BASEL, Switzerland—The Basel Committee on Banking Supervision has published a report that considers the implications of the ongoing digitalization of finance on banks and supervision.
“The report reviews the use of key innovative technologies across various aspects of the banking value chain, including application programming interfaces, artificial intelligence and machine learning, distributed ledger technology and cloud computing,” BIS.com reported. “It also considers the role of new technologically enabled suppliers (e.g. big techs, fintechs and third-party service providers) and business models,” BIS.com said.
‘New Vulnerabilities’
The report added, “While digitalization can benefit both banks and their customers, it can also create new vulnerabilities and amplify existing risks. These can include greater strategic and reputational risks, a larger scope of factors that could test banks' operational risk and resilience, and potential system-wide risks due to increased interconnections. Banks are implementing various strategies and practices to mitigate these risks, but effective governance and risk management processes remain fundamental.”
The Implications
According to the report, digitalization raises regulatory and supervisory implications for both banks and supervisors that include:
- Monitoring evolving risks and adopting a responsible approach to innovation
- Safeguarding data and implementing robust risk management processes
- Securing the necessary resources, staff and capabilities to assess and mitigate risks from new technologies and business models
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