions necessitated a shift in that approach. This involved balancing promoting liberalization and innovation while continuing to safeguard stability. Singapore had to figure out how to become less cautious, but in a careful way.

As Mr. Lee observed, the Financial Sector Review Group identified key sectors that would benefit from greater liberalization: the asset management industry, capital markets in debt, equity, and derivatives, the banking industry per se, and insurance. In each of these, MAS took decisive steps to liberalize the financial sector while carefully calibrating its approach.

Asset management. The asset management industry expanded rapidly in the 1980s as investors looked to grow their portfolios after experiencing negative rates of return following high inflation in the early 1980s. The fast-growing emerging Asian markets were an attractive investment target, and Singapore emerged as a key destination for fund managers to manage regional investments. The authorities recognized the long-term growth prospects of the asset management industry and its potential to draw a wider range of intermediaries and issuers to Singapore, which would spur the expansion of debt and equity capital markets. In turn, a vibrant sector would also boost the insurance and reinsurance sectors, which required asset-liability matching and asset management.

In 1998, the government thus set a vision to develop Singapore into Asia's premier fund management hub. However, it acknowledged that regulatory and institutional weaknesses were constraining the industry's growth potential. To address these limitations and encourage the industry's development, MAS implemented incentives to attract more international asset management firms and buy-side firms. It streamlined the regulatory structure for fund managers and unit trusts, loosened regulations to enable foreign fund managers to enter and distribute their products in the domestic market with greater ease, and progressively allowed for more offshore investments by local funds. The CPF Investment Scheme rules were also revised to allow and encourage CPF members to engage professional asset managers to manage their investable funds. Foreign fund managers were offered significant tax incentives to manage funds from CPF. This not only aimed to boost the asset management industry but also develop efficient capital markets that reflected the view of professional investors. Taxes on distributions from unit trusts for residents and the withholding tax requirement on taxable distributions to unit holders were also removed to encourage existing and new firms to expand in Singapore by providing seed money. GIC increased the amount of funds placed with external private fund managers in Singapore from some $10 billion to some $35 billion, while MAS itself placed out $10 billion of funds over three years. The private sector also played a significant role in promoting the fund management industry, with the Investment Management Association of Singapore serving as a key platform, working with the regulators, providing regular feedback on key concerns, as well as suggestions for regulatory improvement. Consequently, the AUM by fund managers in Singapore rose from $274 billion to over $2.6 trillion in 2015, and as of last year, over $6 trillion, marking the first time Singapore's AUM have exceeded $6 trillion. Reflecting the nature of Singapore's role as an international center, 77% of funds were sourced from outside Singapore, while over 88% of funds were invested outside Singapore.

So, a great example. So you think about the '80s or the 2000s, right? Asset managers are beginning to grow. The Blackstones, the BlackRocks, the trillion-dollar fund managers did not exist, right? At that point in time, to open up for our investors, our individuals, our citizens to be able to actually take part of the CPF, to take part of their own thing, and to encourage the creation of these products or the availability of these products was not easy because there's always this balance of our local citizens need to be safeguarded, and we don't know what these big bad boys might come in and do. But we bit the bullet, and you look at the consequences of that over the last 25 years.

Capital markets. Drawing lessons from the Asian financial crisis and the risk of overdependence in the banking system, the government also put in place initiatives to develop broad and deep capital markets, especially a deep and liquid bond market, to diversify fund sources and support the growth of the asset management industry. To develop deeper capital markets, MAS created a benchmark Singapore dollar yield curve through the issuance of Singapore government securities. It also encouraged public sector agencies to issue bonds and liberalized the Singapore dollar non-internationalization policy to allow foreigners to issue local currency bonds more easily.

On the supply side, the government established the SGS benchmark yield curve and introduced an issuance program to build large and liquid benchmark bonds. You know, actually, Singapore's domestic debt issuance is actually quite unique. We don't issue debt because we need the money, and we have just huge amounts of reserves. So we don't need any money. The only reason we issue debt, despite a strong fiscal position, is because we need to be able to establish a pricing benchmark and a yield curve. They needed frank, actually. The SGS were issued originally to meet the banks' needs for risk-free assets in the liquid asset portfolios. But then, to further develop the market, the government started issuing 10-year SGS in '98, the 15-year in 2021, to extend that benchmark yield curve I spoke of, and reopened existing issues to enlarge the free float. The establishment of a government yield curve served as a benchmark for issuers and, in turn, catalyzed the growth of the domestic corporate debt market.

To build a critical mass and diversity of issuers, statutory boards and government-linked companies such as JTC, HDB, LTA, they all issued bonds to fund their long-term infrastructure and operational needs. Again, you could have quite easily put these on the government balance sheet, but we chose to have all of these agencies issue bonds for a purpose: that's to build liquidity and build activity in the corporate bond market. In addition, the Singapore dollar internationalization policy was revised to allow foreign participation in the Singapore dollar market. Foreign entities in Singapore were permitted to issue Singapore dollar-denominated bonds, swap the proceeds into foreign currency for use globally. So take the money out of the country. Foreign corporations and sovereigns were also allowed to issue both rated and unrated bonds. Limits for SGS repos with non-residents were lifted. Banks were allowed to transact Singapore dollar interest rate derivative products with non-residents. So, same thing, a lot of very forward-looking deregulation in a very short period of time. Some of it not economically oriented, think, but you know, we could put it on our budget, but we chose to do a lot of other things for market development.

As a result, new issuance of corporate debt in Singapore surged from $20 billion in '99 to $134 billion in 2012 and reached $300 billion in 2024. Daily turnover of Singapore government securities also rose from $1.9 billion in 2001 to $2.8 billion in 2012 and reached $4.2 billion in 2024.

Equity markets. So, equity markets have not been our best story, I have to say. But even with it not being our best story, there is a story which is not a bad story. With security and risk avoidance as foremost priorities in the initial phases of capital markets development, access to the equities market was restricted to more established firms, thus allowing the stable growth of the brokerage industry. Fixed commission rates protected broker margins and allowed brokers to grow capabilities without being exposed to aggressive competition. This served to foster orderly industry growth and cultivate basic investment skills.

Following the Pan-El crisis in 1985, which saw the three-day closure of the Singapore Stock Exchange to manage the impact of the collapse of Pan-El on the equity market, MAS tightened credential requirements and raised capital requirements above international standards to provide for ample buffers. It also discouraged broker-dealers from engaging in multiple business activities within the same entity. The stricter regulation facilitated calibrated market growth. I underline the word "calibrated market growth" with no broker defaults since the mid-1980s.

