
According to a report released on Thursday by global banking regulators, the digitalisation of banking services and the entry of Big Tech companies into the finance industry are creating new vulnerabilities and amplifying existing risks in the banking system. The Basel Committee of banking regulators highlighted that these developments may require the implementation of new rules to mitigate these risks.
Key Technological Trends Increasing Risks in Banking
The report emphasized several key technological trends that are contributing to these risks. The growth of cloud computing, where external tech companies assist in providing essential banking services, the rise of artificial intelligence (AI), the use of distributed ledger technology (DLT), and the spread of open banking, which involves the sharing of customer data between external fintechs and banks, all introduce new risks to the banking system.
Risks Associated with Technological Advancements
The Basel Committee outlined the specific risks associated with these technological advancements. These risks include greater strategic and reputational risks, an expanded range of factors that can test banks’ operational risk and resilience, and potential system-wide risks due to increased interconnections between various actors within the banking ecosystem.
Regulatory Challenges and External Operators
The report also highlighted the challenges posed by external operators utilized by banks. These external operators, such as tech companies, create “new nodes of channels and interconnections” within the banking system. However, they may not be subject to the same level of regulatory standards as traditional lenders. This discrepancy in regulatory standards can further increase the risks faced by the banking system.
The Role of Regulators and Future Considerations
The Basel Committee, which consists of central bankers and banking regulators from the G20 economies and other countries, recognizes the need to address these emerging risks. It stated that it will consider whether additional standards or guidance are necessary to mitigate these risks and vulnerabilities. The committee’s objective is to ensure the stability and integrity of the global banking system.
In conclusion, the digitalisation of banking services and the entry of Big Tech companies into finance introduce new risks and vulnerabilities to the banking system. The Basel Committee aims to address these risks through the formulation of new rules and standards, considering the potential impact of technological advancements on the stability of the global banking sector.