Featured Product

    Agustín Carstens of BIS on Role of Proportionality in Tackling Risks

    October 30, 2018

    In a keynote address at the 13th ASBA-BCBS-FSI High-level Meeting on "Global and Regional Supervisory Priorities," Agustín Carstens, the General Manager of BIS, focused on possible ways to mitigate the previously identified risks that led to the global financial crisis and the emerging risks arising as a result of innovative technologies. He discussed the relevance of achieving a timely and adequate implementation of the post-crisis reforms, with an emphasis on the role that proportionality could play in dealing with some of the challenges that may arise in this implementation process. With respect to the emerging risks, he elaborated on the potential disruption that innovative technologies may cause in the financial system landscape and how to go about regulating them to maximize their benefits and to minimize their risks.

    With the bulk of regulatory changes broadly complete, the focus shifts to implementation into national law, which must be consistent and timely. A forthcoming Financial Stability Institute (FSI) survey on the implementation of the Basel framework shows that many non-Basel Committee members in Latin America have implemented, or are in the process of implementing, relevant pieces of the Basel III framework. The most common elements implemented, or in the pipeline, are the definition of capital and the revised operational risk framework. Additionally, most of the surveyed jurisdictions in the region do not seem to be prioritizing the implementation of the liquidity standards, possibly owing to the complexity of the new standards and the consequent regulatory burden. Consequently, many jurisdictions have started implementing simplified prudential approaches for small and less complex financial institutions. However, in several jurisdictions that have implemented proportionality in prudential regulation, simplified approaches are typically more stringent than international standards. The adoption of a proportionate regulatory approach should avoid over-protecting inefficient institutions from competitive forces. These forces are likely to be relevant in a context in which technological innovations are likely to alter in a significant way the competitive position of different types of financial institutions, thus leading to a substantial modification of the structure of the banking industry.

    Next, he discussed the challenges posed by technological developments. For example, while the new entrants will bring competition in the market for some non-core financial services, this may also trigger more concentration on traditional intermediation activities, as technology will normally increase economies of scale in the provision of those services. In addition, the increased participation of non-regulated (or lightly regulated) institutions in activities such as the provision of payment services, or the creation of opaque means of payment through distributed ledger technologies, may support some illegal activities. Also, a rapid and disorderly development of new investment products could weaken consumer protection. Furthermore, a generalized reliance of financial institutions on a small group of third-party providers of technological services generates business continuity risks that could become systemic. The intensive use of automated systems by financial institutions and other providers of financial services does exacerbate cyber-security risks and challenges the protection of customer data. Given these risks, effective regulatory action seems indispensable to promote the orderly assimilation of innovations.

    Mr. Carstens added that effective regulation should be proportionate, holistic, and coordinated at the global level. He added that close cooperation between regulators and firms developing innovations may steepen the learning curve for public authorities and, thus, facilitate the required proportionality of the regulatory action. This is why the creation of regulatory sandboxes, sponsored in many cases by the regulators themselves, is a valid initiative. Technological development is a global phenomenon, as innovations are rapidly spread out internationally and providers of new services and products often act on a cross-border basis, taking advantage of the new virtual distribution channels. It is, therefore, essential to guarantee appropriate cooperation among relevant authorities worldwide and, once sufficient experience is accumulated, to start developing new global regulatory standards to address the relevant policy issues. The international cooperation arrangements already in place, that we call the Basel Process, are well-suited to facilitate the required interaction among regulators. Yet, given the multidisciplinary nature of the policy challenges, the existing structures may have to be adjusted to ensure sufficient involvement of all relevant players beyond financial regulators. 

     

    Related Link: Speech

    Keywords: International, Banking, Fintech, Regtech, Cyber Risk, Proportionality, BIS

    Related Articles

    PRA Publishes Q&A on Property Valuation Requirements Under CRR

    PRA published a set of questions and answers (Q&A) covering common queries regarding residential and commercial property valuations, for the purpose of the Capital Requirements Regulation (CRR), during the period of disruption caused by COVID-19 pandemic.

    May 29, 2020 WebPage Regulatory News
    News

    IOSCO Consults on Outsourcing Principles for Operational Resilience

    IOSCO proposed updates to its principles for regulated entities that outsource tasks to service providers.

    May 28, 2020 WebPage Regulatory News
    News

    MAS Consortium to Develop AI Fairness Metrics for Credit Scoring

    MAS announced that the first phase of the Veritas initiative will commence with the development of fairness metrics in credit risk scoring and customer marketing.

    May 28, 2020 WebPage Regulatory News

    BoE Updates Definitions for BTL Data Collection

    BoE published the Statistical Notice 2020/4 to update the buy-to-let (BTL) Phase 2 and Phase 3 definitions for the Interest Rate Type data item.

    May 28, 2020 WebPage Regulatory News
    News

    FSI Examines Financial Stability Implications of Payment Deferrals

    FSI published a brief note that examines challenges facing the banking sector as a result of the payment deferral programs put in place to support borrowers affected by the COVID-19 pandemic.

    May 28, 2020 WebPage Regulatory News
    News

    PRA Finalizes Policy on Prudent Person Principle Under Solvency II

    PRA published the policy statement PS14/20, which contains the supervisory statement SS1/20 and the feedback to responses to the consultation paper CP22/19 on expectations for investment by firms in accordance with the Prudent Person Principle, or PPP, as set out in the Investments Part of the PRA Rulebook.

    May 27, 2020 WebPage Regulatory News
    News

    EBA on Extending Large Exposure Limits for French Systemic Banks

    EBA published an opinion following the notification by the French macro-prudential authority, the Haut Conseil de Stabilité Financière (HCSF), of its intention to extend a measure introduced in 2018 on the use of Article 458(9) of the Capital Requirements Regulation (CRR).

    May 27, 2020 WebPage Regulatory News
    News

    ECB Highlights NPL Resolution as Key Policy Issue in Post-COVID Europe

    As part of a Research Bulletin on the recent policy-relevant work, ECB published an article that examines the lessons learned from past crises for nonperforming loan resolution in the post COVID-19 period.

    May 27, 2020 WebPage Regulatory News
    News

    RBNZ Publishes Financial Stability Report for May 2020

    RBNZ published the financial stability report for May 2020. This review of the financial system in the country highlights that the economic disruption associated with COVID-19 will present challenges to the financial system.

    May 27, 2020 WebPage Regulatory News
    News

    ECB Updates Guidance on Reporting of Securities Holdings Statistics

    ECB updated the guidance notes for reporting related to the statistics on holdings of securities by reporting banking groups (SHSG).

    May 26, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5231