The impact of suptech on European banking supervision

Speech by Elizabeth McCaul, Member of the Supervisory Board of the ECB, at the Supervision Innovators Conference 2022

Frankfurt am Main, 14 September 2022

Introduction

I am absolutely delighted to be participating in this exciting conference and am happy to see so many joining us here today at the ECB in person as well as online. The Supervision Innovators Conference is only three years old but is already somewhat of a household name among banking supervisors.

In my remarks today, I would like to explain what we have done over the last year to transform European banking supervision with the aid of supervisory technology (suptech). The vision and the action plan that have been guiding us in this transformation are laid out in our Single Supervisory Mechanism (SSM) Digitalisation Blueprint, which we adopted two years ago.

The word “blueprint” sounds rather technical, so allow me to use the metaphor of a tree. At the centre, we have our advanced innovation model, which explains how we organise our suptech work. This is the trunk of the tree. The trunk is supported by strong roots. Those roots are the digital culture which equips our supervisors, the branches of the tree, with the skills they need to innovate. If we zoom out a bit, we see that the whole tree is part of an innovation ecosystem. You, as participants in this conference, are in fact part of that ecosystem. Then, we come to the fruit of the tree: the actual suptech tools. As you will see on the gallery walk and in tomorrow’s use case sessions, our tree has already yielded a very rich harvest! Finally, I want to give you my vision of how our tree fits into the wider SSM IT landscape.

Before I walk you through the details, let me say that I will be happy to take questions at the end of my speech.

Delivering on the SSM Digitalisation Blueprint

An advanced innovation model in the SSM

At the centre, the trunk of the tree so to speak, we have our innovation model.

In order to foster innovation, we adopted a “hub and spoke” approach which promotes cross-functional and agile collaboration. This is even more relevant in the context of European banking supervision, as we are operating in a complex environment with many stakeholders. Let me explain how it works.

The hub is a central suptech hub at the ECB which connects all stakeholders working on innovation within the SSM. The hub allows us to identify synergies and needs across national competent authorities (NCAs) and work in agile innovation teams composed of both ECB and NCA staff on the development of suptech tools. These teams are interdisciplinary and typically consist of both supervisory and IT experts. The spokes are the business owners, the users of our suptech tools, who take ownership and play a leading role in developing specific use cases for their business areas.

One of the tools developed by such an innovation team is the Virtual Lab. The Virtual Lab is an SSM platform which integrates cloud technology into the day-to-day processes of the ECB and NCAs and facilitates collaboration for all our supervisory tasks. It also makes powerful cloud computing resources available to users to explore advanced analytics. The Virtual Lab went live at the end of last year and was recently awarded the Cloud Innovation award by “Central Banking” in its 2022 FinTech RegTech Global Awards. You will be able explore the Virtual Lab on the gallery walk and in tomorrow’s use case sessions.

Fostering a digital culture

Now that we have the innovation model with the people at the centre, let me move to the roots: the digital culture.

Establishing a digital culture and training staff in advanced technologies is crucial to fostering our digital transformation. Digital culture encourages innovation and facilitates the process of adopting new technologies. What do I mean by that?

Managers and staff need to develop the right skills and mindset to enable them to embrace the opportunities offered by new technologies. This is what our training programme aims to achieve. We have been expanding SSM training to foster digital skills and an innovative mindset and have trained more than 1,000 colleagues on topics such as artificial intelligence and digitalisation.

We are partnering with academia to provide staff at all levels with state-of-the-art knowledge on these and other topics relating to innovation and digital technologies. In fact, tomorrow my Supervisory Board colleagues and I will participate in a workshop on a “Strategic view for digital organisations” delivered by INSEAD, one of the world’s leading business schools.

Let me give you another example.

Over the next few weeks, we will be rolling out the Data Science School to the whole of European banking supervision, leveraging the online learning platform Coursera. The Data Science School was initially launched at the Banco de Portugal in June 2020 as the result of a desire across business areas to address existing training needs. With this initiative we want to provide staff with opportunities to gain technical knowledge on topics such as programming, data science and data visualisation tools.

All these initiatives have been very well received by staff working in European banking supervision and in many cases have been over-subscribed, speeding our collective move towards effectively adopting a digital culture.

