The digitalization of banking, coupled with the entry of Big Tech firms into the financial sector, has brought forth a new wave of vulnerabilities and heightened existing risks, according to a report released by global banking regulators on Thursday. The Basel Committee highlighted the profound impact of technological advancements such as cloud computing, artificial intelligence (AI), distributed ledger technology (DLT), and open banking on the banking system’s risk landscape. These innovations, while fostering efficiency and innovation, also introduce complexities that may necessitate new regulatory measures to mitigate associated risks effectively.
The report underscores the potential challenges posed by external operators employed by banks, who often operate outside the purview of traditional regulatory frameworks. These entities, including fintechs and tech companies providing crucial banking services, create additional nodes of channels and interconnections within the banking ecosystem, raising concerns about regulatory oversight and compliance standards. The Basel Committee emphasized the need for a comprehensive regulatory approach to address these evolving risks, considering factors such as strategic, reputational, and operational risks, as well as the broader implications for system-wide stability.
As part of its mandate, the Basel Committee is committed to assessing the evolving landscape of banking risks and identifying areas where additional standards or guidance may be necessary to enhance risk management practices and safeguard financial stability. With central bankers and banking regulators from major economies collaborating under its purview, the committee plays a pivotal role in shaping global regulatory frameworks to adapt to the challenges and opportunities presented by the digital transformation of banking.