In the 1990s, however, there's the same recognition that while our reputation as a safe and well-regulated market should be maintained, we had to try new regulatory approaches to modify the previous protective stance, which had resulted in higher costs, lower efficiency, and lower liquidity. So, greater flexibility was required to stay ahead of global trends as the equity market developed. And we did quite a lot of interesting things.

So, first of all, the Stock Exchange of Singapore and SIMEX were merged and demutualized to form the Singapore Exchange in 1999, as part of the recommendations of the Committee on Governance of Exchanges. SGX was an integrated stock and derivatives exchange, marking a first in Asia-Pacific. It implemented a first-class capital market structure infrastructure to serve the Asian market and to grow Singapore as a financial center. This involved encouraging greater market participation, leveraging synergies between securities and the derivatives markets to expand our product base and boost liquidity. We aim to enable integrated access to trading and settlement across instruments and markets by engaging in strategic alliances to develop platforms connecting liquidity pools in the region and across time zones.

SGX introduced new products such as the interest rate derivative contract, revised listing rules to allow flexibility for growth and technology companies to list on the Stock Exchange of Singapore's main board, as well as for foreign companies to list in Singapore dollars. We replaced fixed commission brokerages with freely negotiated commissions. But at the same time, MAS tightened risk management standards. The T+5 settlement cycle, we brought down to T+3. And as a consequence of some of these things, our equity capital markets and capitalization grew.

But I would hasten to add that if you look at, like I said, of all our markets, we're great in foreign exchange. We have a tremendous fixed income market. We have a tremendous wealth management asset management. So you've got to figure why does our equity market not keep pace? Now, there's a lot of good work which has gone in recently by the review committee, and so some of those recommendations are completely spot-on, and hopefully, they will make a difference. But to my mind, the underlying issue is that this balance of trust and innovation in the equity markets, we continue to lean on the side of making sure that we could protect the individual investor. And therefore, the animal spirits that you see in a Shenzhen or a Hong Kong, you don't see similar animal spirits in Singapore. The reason for that, the penny stock saga, the Club saga, you know, so we had experience, but the lesson we took away from that experience was that the balance between trust and innovation was, I think, tilted a little bit more to trust than to innovation, unlike in the other sectors that I spoke of.

Banking itself. In contrast to other countries, so interesting, Singapore's banking sector was dominated by foreign banks in the early years due to its colonial status. In the early 1970s, foreign banks, including HSBC, Standard Chartered, had over two-thirds of total bank deposits. So, given the relatively small size of local banks, MAS adopted policies to shield the local banks from foreign competition to enable them to gain a larger domestic market share. It put in place a three-tier licensing system for commercial banks, comprising full banks, restricted banks, and offshore banks. No new licenses for full and restricted banks were granted since 1970 and 1983 respectively. Restrictions were also imposed on foreign full banks, including on branch and ATM networks, as well as access to electronic funds transfer point-of-sale systems. Such measures enabled the local banks to develop strong fundamentals, as evidenced by how Singapore banks withstood the Asian financial crisis better than their Asian peers.

However, it was also true, by the turn of the millennium, that while Singapore banks were doing relatively well by regional standards, there remained daylight between them and other international peers in terms of size, technology, expertise, range, quality of customer service, and shareholder returns. So, in 1999, the MAS then began liberalizing the banking sector to introduce competition and strengthen the local banks, raising the quality of banking services and enhancing Singapore's position again as an international center. MAS took a phased approach over five years to provide local banks with sufficient buffer and time to respond to the increased competition. This included committing to a definite package only for the first three years, 1999 to 2001, to cater for policy flexibility.

Foreign banks were given greater access to the domestic retail market, including via the creation of a new license category called QFB, Qualifying Full Banks, and enhanced market access privileges were progressively raised. They've also provided greater access to and flexibility in the wholesale banking market. And in addition, the 40% aggregate foreign shareholding limit for local banks was also lifted and replaced with nationality requirements for the board of directors.

As a consequence, local banks underwent a wave of consolidation, including the sale of POSB by the Singapore government to DBS, which made DBS the largest bank in Singapore. And by 2004, there were three local banking groups: DBS, OCBC, and UOB, formed from the merger of seven groups. Following the mergers, the local banks expanded their range of services beyond traditional deposit-taking and loan intermediation, started diversifying more into capital markets, more M&A, asset management, greater focus on the consumer segment, and allowed them to start catering for an increasingly affluent Asia.

Now, again, as a result of these liberalization measures, Singapore's financial sector saw an increase in the number of foreign banks in Singapore to over 120 today. It led to the consolidation of the local banks that I spoke of, but also led to much greater strength and growth of our local banking industry. Today, DBS is the largest bank in Southeast Asia. It is ranked among the top banks globally in terms of return on equity, shareholder returns, as well as market capitalization, and has been awarded the World's Best Bank multiple times by global publications. So, again, an outcome of really leaning into liberalization.

Insurance. Like the other financial subsectors, Singapore's insurance sector initially served just domestic business. Life insurance was a key industry pillar, with MAS adopting a closed-door policy to direct insurers since 1990. In 2000, MAS liberalized the sector, lifting the closed-door policy and the 49% foreign shareholding limit in locally-owned direct insurers. These measures facilitated the growth of offshore insurance business and reinsurance activities and capitalized our growth as a regional hub. The industry then started developing strong expertise in specialty insurance, namely marine insurance, energy, catastrophe insurance, credit, political risk. As of 2013, Singapore was the second largest market for structured credit and political risk worldwide after London. With its growing role as a regional and global hub and risk management capabilities for Asian markets, including reinsurance programs, Singapore was able to nimbly adapt to client needs and start making a lot more underwriting decisions locally.

Today, Singapore has developed as a leading insurance hub. It serves as the Asia-Pacific hub for 12 of the top global reinsurers, the regional hub for 16 out of the top 25 reinsurers globally. It also houses a network of about 150 brokers. In 2023, gross premiums for general insurance in Singapore grew 7.5% to $13.5 billion, while reinsurance premiums grew 30% to $27 billion, accounting for 21% of Asia's reinsurance market.

