The report builds on the 2018 BCBS paper titled, “Sound practices: implications of fintech developments for banks and bank supervisors” and takes stock of recent developments in the digitalization of finance. The report reviews key technologies across various aspects of the banking value chain, including banks' use of application programming interfaces (APIs), artificial intelligence (AI) and machine learning (ML), distributed ledger technology (DLT), and cloud computing.
It considers the role of new banking competitors and business models, outlines potential risks for banks and financial stability arising from the digitalization of finance, examines strategies available for banks to mitigate risks, and explores the evolution of regulatory and supervisory frameworks in response to these changes. Additionally, it outlines eight implications of digitalization for both banks and banking supervisors, specific digitalization themes, capacity building, and coordination across authorities and jurisdictions.
In some jurisdictions, legislative frameworks have expanded the scope of regulatory oversight. Common challenges identified by supervisors include technical complexity, a lack of specialist knowledge among supervisors, gaps in existing regulatory frameworks addressing the full spectrum of risks, complexities associated with cross-border activities and entities, and lack of standardization and interoperability in certain technologies like APIs and DLT.
Many supervisors are increasingly using suptech tools. Common use cases include text analysis and summarization, entity sentiment analysis, market surveillance and risk identification, credit risk challenger tools, outlier detection in AML inspections, and automation of certain supervisory processes. Suptech is also used to monitor trends and risks across the fintech sector, including crypto and DeFi projects. Some authorities employ suptech solutions to improve communication on regulatory requirements through interactive chat-style “regulation as a service” interactions using AI.
Visit Moody’s website to find out how Moody’s is incorporating cutting-edge technologies such as artificial intelligence to help banks meet their existing challenges more effectively.
