The necessity of using supervisory technology
Speech by Pentti Hakkarainen, Member of the Supervisory Board of the ECB, at the 33rd Annual Conference of the Group of Banking Supervisors from Central and Eastern Europe
Frankfurt am Main, 27 May 2021
Apparently, Pablo Picasso was not a huge advocate for technological advancement. In 1968 he is reported to have said:
“Computers are useless. They can only give you answers.”
In one crucial sense, the legendary Spanish painter was entirely correct. To be useful, computers require an intelligent human to be on hand to ask the right questions. This is as true now as it was in the 1960s, and should provide reassurance to anyone who is worried about jobs in banking supervision being taken over by robots.
Successful digitalisation requires pairing curious human minds with useful technological aids. In my remarks today, I will explain how banks and supervisory authorities are enhancing the way they work with advanced IT solutions. The detailed slides accompanying these remarks are available alongside the text on the ECB Banking Supervision website.
As I observe the increasing use of advanced IT in both the private and public sectors, I find myself disagreeing with Picasso. Far from being useless, adopting supervisory technology – or suptech as we call it – is actually a necessity for effective banking supervision.
On the necessity of using supervisory technology
The coronavirus (COVID-19) crisis has underlined the need for banks to fully embrace the latest technology. During the crisis, the sustainability of businesses has hinged decisively on technology. With people forced to work from home, banks have had to rely on digital and remote solutions to handle their daily business and continue providing their services to clients.
Of course, the trend towards digitalisation was already well under way long before the crisis hit. Demand for convenient and customer-friendly digital platforms to conduct banking operations is growing. Customers highly value well-functioning banking apps, and the design and effectiveness of online interfaces are becoming key factors in the competitive landscape. Banks have also increased their own use of technology as a way of driving efficiency savings and improving their service offerings.
We have now reached a critical turning point. The use of modern technology is becoming one of the most important success factors for the banking industry. Given customer demand and the competitive challenges posed by fintechs and bigtechs, accelerating their adoption of technology is no longer a choice for banks – it is a must.
With the banking sector embracing digitalisation, banking supervisors must also adapt. Digital transformation offers many opportunities for supervisors to develop tools that will enable us to gain a quicker and greater understanding of risks to the banking sector. There is great potential to use technology to get the most from the large amounts of data available to banking supervisors. And digital solutions will offer efficiency gains that will allow supervisors to focus their time on the more constructive aspects of their work.
For these compelling reasons, ECB Banking Supervision not only makes use of modern technology but also aims to become a suptech pioneer.
Let me explain how we want to do this.
European banking supervision’s “digital innovation house”
European banking supervision is in the process of becoming a digital innovation house. This vision is based on four building blocks: an effective innovation model, a digital culture, an innovation ecosystem and successful delivery of business-related use cases.
To give you further insight into our suptech agenda, I will expand on each of these four elements. In doing so, I hope to contribute to the mutual learning process, because by sharing such experiences with one another in this way, we supervisors have a great opportunity to accelerate our collective progress.
Implementing an innovation model
First, we are implementing an innovation model based on open collaboration, bringing together colleagues with different perspectives to drive suptech projects.
In our approach to suptech, we have chosen to be users rather than researchers. Our motto is “start small, and if it doesn’t work, just try again”.
To give an example, if the ECB and the national competent authorities (NCAs) have similar approaches to certain tools or processes, we can start developing them together. This is more pragmatic and allows us to quickly achieve end results. We have also created a dedicated unit, the Suptech Hub, to facilitate all innovation work and to better connect IT and supervisory experts.
Let me also tell you how we have identified the areas where technology can help the most. Last year, supervisors from across European banking supervision were invited to share their suggestions in design thinking workshops, which resulted in a significant number of ideas.
Following this idea-generating process, and to kick start the development of new tools, we created interdisciplinary innovation teams in the spring of this year. These teams bring together IT and suptech experts, data scientists and artificial intelligence (AI) experts from the ECB and many of the NCAs.