Finally, a quick look at commodities. While the development of the commodity sector was not an explicit area identified for greater liberalization, we see how the formation of SGX in the early years facilitated the growth of the commodities derivatives market. The sector's development also illustrates the intricate intertwining of financial markets and the real economy and the symbiotic relationship between Singapore's growth as a financial hub and a trading hub. From serving as a rubber export hub for the West in the 19th century, Singapore grew to process a third of global natural rubber by the 1960s. This led to the establishment of the Singapore Commodity Exchange, which was acquired by SGX in 2008. Today, SGX's rubber futures trade 18 times their 2010 volume, account for 90% of the global seaborne derivatives market, and serve as global benchmarks. SGX also carved its position as a commodities market leader, both in innovativeness and size. It pioneered the world's first cleared iron ore swaps in 2009, became the world's largest dry bulk forward freight agreement clearing venue following its 2016 Baltic Exchange acquisition.

In the oil and gas sector, we developed the benchmark Singapore oil prices by the commodities information provider Platts in the early '80s. It established as a key price-setting hub for oil in Asia. Singapore's position as Asia's refining hub was further boosted by the government's moves to create an energy and chemicals cluster, of course, in Jurong. Our investments in liquefied natural gas infrastructure have made us a key global center for LNG trading and enabled the growth of an active spot LNG market through programs like the Global Trader Program, which provides tax incentives for global trading companies that conduct significant activities in Singapore. Global traders conducted $1.9 trillion worth of international commodity trades in Singapore in 2024, up 40% over a decade.

So, what are the key lessons to me from Singapore's financial sector development? I've given you this thing of asset management, fixed income, foreign exchange markets, and so on.

First, an enabling environment. This is table stakes. Like I said, people have commented on this in the past. The same elements that have facilitated the growth of our status as a manufacturing hub or a trading hub and a logistics hub have helped us in being a financial hub. Obviously, language, our international connectivity, our skilled workforce, our pro-business environment, political stability, efficient public service, the rule of law, a trusted neutral status. And these are fairly common to all of the sectors in which we operate.

The second was we managed to create broad platforms which were quite synergistic, and this is something to reflect on. Within the financial sector, there were meaningful synergies across subsections. For instance, the growth of the banking industry resulted in the expansion of banks into sectors like equity and debt capital markets, M&A, asset management, and so on. The strong fundamentals of the asset management industry, in turn, laid the foundations for the rapid growth of the wealth management sector. The deep interlinkages between the various financial subsectors thus boosted the growing sophistication of the market, which in turn attracted more globally established players, thus creating a critical mass of players that spurred the growth and vibrancy of the sector. The synergies extended beyond the financial sector as well. The capabilities and services offered by other industries have in turn spurred the growth of the financial sector and vice versa. I talked before of the development of the Asian Dollar Market, which attracted multinational companies to base their operations in Singapore, to the growth of the commodity sector, which leveraged the financial sector with a dense network of traders has in turn encouraged the development of relevant financial solutions in the financial sector to meet the needs of the traders. So, the synergies within the sector and synergies across sectors.

Now, this is a really important learning. It's a learning which I actually came to realize very strongly in my tenure at DBS. While focus is important, it's important to specialize. At the same time, you cannot afford to be too niche. If you're too niche, you give up synergies and you give up scale. You must accept that you will always have swings and roundabouts. Every part of your system will not do equally well. But bringing together the system as a whole is extremely helpful for the totality of the system to succeed. So, an important thing to think about, you know, how do you actually do enough of things so you can build a critical mass of activity, because then they all tend to play off each other.

The third, the dual role of MAS. I'm going to chat later with Silian, so she will probably know more about this than I do, but this has been really very, very critical over the years, and this has been really unique, really unique. With amendment to the MAS Act in 1998 to include financial sector promotion as a principal objective, MAS has played this unique dual role in both regulating the financial sector and promoting Singapore as an international financial hub. Former MAS Managing Director Ravi Menon notes how MAS functioned as an integrative financial supervisor, a potential regulator of the banking and insurance industries, and a securities...

Commissioner responsible for the capital markets, while being responsible for the growth and development of Singapore's financial sector. So I'll take a minute to emphasize how unusual this is.

So, you know, MAS is the central bank. So it's the monetary policy institution and runs it is a supervisor of the entire banking system. It regulates not just the banking system, but every part of the financial system: insurance industry, capital markets industry, bank. So it's an omnibus regulator and it develops industry.

In the US, there are at least 13 agencies just playing just the regulatory supervisory role that MAS does. The different agency, OCC, the Fed, the Securities Commission, the insurance commission, each of them is regulated by a completely separate entity. Even in the UK, the supervisory regulatory role of the PRA is different from the Bank of England's role as the central bank.

So this notion of an omnibus regulator, supervisor, and central bank is unusual enough by itself. But when you add to that this idea of being the financial sector development agency, that is truly unorthodox. It is also something that only Singapore could pull off. A lot of my counterparts around the world have often raised an eyebrow because there's an inherent conflict. It is, you're asking the person who's supposed to guard the hen house to also develop the hen house. How can you do both? Which part of MAS looks at creating and innovating and pushing innovation, and which part of it is trying to govern and tighten?

But to my mind, this is not unusual, and I've, um, reflected often on the role of a board. A strategy board, that this is exactly what the role of any corporate board is intended to be. There's a governance role to make sure that, you know, management is kept in line and watched over, but the boards are also responsible for running companies. They're responsible for the strategy of the company and for shareholder returns. So the boards can, can't just be policemen. The boards have got to chart the way forward. They have to grow the company, otherwise, what are the policing?

MAS is the only entity I know which has this dual function of helping to grow the industry as well as mind the industry. Uh, in fulfilling its dual roles, MAS has had to pursue two seemingly conflicting objectives: uh, growing and sustaining a critical mass of financial institutions to facilitate the development of a financial center, and second, implementing robust regulations that ensure strict credential standards without stifling growth. Uh, it needed to maintain this balance between providing a conducive environment for markets to grow, but protecting depositors and investors on the other side.

Over the years, it has liberalized the financial sector at a measured and steadfast pace, employing, applying a judicious blend of orthodoxy and unconventionality, as Ravi Menon put it. So, um, underlying all of these, uh, big themes, um, I want to say that there is actually a bigger thing that stands out, and that is a willingness to be bold and innovative while balancing this whole systemic stability and trust issue.

Uh, from the very beginning, uh, we were bold and contrarian. I talked about betting on the US dollar, the Eurodollar, uh, betting on the fact that you could create a domestic unit and an international unit side by side. Now, you reflect on these big bets, right? The Eurodollar would be big, and this would be a game-changer. Like I said, not obvious at that point in time, in a sterling, in a world that is coming over from the sterling shock. Certainly not obvious, but we decided that we would push and try to create it and then see if you could leverage the international dollar market, uh, which eventually became not just a store of value, but a medium of exchange, unit of account.

