APRA Chair Speaks About Uncertain Impact of Financial Innovations
At the 2018 Curious Thinkers Conference in Sydney, the APRA Chairman Wayne Byres examined the potential impact of financial technologies on the financial sector. In this context, he believes that the task of APRA is to ensure that regulated entities are adequately managing change and not exposing customers to undue risks. APRA should also ensure that regulation and supervision are fit for the future and can adapt as the financial system and its participants evolve.
APRA Chair revealed that an APRA review of the systems hygiene in the banking sector, suggested that the issues identified reflect persistent underinvestment over a number of years. The reviews emphasize that, to facilitate new technology, investment budgets need to be increased, not just reprioritized. APRA released its first information security prudential standard for consultation in March and it wants cyber-soundness to be thought about in the same way as institutions think about financial soundness. Additionally, in the area of cloud computing, APRA released an updated version of its 2015 paper, which acknowledges advancements in the safety and security in using the cloud, along with the increased appetite for doing so, especially among new and aspiring entities that want to take a cloud-first approach to data storage and management. In addition to reinforcing steps to minimize the risks of cloud usage, the information paper also summarizes observed weaknesses that industry must continue to focus on. While cloud usage, as with all other shared service arrangements, involves a degree of shared responsibility, boards and senior management of regulated entities remain ultimately accountable for the security of their data. That accountability cannot be outsourced.
A major challenge that technology poses for regulators is the growing trend toward outsourcing and partnering, according to Mr. Byres. Outsourcing and partnering is increasingly occurring for business-critical functions, not just at the periphery of activities. Many of these new partners and providers of critical functions sit outside regulators’ reach. The prudential supervisors’ ability to “kick the tyres” will be much harder in future, without new tools and methods. This gives rise to the systemic risk of an ostensibly large and diverse number of entities all dependent on just a few unregulated providers for critical services, creating a substantial concentration risk and increasing the threat of contagion in the event of a service failure. Applicants for new banking licenses may not fit the traditional mold and that is another risk posed by technology. Consequently, APRA has established a new licensing regime to provide for easier entry—but not lower standards—to the banking system for applicants with unconventional or non-traditional business models. The goal of the new Restricted Authorized Deposit-taking Institution regime is to allow applicants to commence limited banking business while still developing their capabilities and resources. It also allows APRA to learn about, and gain comfort with, new ways of doing things.
APRA is increasing effort to ensure that it has the expertise, knowledge, and technology in place to monitor and interpret the changing nature of the financial sector. APRA has established an internal Fintech Council to examine developments and trends in the fintech sector. Guided by the Council, APRA has stepped up the engagement with a range of players from outside the regulated sphere, such as Fintech Australia, the RegTech Association, and InsureTech Australia. The purpose of this engagement is to create a dialog with players in these emerging sectors to ensure APRA is up-to-speed with developments and to keep ahead of emerging issues that may cause regulatory challenges. He also welcomed the valuable insights gained from participating in ASIC’s Digital Finance Advisory Committee. Finally, he said that one of APRA’s key strategic priorities over the coming years is to broaden its risk-based supervision.
Related Link: Speech
BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks
The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.
OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.
BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending
BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.
HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks
The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.
BCBS Report Examines Impact of Basel III Framework for Banks
The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.
PRA Consults on Prudential Rules for "Simpler-Regime" Firms
Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.
DNB Publishes Multiple Reporting Updates for Banks
DNB, the central bank of Netherlands, updated the list of additional reporting requests and published additional data quality checks and XBRL-Formula linkbase documents for the first quarter of 2023.
NBB Sets Out Climate Risk Expectations, Issues Reporting Updates
The National Bank of Belgium (NBB) published a communication on climate-related and environmental risks, issued an update on XBRL reporting
EBA Updates Address Securitization Standards and DGS Guidelines
The European Banking Authority (EBA) published the final draft of the regulatory technical standards that set out conditions for assessment of homogeneity of the underlying exposures in simple, transparent, and standardized (STS) securitizations.
FSB Publishes Letter to G20, Sets Out Work Priorities for 2023
The Financial Stability Board (FSB) published a letter intended for the G20 Finance Ministers and Central Bank Governors, highlighting the work that FSB will take forward under the Indian G20 Presidency in 2023