BCBS: Banking Digitalisation Poses New Risks, Calls for Action

Big tech in the finance industry has long been heralded for driving digital transformation and fostering a new age of innovation. 

Between 2019 and 2023 alone, investment in fintech companies – the providers of emergent technologies – has totalled a staggering US$865bn, more than double the levels of investment seen between 2013-2018. 

However, with new innovations comes the creation of new vulnerabilities and the amplification of existing risks. 

So, while banks rush to onboard the latest innovations, the question remains: do the benefits of digitalisation outweigh the risks?

Perhaps not for the Basel Committee on Baking Supervision (BCBS), the global regulatory committee that agrees on standards for bank capital, funding and liquidity, which has said continued innovation in the banking sector has paved the way for strategic, reputational, operational and data risks.

Growing risk in the banking sector

The risks outlined by the BCBS pertain to the growth of cloud computing – where core banking services are supported by cloud technologies provided by third parties – the rise of AI, the use of distributed ledger technology (DLT) and the proliferation of open banking. 

While these innovations are enabling the banking industry to offer levels of customer experience never before seen, for the BCBS, these technologies may test banks’ operational resilience and system-wide risks as a result of increased connections between banks and fintechs.