Second, that you could create an offshore center and onshore center which were tied at the hip, but manage them separately. That it was possible to do, and again, no example of anybody being able to pull this off. Discrete regulation, uh, making sure that you continue to, um, control the gateways in which funds flow, move from one part of the system to the other part of the system, but giving it enough impetus to be able to build out the international part of the system, and then creating an exchange for settlement, both SIMEX and later, you know, a settlement and trading exchange for the new instruments that were created on the back of that.

Now, I'm hammering on this because, uh, this is, um, um, foreshadowing, um, things I hope to talk about in my second and probably my third lectures. I do believe that the world today is at a very interesting point where the nature of value might see a change once again. Uh, we've seen 70 years of a dollar-denominated global environment. The dollar is the base currency. It is a trading currency. It's a currency of value. I don't see the dollar disappearing anytime soon. Uh, nevertheless, uh, there are signs that there are worries about the US dollar. A little bit of dollar debasement might be beginning to occur, and whether it's an alternative currency, which I doubt, or a new form of store of value, stablecoins are in fashion in the last two months, but they're not the only way you could come up with a new store of value in an alternative currency.

In many ways, we are at a similar point in time, and so it begs the question, do we have the same capability, capacity, and willingness to make some big bets in our future?

Um, that was, uh, even the policy approach, the way we dealt with policy that time was actually, um, quite, uh, different. Uh, to give MAS this dual role, I talked about was unorthodox. As PM Lee Hsien Loong said then, the key to the success of Singapore's growth as a well-regulated, international, trusted, and vibrant financial hub was MAS's combination of caution and creativity, adhered to sound economic principles while creatively adapting policy framework works to suit Singapore's context. It set high regulatory and supervisory standards while taking a facilitative and risk-proportionate approach. It ensured financial stability, uh, while promoting innovation and seizing, uh, opportunities.

So again, uh, today we are at a similar juncture. The kind of policy architecture we need, the kind of policy, uh, environment we need, the kind of, uh, players that are entering the industry are very, very new. And therefore, we're once again at a point in time where we have to make some, uh, thoughtful but bold calls. Uh, how do we create a policy architecture, and how do we deal for a new set of players and a new set of people who participate in the world of finance? Can we learn from the lessons that we did when we liberalized the industry in 2000 and make sure that we keep doing that as we go forward from here into what I call the brave new world?

We do a fairly good job of that. Um, even today, um, I have to admit, and I wanted to wind up my lecture with, um, one, um, example, and that is the wealth management sector. The wealth management sector is a great example of how we've continued to balance the need for trust and the need for growth. Um, it's a very tricky industry. Um, the wealth management industry, uh, well, clients are notoriously fickle and can move their assets around very, very easily. The industry thrives when regulations are simple and clear, and the customer journey is easy and efficient. A regime that encourages innovation and access to diverse asset classes and markets is table stakes. You need that multiple asset classes, easy innovation. Favorable incentives and tax regimes are welcome.

At the same time, the sector is very high risk. It's seen to be a magnet for money laundering and other illicit activities. Sanctioned entities are constantly searching for ways to beat the system. There are also important questions around suitability and appropriateness of products and recommendations, with a history of misselling driven by incorrect incentive structures within the industry. So getting the balance right is like walking a tightrope. Too much regulation and micromanaging leads to bureaucracy and risk, driving away clients. Too little runs the risk of tarnishing your reputation as a financial center, coming under scrutiny from global bodies, and a swift loss of public trust.

In this environment, the growth of Singapore's wealth sector has been laudable, with the number of single family offices surpassing 2,000 last year from approximately 400 in 2020. On the one hand, we have, uh, made mistakes, but we have constantly learned from our mistakes. So, I mean, think about two examples in the global financial crisis. Risks related to investor protection got highlighted. Uh, civilian knows this better than most people. Uh, in 2008, the collapse of Lehman Brothers resulted in total losses of over $500 million in mini-bonds by around 10,000 retail investors in Singapore. Following this, MAS intensified supervisory scrutiny on the implementation of fair dealing guidelines and enhanced safeguards for investors purchasing investment products.

Fast forward to 2016 and then subsequently in 2023, two instances of money laundering were identified. The first concerned flows related to 1MDB, and the second was the largest money laundering case in Singapore involving nearly $3 billion in laundered assets by 10 foreigners. In both cases, MAS took meaningful supervisory action, including imposing substantial fines of almost $30 million on eight financial institutions, in relation to the 1MDB incident, and $27 million on nine financial institutions for the second case. Uh, these fines amounted to the two largest cumulative financial penalties imposed by MAS for AML breaches. Uh, and two financial institutions were also shut down following the first incident. These enforcement actions sent a strong signal of MAS's zero-tolerance stance towards money laundering and financial fraud.

To further mitigate such financial crime risk, MAS also tightened AML regulations and launched a national anti-money laundering strategy along with the Ministry of Home Affairs and the Ministry of Finance, that outlines Singapore's whole-of-society approach to addressing money laundering risks. That notwithstanding, and as, um, Swan was just reminding me, we still keep coming under the constant scrutiny of the Financial Action Task Force and the international bodies, uh, because of all of the wealth creation and the wealth activities in Singapore.

But MAS was very pragmatic. So they did all this, but they did not throw the baby out with the bathwater. So they took steps to drive innovation in the industry while remaining cognizant of all of these risks. Implemented a range of incentives and schemes, such as tax incentives for family offices. Uh, MAS also introduced the Singapore Variable Capital Company structure, VCC structure, a game-changing initiative that provides flexibility in establishing either as a standalone fund or an umbrella entity with sub-funds, thus incentivizing family offices to establish investment entities in Singapore. Single family offices were also encouraged to use Singapore as a base to conduct philanthropic activities through the philanthropy tax incentive scheme. To attract wealthy entrepreneurs, the EDB introduced the Global Investor Program, which provides Singapore PR status to eligible global investors who base their businesses and investments in Singapore. So they have obvious activity.

MAS also remained responsive in supporting the needs of industry players and nurturing a conducive environment for growth. For example, uh, following industry feedback, MAS provided guidance to FIs on implementing risk-proportionate due diligence on customer source of wealth to ensure timely bank account openings. It shortened the tax incentive application processing time for family, uh, office funds, and recently announced plans to simplify the single family office fund tax scheme and improve account opening efficiency.

