Basel Committee highlights rising risks from finance digitalisation in new report
The Basel Committee on Banking Supervision has released a comprehensive report analysing the impact of ongoing digitalisation on the finance sector, particularly focusing on banks and supervision.
This report builds on the 2018 publication, “Sound Practices: implications of fintech developments for banks and bank supervisors,” and provides a detailed overview of recent advancements in digital finance.
The report delves into the application of key innovative technologies such as application programming interfaces (APIs), artificial intelligence (AI) and machine learning, distributed ledger technology (DLT), and cloud computing across the banking value chain. It also considers the involvement of new technologically enabled suppliers, including big tech companies, fintechs, and third-party service providers, along with emerging business models.
The Committee notes that while digitalisation offers significant benefits to both banks and their customers, it also introduces new vulnerabilities and amplifies existing risks. These include increased strategic and reputational risks, expanded factors that could challenge banks’ operational risk and resilience, and potential system-wide risks due to greater interconnections. Although banks are adopting various strategies and practices to mitigate these risks, effective governance and risk management processes remain critical.
Key regulatory and supervisory implications highlighted in the report include:
- Monitoring evolving risks and adopting a responsible approach to innovation
- Safeguarding data and implementing robust risk management processes
- Securing necessary resources, staff, and capabilities to assess and mitigate risks from new technologies and business models
The Committee emphasises the importance of continuously monitoring developments related to finance digitalisation and indicates that it may issue additional standards or guidance if necessary to address emerging risks and vulnerabilities.
In a statement, the Basel Committee on Banking Supervision said, “Digitalisation raises regulatory and supervisory implications for both banks and supervisors. These include monitoring evolving risks and adopting a responsible approach to innovation; safeguarding data and implementing robust risk management processes; and securing the necessary resources, staff and capabilities to assess and mitigate risks from new technologies and business models.”
The Basel Committee will continue to oversee the progress and implications of digital finance and adjust its guidelines accordingly to ensure the stability and security of the banking sector.
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