Over the last 2 decades, the financial sector in Mongolia has transformed significantly, the result of institution building, legal reforms, market deepening, and rapid digitalization. The Financial Regulatory Commission of Mongolia (FRC) has played a central role in building trust, transparency, discipline, and stability. This has given markets confidence to grow, investors confidence to participate, and consumers confidence to use financial services safely.

Prior to the FRC’s establishment in 2006, securities, insurance, non-bank finance, and savings and credit cooperatives were regulated under separate arrangements. Bringing these sectors under one unified authority allowed us to consolidate fragmented supervisory responsibilities, introducing a unified approach to market regulation.

Over time, the FRC’s regulatory scope has expanded significantly to cover a broad ecosystem. Today, the FRC regulates 11 non-bank financial sectors and nearly 6,000 market participants across capital markets, insurance, non-bank finance, savings and credit cooperatives, fintech, virtual assets, real estate brokerage, and money lending services.

The capital market has become more active and diversified. Reforms in securities market legislation, corporate governance, disclosure, and market infrastructure have supported the development of both equity and bond markets. In 2021, the FRC introduced over-the-counter market regulation, helping create a two-pillar market structure alongside the exchange-based market.

Over the last five years, more than 260 companies have raised MNT 7.7 trillion from the capital market. Recently, Mongolia’s OTC market trading system was shifted to a blockchain-based system, which has enabled 24/7 market operation and improved efficiency.

The inclusive power of digital finance

Mongolia is largely a cashless economy, with only around 2 percent of total money supply is held in cash form. We view fintech as a powerful tool for inclusion – Mongolia has a large territory and a dispersed population, and digital financial services can reach remote populations, reduce transaction costs, and make finance more accessible.

The digital shift is visible across lending, insurance, brokerage services, and new financial products. For example, in the non-bank financial sector, around 92 percent of total borrowers now receive their loans through mobile applications.

Supporting responsible innovation and consumer protection

Digital services must be safe, affordable, understandable, and responsible. If innovation expands access but creates over-indebtedness, misuse of data, cyber risks, fraud, or unfair practices, then it does not truly serve financial inclusion.

Mongolia’s regulatory sandbox has allowed innovative services to be tested in a controlled environment under regulatory oversight before broader market deployment. It has allowed regulators and innovators to learn together, identify risks early, and determine whether new or revised regulations are needed. Since 2021, the sandbox has enabled nine companies to test 16 innovative products and services, some of which are now transitioning into the formal regulatory framework.

Innovation should never become an excuse for unclear pricing, misleading marketing, irresponsible lending, weak complaint handling, or misuse of consumer data. As digital services grow, the FRC is paying closer attention to transparency, suitability, cybersecurity, operational resilience, and fair treatment of consumers.

The vital role of inclusive green finance

Mongolia is especially vulnerable to climate impacts. During the 2023–2024 winter, millions of livestock were lost due to harsh weather conditions, affecting household income, food security, poverty, migration, and financial stability. Today, climate change is creating a broad range of environmental, economic, and social pressures, including migration to Ulaanbaatar, air and soil pollution, flood risks, and increasing pressure on energy and urban infrastructure.

This creates financial sector risk. Natural disasters, floods, harsh winters, drought, and environmental degradation can affect businesses, households, collateral values, loan quality, insurance claims, and the stability of financial institutions. As a result, climate and environmental risks must increasingly be considered in financial regulation and supervision.

By directing financial flows toward sustainable and resilient activities, we can reduce climate and environmental risks and manage their impacts more effectively. The FRC’s role is to support this transition by integrating sustainable finance considerations across the sectors we regulate. Mongolia adopted its Green Taxonomy in 2019 and National Sustainable Finance Roadmap in 2022. As a result, green and social bonds, green loans, and green insurance products are gradually entering the market. These products help create financial flows that support climate mitigation, adaptation, environmental protection, and green economic development.

Climate risks affect vulnerable groups first and hardest, especially rural households, herders, MSMEs, and low-income communities. Through cooperation with the Alliance for Financial Inclusion, the FRC is working to strengthen inclusive green finance, including through savings and credit cooperatives in rural areas.

Building a diversified, inclusive, digital, green, and connected financial market

Looking forward, a key priority for the FRC will be to develop a multi-pillar financial system that reduces excessive reliance on credit-based financing. Mongolia’s financial system has traditionally been bank-dominated, and many businesses, particularly SMEs, remain dependent on loans. Expanding alternative financing channels will give businesses, entrepreneurs, and investors greater choice, and help mobilize long-term capital for economic development.

A number of important regulatory reforms are underway. Draft laws on financial consumer protection and financial cooperatives are expected to strengthen consumer trust, improve access to microfinance, and support more inclusive financial services.

The FRC is also working on new regulatory frameworks which will create opportunities to participate in the real estate market, improve access to working capital, and open new financing channels for small enterprises.

We will continue to advance responsible digital and green finance. Fintech, digital platforms, RegTech, SupTech, and data-driven supervision will shape the future of financial regulation, while sustainable finance will be essential to building resilience against climate and environmental risks. The FRC will continue strengthening the regulatory sandbox, enhancing digital supervision, supporting sustainable capital market instruments, ESG disclosure, climate-related risk management, and inclusive green finance products. Our aim is to ensure that innovation and green finance create real economic and social value while safeguarding consumers, market integrity, and vulnerable communities.

We will also continue strengthening market integrity and risk-based supervision. As the market grows, stronger governance, AML/CFT compliance, cybersecurity, operational resilience, and data quality will be vital. Supervision must be forward-looking, evidence-based, and proportionate to risk.

As the FRC enters its third decade, our ambition is clear: to build a financial market that is trusted by investors, accessible to citizens, supportive of responsible innovation, resilient to risks, and aligned with Mongolia’s long-term sustainable development.

Source: AFI