Featured Product

    BoE Survey Shows Positive COVID Impact on Outsourced Banking Services

    February 22, 2021

    BoE has set out results of a survey on the impact of COVID-19 events on the use of machine learning and data science. The survey, which was conducted among 17 UK banks and 9 foreign banks with UK operations, aimed to understand how these technologies are being used by the supervised and regulated firms, assess the potential policy implications of these findings, and support the safe and productive deployment of machine learning and data science across the financial sector. BoE states that it will continue to consider whether new policy initiatives may help firms to realize the benefits and more effectively manage the risks of artificial intelligence, machine learning, and data science. One of the survey findings is that COVID-19 events had a "positive" impact on outsourcing and the use of third-party providers by large banks.

    In general, half of the surveyed banks reported an increase in the importance of machine learning and data science as a result of the pandemic, with none of the banks believing that COVID-19 crisis will reduce the importance of machine learning and data science for them. Nearly 40% of the survey respondents reported an increase in the importance of machine learning and data science for future operations and a further 10% of the banks reported a large increase. None of the banks reported a decrease in the importance of machine learning and data science. About a third of the banks said there was an increase in the number of ongoing machine learning and data science applications. Yet only 16% of the banks reported an increase in funding and/or resourcing for existing applications and a similar number reported a decrease. Similarly, nearly 35% of banks reported an increase in the number of planned applications but only 23% of the banks reported an increase in funding and/or resourcing for planned applications and 11.5% of banks reported a decrease. Meanwhile, about 35% of the banks reported a negative impact on machine learning model performance. This is likely because the pandemic has created major movements in macroeconomic variables, such as rising unemployment and mortgage forbearance, which required machine learning (as well as traditional) models to be recalibrated. The pandemic has created a major downturn that could not have been forecasted on the basis of economic data alone or historical predictors.

    Additionally, notable differences exist between small and large UK banks with respect to their use of third-party vendor products and services. Smaller banks reported a "positive" impact (for example, in terms of performance, impact, use) of COVID-19 on all categories of data science and machine learning, with data collection, and model testing and validation being the areas with the largest "positive’ impact. Large UK banks reported a "positive" impact on use of outsourced platforms and infrastructure. These findings are in line with market intelligence that smaller banks are looking to increase their use of off-the-shelf machine learning products. This stands to reason, given the generally more substantial in-house data and analytical capabilities of large banks. Alongside the usual risks associated with outsourcing, the use of machine learning and data science can pose additional risks and challenges. For example, outsourced machine learning models may be more difficult to interpret because detailed knowledge in terms of how they were developed resides outside the bank. This can make it more difficult for banks to understand how the model works and to monitor performance, which could result in unexpected or unexplained performance and risks materializing. If multiple banks use the same third-party provider and machine learning model, this could also potentially lead to an increase in herding, concentration, and even the possibility of systemic risks where methodologies are common.

     

    Related Links

    Keywords: Europe, UK, Banking, COVID-19, Machine Learning, Artificial Intelligence, Regtech, Big Data, Outsourcing Arrangements, Third-Party Arrangements, BoE

    Featured Experts
    Related Articles
    News

    BSP Tackles Aspects of Lending and Islamic, Open & Sustainable Finance

    The Central Bank of the Philippines (BSP) issued communications covering developments related to online lending platforms, open finance framework and roadmap, and on the expected regulations in the area sustainable finance.

    January 16, 2022 WebPage Regulatory News
    News

    US Agencies Issue Regulatory Updates, FDIC Launches Tech Sprint

    The Board of Governors of the Federal Reserve System (FED) published the final rule that amends Regulation I to reduce the quarterly reporting burden for member banks by automating the application process for adjusting their subscriptions to the Federal Reserve Bank capital stock, except in the context of mergers.

    January 13, 2022 WebPage Regulatory News
    News

    EBA Issues Guide on Bank Resolvability, Consults on Transferability

    The European Banking Authority (EBA) published its assessment of risks through the quarterly Risk Dashboard and the results of the Autumn edition of the Risk Assessment Questionnaire (RAQ).

    January 13, 2022 WebPage Regulatory News
    News

    MFSA Publishes CRD5 Updates and Supervisory Priorities for 2022

    The Malta Financial Services Authority (MFSA) updated the guidelines on supervisory reporting requirements under the reporting framework 3.0.

    January 13, 2022 WebPage Regulatory News
    News

    HKMA Extends Repayment for Trade Facilities, Consults on Crypto-Assets

    The Hong Kong Monetary Authority (HKMA) published a circular, along with the reporting form and instructions, for self-assessment, by authorized institutions, of compliance with the Code of Banking Practice 2021.

    January 12, 2022 WebPage Regulatory News
    News

    FCA Registers Securitization Repositories; PRA Issues 2022 Priorities

    The Financial Conduct Authority (FCA) decided to register European DataWarehouse Ltd and SecRep Limited as securitization repositories under the UK Securitization Regulation, with effect from January 17, 2022.

    January 12, 2022 WebPage Regulatory News
    News

    EC Regulation Sets Out Methods for Measuring K-Factors Under IFR

    The European Commission (EC) published the Delegated Regulation 2022/25, which supplements the Investment Firms Regulation (IFR or Regulation 2019/2033) with respect to the regulatory technical standards specifying the methods for measuring the K-factors referred to in Article 15 of the IFR.

    January 11, 2022 WebPage Regulatory News
    News

    BIS Studies How Platform Models Impact Financial Stability & Inclusion

    The Bank of International Settlements (BIS) published a paper that assesses the ways in which platform-based business models can affect financial inclusion, competition, financial stability and consumer protection.

    January 10, 2022 WebPage Regulatory News
    News

    CBE Issues Additional Measures to Ease Disruptions from Pandemic

    The Central Bank of Egypt (CBE) published a circular with instructions on emergency liquidity assistance to banks that are unable to meet their liquidity requirements.

    January 10, 2022 WebPage Regulatory News
    News

    ESAs Publish List of Financial Conglomerates for 2021

    The European Supervisory Authorities (ESAs) published the list of identified financial conglomerates for 2021.

    January 07, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 7868