So, in the sector, you can see the tension play out in real time. It's not chronological. It's not that we were very innovative. Then we went through a period of stability, regulation, then we're looking at innovation. This was concurrent. We had to keep tightening. We had to keep regulating. We made some mistakes. We got wrapped on the knuckles. We learned from our mistakes, but we did not allow that to stop our drive to continue to build the sector and build that industry, which is no wonder we're the second largest wealth management industry in the world today.

So, in conclusion, um, in this lecture, we've seen how Singapore's financial sector has developed on the back of this intricate balance, uh, between stability, trust, and innovation. Uh, while the relative priorities of these elements have shifted over the years according to the exigencies of the time. What has remained constant is a bold and pioneering spirit, a close partnership between industry and regulators, a foresight in anticipating structural shifts, and a nimbleness, uh, in adapting to new circumstances.

In a 2010 dialogue, um, Mr. Lee Kuan Yew's response to a question on whether he would have done anything differently in the financial sector was, "No, I don't think so." He added that he would rate Singapore's financial sector development as a minus, but we could do better. I think he's always a hard taskmaster. I think it would have been hard to do much better than Singapore has been able to do. But having said that, I do believe, like I said at the beginning of this lecture, change is afoot. Not just technology change, geopolitical change, uh, change in the nature and the scheme, the US's role in the world of global affairs. In this world of change, um, the value, the nature of money will change. The nature of settlements will change. What drives people and how people participate will change. Even the nature of players will change. And so the big question that we face is, are we in a position to handle this change in the sector as we go forward?

Well, in my second lecture, I'm going to focus on the last 10-15 years because I think that's a great precursor, because the last 10-15 years have already dimensioned much of this change: digital, mobile, a completely new way of making payments, but it has come with a whole new attendant set of risks. We hear about financial fraud and scams every day. And so, uh, I will dive deeper into the last 10-15 years, and I will focus a little bit on, uh, a little parochial view, which is a DBS view, how we thought about the change over the 15 years and tried to put into, into place a series of actions which has allowed the country to navigate its course quite well. Uh, I think the biggest challenges will come to us, um, in the next five or 10 years, and that will be the subject of my third lecture. What should we or could we do about central bank digital currencies? Uh, what is the big thing about stablecoins, and after the Genesis Act in the US, it seems to be the best game in town? How about crypto, Bitcoin, Ethereum, Web 3.0? You know, should we lean into Web 3.0, where the evangelists predict a world where you won't need a nation-state or even a central bank, really? Uh, so a lot of it in lecture three will be a little bit forward-looking, hypothetical, speculative, uh, but I do hope I've wetted your appetite enough so that I can take you through some of, uh, the events that happened over the last decade, but equally, what I think we might need to worry about in the decade to come. Thank you all for your attention. Thank you, Mr. Gupta. For those watching the lecture online, please submit your comments and questions to the respective Facebook comment boxes or YouTube live chat. For audience members here, please step up to the mic to ask your questions. May I now invite Ms. Teo Swee Lian, Chairman of CapitaLand Integrated Commercial Trust Management Private Limited, to start the Q&A session? [Applause] Well done.

>> Yes, sir.

>> Okay. So, so do you want me to speak into this or just speak into the mic? Okay. Thank you. So, P, let me congratulate you on a truly wonderful tour de force. Okay. I think all MAS past and present will be very proud of how you described what happened in Singapore. Now, um, I'm told that to earn my tea, I have to kick off with one question, and then we will let the audience, um, uh, come up with much better questions. I think you mentioned the U word. You said Singapore was an unlikely financial center, and then you said that we were a unique financial center, and I think you were right in both cases. The trouble is this, um, you know that a lot of the things that people do can be replicated, and, um, I was just as you were talking, I was reminded that some of you may know it's an open letter that, uh, when the new government came in in the UK earlier this year, they asked all the different, uh, agencies, uh, to, uh, talk about what they would be doing for their industries to try and promote London. And so the Bank of England wrote a letter, P, to the Treasury. It's on their website, so I'm not putting anything out there that's, uh, uh, secret. And in one of the, um, paragraphs of that letter, it said that it would also look at a suggestion made by some international bankers that they look at the example of Singapore, where MAS provides a concierge service to bankers wishing to grow in Singapore. I sent it to my former colleagues in the Airbnbs because I wasn't sure if they liked being known as concierge, but it just shows that, I mean, this is the mighty London looking at an example in an ex-colony of how they might go forward. So we may not be so unique in the future. How are we going to be constantly ahead of the pack?

>> I wish you had been a concierge when you were supervising me. You know, uh, when Brexit happened, you remember there's this thing about, uh, UK needed to be the Singapore on the Thames. There's a hot thing, Singapore on the Thames. And as reflecting on that, even then, and I still believe that now, uh, see, Singapore's magic, apart from all the enabling conditions, rule of law, etcetera, which I mean, obviously UK has the rule of law, they have, you know, manner of speaking, they speak English, but the main thing that Singapore has which is different, uh, is our nimbleness and our ability to bring everything together. You know, we are today big enough to matter. You know, we have reserves, we have cloud, we have per capita, we have global standing, so we're not inconsequential.

>> But we are small enough to be nimble, so we can bring the public sector, we can bring the private sector, we can bring our sector all together and come to a commonality of understanding and move forward from there. And which is one reason why I think MAS can do so many things together. I think we have benefited by size. I joke that, you know, the US has 13 regulators, but on the other hand, they're a massive country, maybe they need 13 regulators. Uh, in our case, I think so, the ability to be nimble and agile helps, and I don't think it's that easy for, um, any other system, larger country, to imitate that. So, well, the second is a bigger issue, issue of trust. You know, today, my view is in the West, in particular, and the UK is one, the US, but most, most of the West, I think for good reason, the financial sector was quite egregious, and so you ran up into the 2008, 2009 crisis. A large part of what was happening in finance was not supporting the real economy, and so you wound up with, you know, COs and COs, and frankly, even when I didn't understand what they were, but as a consequence, I think many of the regulators were led down. They also, in some cases, probably were at the forefront of political, um, you know, disquiet. And so the trust between the regulators and the, uh, industry broke down, and honestly, 15 years later, that trust has not been reestablished. Maybe it's just beginning to be. And therefore, um, when I, even at DBS, we worked in so many jurisdictions, uh, it was quite clear that in our interface in Singapore, when we talked to the regulators, MAS in particular, but the government in general, you started with the fundamental belief of innocent until proven guilty, and so people were willing to assume that you had best intent, and you could engage in constructive dialogue of why you were trying to do what you were doing, and then if there was a disagreement, at least you understood the basis of the disagreement. In many of the Western regimes, I found that you could not approach regulators with the spirit of open dialogue for a long period of time, because the first thing was, there is something in it for the industry, right? And so it's taken a long time to get over that, um, the rebuilding trust. I'm not sure it's there entirely even today. So I think that takes some, some time to rebuild.

