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July 16, 2018

FSI published a report that examines the experience of early users with the use of innovative technology by supervisory agencies (suptech) to support supervision. The report first describes the uses of suptech. It then examines user experiences with suptech covering how and why do supervisory agencies develop suptech applications, the challenges that supervisory agencies face in developing suptech applications, and the implications of suptech for supervised entities. Finally, the paper presents useful insights that could help supervisory agencies take advantage of suptech developments.

The report highlights that suptech is currently found in two areas of applications: data collection and data analytics. Supervisory agencies initiate and organize their suptech activities in several ways. The challenges faced by agencies in developing or using suptech applications include computational capacity constraints; increased operational risks, including cyber risk; data quality; finding the right talent, management support, and buy-in from supervision units; rigid rules in project management; and lack of transparency in some of the data analytics applications. The benefits of suptech applications can extend to supervised institutions. They can lead to reduced compliance costs and contribute to enhanced risk management effectiveness. This is particularly the case for automated reporting. 

Supervisory agencies would be best placed to explore the potential benefits of suptech applications if they have a well-defined suptech strategy. A suptech strategy should comprise the following three key elements, at a minimum:

  • Ambitious, but achievable, targets (for example, which technology will be used, in which area of supervision, and how will it be funded)
  • An assessment of data availability, data quality, and availability of analytical resources
  • A step-by-step action plan on how the supervisory agency will get from the current situation to full implementation of its suptech strategy

The experience of early suptech users, as discussed here, yields some useful insights on how to develop such a strategy. The overall approach to supervision should adapt to the digitization of the activities of supervised entities. As finance becomes increasingly digitised, financial supervision needs to keep up.


Related Link: FSI Paper (PDF)

Keywords: International, Banking, Suptech, Regtech, Suptech Strategy, FSI

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