We are giving these teams the freedom to collaborate flexibly and independently. They are supported by the Supervision Innovators Forum, which connects the leading suptech and IT experts from across European banking supervision, and are guided by the Steering Committee in its Digital Agenda composition, which brings together a dedicated group of Supervisory Board members.
The active collaboration and trust fostered within the teams, the Forum and the Steering Committee has helped a great deal in coordinating our efforts.
Fostering a digital culture
Second, we want to equip supervisors with the right skills and mindset to fully engage in digitalisation. In other words, we actively foster a digital culture.
In essence, we need to increase the willingness and readiness of our staff to use suptech. Only then can we fully engage supervisors in digitalisation and build a shared digital culture across European banking supervision.
A concrete example of how we are enhancing our digital culture is our system-wide training programme on AI, which offers a practical way to explore the AI world. During an intensive six-week programme, participants follow e-learning modules on the fundamentals of AI at their own pace and meet every week for live presentations of case studies. Overall, the training has given participants an opportunity to reflect on AI in the context of banking supervision and provided a means to contribute to future suptech business cases. The feedback received shows that participants appreciated the mixed training methods and the content. We plan to extend the programme to around 500 more supervisors before the end of the year.
Building an innovation ecosystem
Third, we want to cultivate an innovation ecosystem where we actively engage with academia, start-ups and other authorities.
We are building on multiple initiatives of the ECB and the 28 NCAs and central banks that form part of the Single Supervisory Mechanism (SSM). Currently there are over 100 suptech tools under development across European banking supervision.
Here, the ECB’s role is to connect stakeholders in the SSM and promote ongoing initiatives. One of our community-building activities is the Supervision Innovators Conference. The inaugural event was held in 2020 and was a huge success. This year’s conference will take place in November and I warmly invite all of you to join.
In addition, we actively collaborate with start-ups, academia and other institutions, including the new Bank for International Settlements innovation hub, to work together and mutually benefit from each other’s potential.
Delivering impactful suptech use cases
Fourth, and most importantly, we want to provide frontline supervisors with concrete and impactful tools that use state-of-the-art technology.
We are developing tools and solutions in various areas.
A particular focus lies on tools which use natural language processing techniques. These techniques allow us to structure and assess large quantities of text. Such tools can analyse bank documents and newspaper articles much faster than humans and flag irregularities to supervisors.
Another key area is advanced analytics and applications that help us to get the most from large quantities of data. We look for technology that enables us to link various data sources and provide new forms of analysis, such as network analytics.
As supervisors tend to have high workloads, we also use suptech tools to reduce repetitive manual tasks. Here, I would like to mention speech-to-text as an example. Our strict rules require us to keep thorough and accurate records of a large number of discussions, so a speech-to-text tool that automatically converts human speech to written text saves supervisors a lot of time.
Some of our projects also aim to make life easier for the banks we supervise. For example, we have simplified the way we interact with banks by introducing the IMAS portal, a digital gateway for banks to submit documents and communicate with us directly.
Finally, I would like to mention the Virtual Lab, which we are currently developing. It will provide a unified suite of collaboration and communication tools available to all users across European banking supervision. It will also offer digital workspaces and built-in sharing capabilities to facilitate efficient and effective teamwork. By offering code development environments, the Virtual Lab will accelerate further innovation. We are confident that the Virtual Lab will be a game changer when it goes live later in the year.
To conclude, I would like to go back to my disagreement with Picasso.
Computers are not useless, quite the opposite. I consider computers and suptech to be a fundamental necessity. By embracing this technology, we gain new supervisory capabilities that make us more effective. And the automation of the more routine and repetitive tasks frees up our supervisors and enables them to focus on value-added activities that make use of their cognitive strengths. Advanced IT therefore provides a fantastic opportunity to improve the quality of our supervisory work.
With this in mind, it is encouraging to see that banking supervisors across the world are starting their own innovation journeys. We will have plenty of opportunities to learn from each other to find the best solutions.