Then the third piece is this, the, you know, sector development idea piece. So in 2016, this is a two-story. We just, we, DBS had started its digital transformation in 2013-14. So I'd been at it for a couple of years with the team, and by then we were convinced that this is just a completely new way of banking. It's digital. It's going to change a lot of stuff. Uh, the International Monetary Conference, IMC, is the largest advocacy body for banking. They had their meeting in Singapore that year, and I was at a dinner table with eight other chairmen and CEOs, Wells Fargo, Barclays, some of the biggest, and we wound up taking a bet because the other seven who are all from Western, uh, markets said at that time, nothing is going to happen because in our case, the regulator will not let it happen. The regulator will put in enough barriers and barricades to not let any of this thing happen. So we're quite comfortable, we don't need to change right now. That was the blinding insight to me that, uh, the spirit of innovation or the spirit of trying to make or participating in change, which in Singapore had been there, I, the regulatory apparatus in the UK, in, in the West had stepped back. Now they're coming, you know, people like Augustine Carstens, they're coming back with new forms of money. Trump is leaning with the Genesis Act. So I'm not saying this will carry on forever, but certainly where we are today, I do think we have a position to be able to do things which many of our global competitors can't, because of the three dimensions: the nature of our country, the trust between the public and private sector, and the willingness to adapt to new technology forms.

>> Thank you very much. And we have quite a few questions lined up. This gentleman. Yes.

>> Thank you, Push, for your very wide-ranging lecture and the great framework you put together. My name is Satya. Uh, my question is to do with a rather dull and boring sector, which is infrastructure. You talked about the synergy between, uh, the real economy and the real economy and the financial sector, and how Singapore has done so well. And I must commend one sector, the real estate, where this has happened so well in terms of the capital markets, and how the assets, not just in Singapore but internationally, have, uh, been crowded into the Singapore market. My question is with regard to infrastructure assets like ports, airports, and so on. Uh, is this a bridge too far for these assets, both in Singapore and regionally, to be coming into, uh, the capital markets? Because I think there is a real opportunity for Singapore to capture the space in a much more, uh, synergistic way by also creating, allowing for price discovery to happen in a well-managed financial center. Thank you.

>> Thank you. So, you know, the issue with infrastructure finance has always been challenged for banks. One of the challenges has been duration, right? So, these are long-term projects, and banks generally have short-term money. So, duration risk has been a challenge. We've tended to be commercial. But the bigger challenge has been political risk. It's not commercial risk that stifles the development of the sector. It is political risk because most infrastructure projects extend beyond the lifetime of a typical government. So a government will launch a project saying, we want to do a road, we want to do a port. There'll be a change. The opposition will come in. The first thing the opposition does is, I don't want to do the power plant, I don't want to do the port. And then you're left hanging. So the biggest lubricant is you've got to go and make sure you get political cover. And the political risk cover is an incremental cost in the system which you don't get for any other forms of commercial, this thing. So that's been a challenge, and that continues to create a pricing problem between, um, the, uh, what your price discovery, what investors are expecting to get, and what from a return standpoint, the sector finds financable. The problem gets compounded when some parts of the infrastructure are direct public utility goods. So some of the biggest challenges are if electricity or roads, and if you go and try to change electricity rates or change the toll road rate, you have strikes and you have, you know, civil unrest. So governments are very ginger about following through on consumer-driven public infrastructure rates, and so that tends to create another set of problems. They're telling you why the STE structure, the sector is an unusual sector. U by the fourth dimension is green. As I'm convinced that, you know, we're all in the middle of a thing where we're going to have to replace the whole carbon-intensive infrastructure sector with a green, less carbon-intensive sector, and that means you're going to have to start pricing for externalities. So I'm saying that even the pricing for current with political risk is a challenge, pricing for externalities on top of that is a multiple challenge. How do you price for some of the stuff? So it's not an easy sector to be able to do. Uh, that notwithstanding, Singapore is actually not bad. If you look at the five biggest infrastructure finance players in the in Asia, uh, a couple of them are Singaporean, and two, three of them are Japanese. So the only bank players in infrastructure tend to be the Japanese and the Singaporean banks. But what you said is correct. The long-term solution is to access more and more the capital markets. I think one way to be able to get that and to solve the pricing problem, uh, is going to have to be more blended finance. You're going to have to look at a slug of financing there which prices the political risk, takes the first loss of political risk, or puts in a cheaper form of financing. Then the rest of the pricing stack falls into place quite nicely. I, some of us have been pushing the fact that this is a good role for the supras to play, for the ADBs, World Banks, etcetera, to play, to come in and provide the political risk and the, the low, the first risk, first loss risk cover, and they can do it just through a guarantee form. They don't even have to fund it. So there is some appetite, but it requires resolve from the principal shareholders of these agencies, uh, to be able to let them come in and guarantee first loss. And if you can do that, you could actually create something quite nice, and Singapore could well anchor that.

>> Thank you, V. So, um, we only have 15 minutes and 18 seconds. So I'm going to try and do something on block. This gentleman, if you could ask your questions, and if the other two questioners have something which is similar, then we can take the

>> I can try and be quick. Thank you.

>> Thank you very much for your profound insight and wisdom. Uh, my name is Patrick. Um, if you were Singapore's new finance minister or president, what key message would you deliver with the key stakeholders? Second question is, um, what is your, uh, greatest hope and deepest fear for the future of finance in Singapore? Thank you.

>> Wow. Okay. I don't know if the other two ques something similar.

>> Yeah, I, yeah.

>> It is. Yeah. Thank you, Mr. Gupta, for this, um, great talk. My name is Rohan. So, I mean, I kind of understood your talk also implicitly as a story of state-led development over the course of Singapore's, uh, history. Um, and especially in that kind of post-independence period, the state played quite an entrepreneurial role, creating DBS, modernizing the banking system of the family-owned banks. Um, and I know that it's continued to play a developmental role. Is there a case that the state should actually return to playing an entrepreneurial role again in the financial sector, creating financial, you know, uh, financial firms, creating the new DBS, whatever form that takes? And if so, maybe not. And if so, how can one do that in a liberalized financial sector in a global political economy where, you know, you cannot protect the domestic sector from the foreign one like you could, um, back in the mid-20th century? Thank you.

