PETALING JAYA: The Asian Shadow Financial Regulatory Committee (ASFRC) urged the government to allow extensive use of technology in banking including shadow banking to promote competition and efficiency, while implementing effective monitoring.

ASFRC representative, Prof Datuk Woo Wing Thye, said today shadow banking exists to fulfill a market need for both savers and borrowers.

"In many cases, shadow banking providers offer banking-type services more efficiently than traditional, regulated banking, but possibly with greater risk," he told a media conference here today.

The ASFRC, set up in 2004 comprising leading academics from within and outside the region proficient on Asia, holds a meeting here since Sunday and have discussions on market conduct, Internet finance, financial inclusion and consumer empowerment.

The meeting is hosted by Jeffrey Cheah Institute (JCI) for Southeast Asia studies.

Woo, who is also the President of JCI, said funds nowadays bypassed the banks from savers directly to investors.

Viewed broadly, he said, shadow banking included any bank-like activity undertaken but not regulated, including via mobile payment systems, direct lending, private equity and investment funds.

"Shadow banking is a serious business in terms of size, estimated to be 111 per cent of world gross domestic product in 2011 (according to the Federal Reserve Bank of San Francisco).

"However, many bankers regard any encroachment on their business as shadow banking," he said.

Shadow banking, as defined by United Kingdom's Financial Stability Board, is lending and borrowing by institutions other than the regulated banking system.

Another committee member, Prof Tan Sri Dr Lin See Yan highlighted the recent development of Internet-based operators entering the banking services industry such as Alibaba in China.

"It has heightened the possibility not only of higher levels of efficiency and innovation, but also of instability.

"Within three days in July 2014, Alibaba's first mutual fund, Yuebao, raised over 500 billion renminbi (RM286.30 billion), dwarfing the size of the previous largest mutual fund in China," said Lin.

This emphasised the speed of potential shadow banking growth given the current technology, said Lin, adding that to bring this under control, the Chinese government licensed Alibaba as a banking services provider.

Lin, who was the former Deputy Governor of Bank Negara Malaysia, said there was a need to enhance the regulator's system of monitoring and better manage risks that could hurt consumers, arising from more complex products or services as a result of continuing pressures on the profitability of financial service providers from Internet banking engaging in bundling of products, and borrowers taking on more debt than they can afford.

"The search for higher yields lead consumers to buy new products without properly understanding the risks, while new delivery channels could expose private information, and possibly fraudulent activities," he added. - BERNAMA