Nurturing the innovation ecosystem and growing the global suptech community

Any good gardener will know that a tree does not live in isolation; it is part of a wider ecosystem – in this case, an innovation ecosystem.

By hosting this conference, we aim to strengthen and grow the global suptech community, fostering engagement with different stakeholders across sectors to help the innovation ecosystem flourish.

Events such as this conference help us deepen those connections with key institutions and innovation leaders, allowing us to keep pace with new developments and draw on the best technological ideas from around the world.

We are already seeing the benefits of this ecosystem in our work with industry experts and start-ups on projects to develop suptech tools and studies.

Delivering and hosting innovative tools and systems

This brings me to the interesting part: the harvest. However, in the suptech world, we are not harvesting fruit but tools and systems to make our supervision more effective and more efficient.

Many of our tools have already gone live or will have done so by the end of this year. You will be able to explore three of them on the gallery walk and in tomorrow’s use case sessions.

However, there are more tools in our portfolio which have already gone live, at least as a minimum viable product. Let me mention a few of them.

First, we have Heimdall, a custom tool for fit and proper assessments. Thousands of these assessments are conducted by European banking supervisors every year. Heimdall streamlines this process by automatically reading the fit and proper questionnaires filled in by supervised institutions and flagging issues based on their content. The tool makes use of optical character recognition, automatic translation and data analytics to reduce the manual workload and the possibility of human error.

Then there is Agora, which we hope will be a game-changer for prudential analytics. It gathers all prudentially relevant information in one place and technically integrates the different datasets: a one-stop shop for prudential analytics, if you will. This is an important step on our path towards becoming a more data-centric organisation focused on the needs of our data users.

A third example is Navi, which is short for “Network Analytics and Visualisation”. Navi supports the analysis of complex data networks using graph analytics and an intuitive visualisation toolbox. It combines data from numerous sources to provide supervisors with a comprehensive overview of bank owners and interdependencies. Navi is an especially useful tool in the current context of increasing interconnectedness within the financial sector.

The impact these and other tools will have very much depends on how extensively they are used. To have a clear picture of how the tools are performing, we have started closely monitoring usage analytics and collecting initial user feedback. The usage of some tools, such as the Virtual Lab, already looks very promising.

However, if we want all our tools to be used to their full potential, we need to make supervisors more aware of them and of the benefits they bring. To that end, we are working on a suptech communication strategy that defines our objectives, key messages and target audiences and sets out a communication toolkit, including short, accessible e-learning programmes for supervisors. We need to ensure that supervisors understand how different technologies and tools can facilitate or enhance their day-to-day work.

Developing a shared IT landscape

For the final step, we lift our gaze and see our tree as part of the wider landscape.

To use our suptech tools to their full potential, we need to make them available across European banking supervision. This entails building the necessary technical foundations to integrate the variety of IT systems in place.

Our goal is to build a future-proof IT landscape with suptech solutions embedded within ECB and NCA systems. That is why we are currently investigating the need for suptech tools and IT systems across European banking supervision. This includes simplified data flows, better-connected systems and shared solutions. We are looking into the feasibility of scaling up ECB or local NCA solutions to the level of European banking supervision as a whole.

As you can imagine, these ambitious efforts, which we call Project Olympus, require a huge amount of collaboration across authorities and business areas. In line with our innovation model, a team of supervisory and IT experts from the ECB and NCAs will define a road map and concrete action points for achieving a shared IT landscape. And we plan to lean on our innovation ecosystem in the process as well. I am confident that Project Olympus will be another big step towards digitally enabled banking supervision in Europe.

You will hear more about the project during the session after my speech.

Conclusion

Let me conclude.

We are looking forward to making further progress in all of the areas I have talked about: first, building an advanced innovation model in the SSM; second, fostering a digital culture; third, nurturing the innovation ecosystem and growing the global suptech community; fourth, delivering and hosting innovative tools and systems; and finally, developing a shared IT landscape.

We will continue to harness technological opportunities to deliver on the SSM Digitalisation Blueprint and transform banking supervision. And we are excited about advancing suptech together with you as part of a global community.

Thank you very much for your attention. I am happy to take your questions.