>> Thank you. Um, would you like to ask your question as well, please? Then you can sit down so that you don't have to keep standing.

>> Thank you so much. Hi, B. My name is Michelle. Um, you spoke about the equity markets and how we made the regulatory choice to lean towards trust rather than innovation, and that could be a reflection of the investors we had at the time with much lower financial literacy. But now we have a new generation of investors who are much more willing to invest in even risky things like crypto. So what lessons can we learn from the past to cultivate a new generation of growth-oriented investors who can then hopefully support more Singapore-originated growth companies? Thank you.

>> Thank you. So, future finance. Oh, we have one more in the front. Yes, please.

>> Thank you. Still, uh, I know, uh, Bush, in his, uh, interview after he retired, he said time is a premium, so I try to keep it short. Um, your, I thank you very much. Congratulations, you know, congratulations for this excellent presentation, and also, I know I'm a humanities person, so there's a lot of heavy stuff, but it's a really solid presentation. Thank you very much. My question is on trust, which you touched on a bit just now, and I wonder whether, how did we fare, Singapore fare, in terms of that trust element of trust to be one of the leading financial centers in the world? And when I say trust, I think you touched on about the local element of trust was quite solid, was quite good, but what about the region, especially Malaysia, Indonesia, when you have the element of history, politics, culture, race, and it's easier, I suppose, to handle with Europe and America, but what about the element of trust in the context of Singapore and our immediate neighbors, ASEAN? Thank you.

>> Thank you. So, over to you, future finance minister, president.

>> I tell you, I am in no position and no desire to give any advice either to Lawrence Wong or to Tharman. Start with the premise. But, uh, so, you know, I, I think my one thing to, uh, them would be effectively the tilt of my lecture and my series. See, Singapore's success came from, you know, I think collaboration, small, nimble, but it came from a willingness to be bold and unorthodox. In some ways, I would argue it was easier to be bold and unorthodox in the 1960s and '70s when our backs were to the wall and we had nothing to lose.

When you have nothing to lose, you know what? Do you try whatever you can? Uh, it's much easier for us to be unorthodox and bold in 2025 when we have trillions of dollars of reserves to protect, when we have, uh, per capita income which is in the top five in the world, and we have built something for our people. Now, you're putting something at stake. You have something to lose. Um, and this is human tendency. All of these behavioral psychologists have proven that behavior, human behavior is, you don't want to lose stuff, right? And so we're in the stage, it's our biases, you know, you have a lot more to lose now. Um, I'm going to choose my words carefully, but I do think that, um, often times today in many parts of the system, both the private sector, people sector, but the public sector, uh, this fear of failure, you know, shorthand, casuistry, uh, it's actually increased relative to where we used to be because now the stakes are higher. We have more to lose. And my principal thing would be, the world is changing so fast that what's going to happen in the next 10 years is so profound that we do not have a choice. We must continue to be as bold as we were 50 years ago. And therefore, on the balance, if we have to be bold and take some risk, we don't have a choice, we must take them, because otherwise the game that we know is changing is going to disappear. That's, that's the advice I would give. My, um, um, question of hope and fear for, what is the question? The hope?

>> For Singapore.

>> So, I think the hope for Singapore is quite clear. I will talk about it in my future lectures that I do think that because of the, you know, the agility, nimbleness, and our willingness to change, we could actually be the anchor of a large part of where the world of finance is going, right? So we could actually create, um, you know, I talked the other day, maybe we should be looking at leaning into the stablecoin thing as opposed to leaning out, but we could actually create a lot of stuff, and we could still, like we learned before, potentially protect our domestic from international, but still be at the center of a lot of, uh, change. We still have the capacity to do it, and because we are financially so strong, we have a lot of money that we can put behind it. You know, we have a lot of money that can grease the wheels to make some of these things, uh, happen. So I do think that we have the possibility of the financial sector continuing to be a significant engine of growth for us and for the region, if you will. Um, the fear is, you know, geopolitics is messy, and so while I'm going to paint a picture of where technology can take us and how we can go, the truth though is that we could get caught between two rival camps, you know, the China camp, which then starts creating an RMB-centric world, and a, you know, you still have a, the dollar is not going anywhere, a dollar world, and, you know, how do you actually, uh, get to a world where each side thinks that you're too close to, to the other side? And so what does that mean for you as a center who's really, whose strength comes from intermediating flows all around, right? So you've got to keep an eye on that, but that's not just a finance sector problem, there is a country problem, that's Singapore's problem. Okay.

Uh, question on state-led development and whether, you know, I sometimes think Singapore is the best model for state-led development anywhere, right? So people say public sector development doesn't work. You need to be private sector. In Singapore, the reality is half the country is owned by the government. It's owned through Temasek, but it's owned through Temasek. So DBS is 30% Temasek. Singapore Airlines is some percent. PSA is 100% Temasek. Well, Singapore did something really well. Maybe people like Jipa did it. Singapore ensured that the ownership of capital stayed in the hands of the state, but management, they pushed to privatize. That's a really unusual public sector model. In most cases in the world, public sectors fail because the politicians want their management to manage the public sector. It becomes a sinecure for friends, family, give somebody a job, etcetera. It becomes, I mean, the ability to actually run a commercial enterprise disappears. But Singapore's got that balance right. The money goes to the state. So I sometimes, you know, DBS, we used to give a billion dollars of dividend to the government, NRF, or whatever. That a billion dollars came from DBS. So it's fantastic. You have private sector people running the stuff, and then you fund the state coffers because capital is owned by the state. That's the model. I think it's a fantastic model, personally. So when you say that Singapore, the government created a lot of state companies, they actually created a few, but not, they took over many, but it wasn't that the government, DBS is one, DBS, you're right, the government created, but they weren't that many. Uh, as we go forward, I really think the notion of government creating more of these or specific things will be few and far between. They did Temasek, Shuhorn creating Clifford Capital for your question on infrastructure finance, you know, they're trying to say, okay, how do we actually, you know, do that? And no, none of the, the commercial system was doing it. So Shuhorn created it, and so on. So you'll find some from time to time. But I think the real, um, answer is in creating a set of policies and regulatory framework that crowds in private entities and licenses them, if you will. So you can create, like, digital bank licenses. You license entities and license private sector to come in. There is no dearth of entrepreneurship and ideas. In fact, to my mind, where we are today, we need a lot more private enterprise and a lot more private entrepreneurship as opposed to state creating the entities. So the PPP partnership in Singapore should be what it is today. The public sector can provide capital, provide an enabling environment. The people sector, we involve both through the tripartite union as well as the public at large to make sure that thing is protected. And then you crowd in the private sector to actually bring in the innovation drive and entrepreneurship. That's the model I would continue to favor.

