Leveraging technology to support supervision: challenges and collaborative solutions

Speech by Benoît Cœuré, Head of the Bank for International Settlements Innovation Hub, at the Peterson Institute for International Finance, Financial Statement event series, 19 August 2020.

BIS, Innovation Hub speech  | 
19 August 2020

Introductory remarks

Good afternoon to you all, and thank you for inviting me to your Financial Statements event series.

Let me start by saying that we are in extraordinary times. The coronavirus (Covid-19) pandemic is a tremendous shock for the global economy, and we have seen lockdowns and containment measures on an unprecedented global scale.

Central banks, supervisors and international financial institutions are seeking to mitigate the immediate impact on the real economy through extraordinary fiscal, monetary and macroprudential measures.1

But perhaps the more immediate consequence of the pandemic that has affected governments, central banks, financial institutions and many businesses has been a change in the way we work.

What would have been face-to-face meetings, such as this one today, have almost all been replaced by virtual conferencing. We are experiencing first-hand global collaboration through technology and platforms.    

The Covid-19 pandemic has also accelerated trends in digital innovation that were already under way. For example, current developments bring to the fore digital payments and underscore the importance of resilient and accessible central bank-operated payment infrastructures that need to withstand a large range of shocks, including pandemics and cyber attacks.2 And expanded use of digital payments can, in turn, fuel a rise in digital lending as companies accumulate consumer data and enhance credit analytics.3

If there is a silver lining to this crisis, in just three months we have seen the power and potential of how technology can support and improve the way we work. This has reinforced that technology is indispensable in our globally connected world. 

All of these developments make central bank public goods more important than ever, and central banks need to be at the cutting edge of technology to serve society.4

Over recent years, we have seen growing interest from financial institutions and the official sector in the use of technology to support new business models and to solve regulatory and compliance requirements more effectively and efficiently.

"Regtech" refers to the application of financial technology (fintech) for regulatory and compliance requirements and reporting by regulated financial institutions. "Suptech" is the term for any application of fintech for regulatory, supervisory and oversight purposes.5 In many ways, these are two sides of the same coin.

The benefits and opportunities of regtech and suptech for regulated entities and supervisory authorities to improve efficiency, reduce manual processes and make effective use of data are enormous.

As they are more widely adopted, these technologies can enhance diligence and vigilance in risk monitoring and management in real time, improving the resilience and stability of the broader financial system.6 

And yet challenges remain. In today's remarks, I would like to share with you what we see as the main challenges and how we can address these collectively to build solutions and avoid silos.

The BIS Innovation Hub has been established to spearhead central banks' response to digital innovation. We are building a portfolio of projects in areas relevant to central bank activities across the three Innovation Hub Centres in Hong Kong SAR, Singapore and Switzerland.

The BIS decided last month to expand the Hub's global footprint to include new centres in London, Stockholm (with a group of Nordic central banks), Toronto and Frankfurt/Paris (with the ECB/Eurosystem), to be established over the next two years, as well as a strategic partnership with the Federal Reserve. Regtech and suptech feature high on our agenda.

Digital innovation knows no borders, and it is therefore the Hub's mission to foster international collaboration and build on the efforts of central banks that have made significant advances in digital innovation. Partnerships with other stakeholders, such as bank and market supervisors, is critical for this task.

2 See R Auer, G Cornelli and J Frost, "Covid-19, cash, and the future of payments", BIS Bulletin, no 3, April 2020.

3 See U Eriksson von Almen, P Khera, S Ogawa and R Sahay, "Digital financial inclusion in the times of Covid-19", IMF Blog, 1 July 2020.

4 For a discussion of the role of central banks in the new world of payments, see BIS, Annual Economic Report 2020, Chapter III.

5 See Financial Stability Board, The use of Suptech and Regtech by authorities and firms: Market developments and financial stability implications, forthcoming, and J A Barefoot, "Digitizing financial regulation: regtech as a solution for regulatory inefficiency and ineffectiveness", Harvard Kennedy School M-RCBG Associate Working Paper Series, no 150, June 2020.

6 See Financial Stability Board, ibid.