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June 25, 2018

At the 11th Symposium on Asian Banking and Finance in San Francisco, Jeremy Rudin of OSFI spoke about the impact of data science on supervision of financial institutions. He believes data science will have a major impact on the supervision of financial institutions. Supervisors need to understand what data science can and cannot do to assist them. If they fail to understand how to use data science wisely, they will fail to gain the full benefits of these powerful techniques.

Mr. Rudin highlighted that “professions like prudential supervision, which rely heavily on judgment and experience, tend to resist the idea that algorithms can improve on what human expertise can accomplish alone. That is a mistake and we cannot afford to make that mistake.” He discussed the way data science will change the practices of supervisors of financial institutions. He first gave example to demonstrate how data science can apply to the work in conduct supervision—specifically detecting and prosecuting illegal insider trading. Next, he exemplified the applications of data science to the work of a prudential supervisor in reducing the likelihood of failures of large and complex banks.

Finally, he illustrated the issues that can be left unresolved by the current approach and explained the ways to harness the power of unsupervised machine learning to resolve such issues using the increasingly available granular data that supervisors are collecting. “By combining increased computing power with more granular data, we can increase the speed, accuracy, and level of detail of our existing data analysis. That is a step forward; perhaps it will be a big step forward,” he added.

 

Related Link: Speech

Keywords: International, Canada, Banking, Regtech, Prudential Supervision, Machine Learning, Data Science, OSFI

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