U, trust versus, um, um, innovation. What can we, um, do, particularly with the new investors? You know, it's a tricky question, and I'm wondering whether to be, to pontificate on humanities a little bit. See, I think one of the best things, I, I've been in Singapore 25, 30 years. One of the best things about Singapore is our public sector. It's fantastic. The world's best public sector. We take the best and brightest. Whether you call it streaming or whatever, we take them, they do the stuff, they execute, do policy. One of the downsides of that, um, is that we've tended to become a nanny state. Uh, becoming a nanny state to the extent that, you know, everybody relies on the public sector. So everybody relies on the government for everything, and that's an attendant downside of what we created. So the fantastic upsides of what we created, the downside is the private sector or the individual is all reliant on same, you know, government will do right. And that extends over into this domain of individual investors and investor risk-taking capability. Our investors are by and large, um, part of this thing saying, you know, they will be protected, um, and if you compare that with, like I said, Hong Kong, Shenzhen, etcetera, there's a lot more caveat emptor over there, buyer beware. The investor takes, you know, a lot more individual risk, a little bit less of the nanny state, uh, mentality. Now, I'm not entirely sure what is the best way because, you know, trust comes from the fact that investors know we're secure, the money is secure, so you don't want to give that up either. Uh, I say it's a good thing. I'm not trying to draw the blank line, but for my money, the comment you made was correct. I think, uh, investor education is table stakes. You've got to do it for everybody. But the older generation of investors, you know, sometimes find it harder to come to terms with some of these issues. As we now have 50% of our kids go to universities, they used to be much smaller. We have a lot more global awareness and, you know, social media. So a lot of people know what's going on. Um, in that world, with continuing investor education, I do think that we should be tilting the bias a little bit more towards this buyer beware, caveat emptor, letting investors express. I'll tell you something which I used to tell MAS. So five years ago, uh, DBS, we launched in 2020, I think, the crypto exchange. I was convinced that this tokenization thing to do, and we said, okay, we'll do a crypto exchange. And originally, the idea was to only tokenize fixed income, equity, securities, property. Then I realized that if I, you know, if you don't let them do some trading in crypto coins, we won't get liquidity. So we opened up to do trading in Bitcoin, Ethereum, and so on for five coins. And but we did it only for rich people, accredited investors. So I was trying to persuade MAS saying, you know, you should let me offer it to the public at large. If anybody wants to go and buy something, what's the harm? And of course, MAS, I think a little bit guided by the political master, then over our dead bodies are not going there. Now, the point I made to them, though, is every, in 2020, 2021, 2022, $1 billion dollars left DBS accounts, all into crypto. And they were all Gen Z, millennials, young people. Just because they couldn't buy it from DBS didn't mean they weren't buying it. They were all taking this, they were all taking the money out, they were going to the other third-party global exchanges, the Genesis, etcetera, and they were buying the crypto over there. They're buying meme stocks over there. So our young investors are a lot more informed. They're following the world. They have social media access. They have investor access. To what extent can we keep controlling them is not entirely clear to me. So my bias is, we've got to reflect and accept that they're better educated. We're teaching them. We can do more focused financial education programs. But you've got to give them the ability to express choices.

Um, your last one on, um,

>> Trust of our neighbors.

>> So, you know, here's the thing. I think the reason we command trust globally is rule of law. We stay and stand for our word. We are principled. We stand for our position. And for most parts of the world, they know we won't default. In my sector, you know, Singapore is AAA, so AAA just creates a lot of trust. So much money backing us that the chances of Singapore ever defaulting is, you know, I sometimes joke, DBS is a double-A bank, but I used to benefit from a AAA halo because people figured 30% owned by the government, the bank can never go under, right? So it's helpful. But, um, trust with our neighbors requires a little bit more than all of that. The biggest source of distrust I find, I've lived in Indonesia twice. I've lived in Malaysia five years. The biggest source of distrust in our neighbors is the belief that we are too self-serving, right? That it's only about us and ourselves as opposed to being a little bit more magnanimous, a little bit. Every time I raise it, I'm told this is not true. Singapore does do a lot for the neighbors and so on. But I can tell you that by and large, that's the general. Singapore needs to do more. Um, I do think that's something we should be thinking about. And if you look at how the Japanese and the Koreans operate, including frankly, even on the Chinese, right? They take the long view, and they do subsidize financing programs, project financing programs. They take low rates of return for a long period of time. They build trust through effectively financial subsidies of some form, right? Um, I think we have opportunities to do that without giving freebies, but being a little softer in other things, saying, you know, if you were to create, you have enough money. We created a fund for, let's say, nature-based fund for Southeast Asia, and we were able to participate in, you know, Pahang and then Sumatra and made some this thing. I think it would go a long way to building neighborly trust, and I think it's worth our thinking about hard because at the end of the day, you don't live in a vacuum. You know, we will succeed if the neighborhood succeeds.

>> So, um, I think we've run up. We're actually in injury time now, but you know me, right? It ain't over till the fat lady sings.

>> I know this is the, the hardest question is still to come.

>> No, I didn't want to ask you any more questions because you've answered everything beautifully. I just wanted to assure you that as the next regulator who still has to pay utilities and feed the dogs, I've moved to the private sector, and I now have to eat what I cooked. So, you're very happy about that, I'm sure.

>> Thank you very much, B. It was a very enlightening afternoon, and I think all of you will agree. Thank you.

>> Thank you all. Thank you.

>> Thank you, Mr. Gupta. Ms. Teo, we've come to the end of today's lecture. We would like to hear your views on the event. Please click our link on the Facebook feed or scan the QR code on the screen to submit your feedback. Mr. Gupta's second lecture, titled Reinventing Finance in the Digital Age, will take place on 3rd November. Details will be on our website and IPS Facebook page. We hope to see you then. Have a good evening. Good. Have a good evening ahead. Thank you. [Music] [Music]