Technology, data and innovation – shaping the future of supervision

Keynote speech by Elizabeth McCaul, Member of the Supervisory Board of the ECB, at the Supervision Innovators Conference 2023

Frankfurt am Main, 20 September 2023

Introduction

I am honoured and excited to be participating in the fourth Supervision Innovators Conference and look forward to sharing my thoughts with you and learning from you in the course of today.

Along with many of you, we started working on the first supervisory technology (suptech) use cases in 2020. We assessed, prioritised and started to implement them as part of our Single Supervisory Mechanism (SSM) Digitalisation Blueprint between 2021 and 2023. Today, we can leverage a broad range of cutting-edge suptech tools alongside a powerful set of core IT systems. These tools and systems are having a tangible impact on our day-to-day supervisory work and strongly influence our processes and our work culture.

Our vision is to deliver “suptech at your fingertips”, with supervisors able to access a real-time picture of the banks they supervise in just a few clicks, combining the power of technology, data and innovation. These three areas are closely interlinked and will form the cornerstones of the new “SSM Digital Strategy 2024-2028”.

Let me shed some light on what we are working on to achieve our vision.

SSM Digital Strategy 2024-2028 – technology, data and innovation

Technology

Supervision without information technology has become unthinkable over recent decades. Supervisors conduct almost all their tasks within a variety of IT systems, using both standard software and, increasingly, advanced suptech tools. Thanks to the advances we have made, the technological toolkit offered to supervisors today is already very rich, and it will become even more powerful as time goes on.

With this in mind, we want to go one step further and not only provide advanced technology to each and every supervisor but also make using it convenient, fast and seamless. Our idea is to fully integrate core systems and suptech. We want to develop a kind of single supervisory platform or cockpit where supervisors have direct access to most of the IT applications they need, receive alerts and data notifications from relevant internal and external data sources and have an advanced search and query function, leveraging artificial intelligence (AI). Supervisors would be able to customise their cockpit based on their role and personal preferences. This would be a bit like a smartphone for supervisors, with powerful, complex technology working in the background while being simple and intuitive to use, allowing supervisors to focus exclusively on the banks they supervise, equipping them with a clear line of sight into risks.

Data

In Sir Arthur Conan Doyle’s short story “A Scandal in Bohemia”, Sherlock Holmes famously says “It is a capital mistake to theorise before one has data.”

Fortunately, our supervisors already can access a goldmine of data, structured and unstructured. In fact, we can now tap into an ever-growing pool of quantitative and qualitative supervisory data, which are very much the lifeblood of our work. To make the most of this, we have taken major steps to link all our data. New tools such as Agora, the single data lake for European banking supervision, have allowed us to integrate data and provide easier access for supervisors. Our ultimate objective is to make even more use of the data goldmine. This could include not only transaction-level data and high-frequency financial market data but also relevant publicly available information from news platforms and social media. With such information readily at hand, we will be able to identify potential issues much earlier or, dare I say, even in real time. We are also aiming to add more advanced data analytics capabilities, for example in our core supervisory processes such as the Supervisory Review and Evaluation Process (SREP) and for specific activities such as the review of internal model investigation reports.

With advanced analytics, possibly also leveraging AI, we could further enhance the single supervisory platform or cockpit that I mentioned earlier. Such a platform could include early warning indicators to help steer the supervisory focus towards the most important vulnerabilities which may be building up in the system.

Earlier this year, supervisors around the world were asking themselves the same question: what are the unrealised losses in the held-to-maturity portfolios of the banks we supervise? Instead of having to embark upon ad hoc data collection exercises to support such analysis, I can imagine a future in which this information is at our supervisors’ fingertips. This will help us be even more proactive in our supervisory response. Moreover, it may also help to identify potential systemic risks or risk correlations, which can be more elusive to detect.

Innovation

The third area we will keep working on in the coming years is innovation. The ground is continuing to shift beneath our feet, and we don’t have any other option but to keep moving as technology evolves at an ever-faster pace. For our supervision to continue to be as effective as possible, we must continue to build cutting-edge solutions. The market is changing rapidly with new entrants and traditional banks making use of ever more sophisticated technology, and we have to change with it.

In European banking supervision, we aim to be nimble and ready to meet new challenges and tasks by continuing to be at the forefront of digital innovation, enabling us to be active users of the most advanced technologies. Thanks to all of you, we already enjoy a well-deserved reputation of being at the forefront of digital innovation.

We are committed to continuing on this mission together with our partners across the world. Over recent years we have intensified cooperation in this area with the Monetary Authority of Singapore (MAS) and the US Office of the Comptroller of the Currency (OCC). And with our partners at the Federal Reserve System, the Bank of England and the United Kingdom’s Financial Conduct Authority (FCA), we have identified initial areas for joint suptech development that will add significant value to our work. We are also working together on specific projects in “tiger teams” consisting of experts from all four institutions.

The first project is focused on IT and cyber risk, which has become increasingly important in recent years. As mentioned by the Chair in his opening remarks this morning, we at the ECB have stepped up our supervisory activities in this area. For instance, we will run a cyber resilience stress test in 2024 and we are looking at ways in which suptech can enhance our supervisory activities in this area. One tiger team is currently working on a machine learning app to support supervisors in identifying specific IT and cyber risks with the help of natural language processing.

In all of these examples, we need to be aware of testing for risks, ensuring that the supervisors remain in the driver’s seat to make and check final judgements. In so doing we will be reinforcing our skills as supervisors, enabling us to better understand the risks our supervised institutions face and assess the mitigants they employ as they make greater use of these emerging capabilities.

Conclusion

Let me conclude.

We are very close to realising our vision of unlocking more of the potential we already have in our existing IT systems and suptech tools and enabling supervisors to get the most out of the technology.

We also aim to make progress in other areas of our programme by creating new partnerships, extending our digital training curriculum and continuing to explore new frontiers and technological trends.

But most of all, we are relying on all of you to join us in implementing the vital technology strategy that will make our supervision the most effective it can be.

As we avail ourselves of the power of technology to enhance our ability to understand risks in the institutions we supervise, we will at the same time be gaining a greater understanding of how our institutions are deploying the same technology, which in turn will help us hone our supervisory skills.

I am now happy to answer any questions you might have.