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Good afternoon to you all, thank you for attending and welcome to this event.
It is my pleasure to open this workshop organized by the Portuguese National Council of Financial Supervisors. This is the second of a set of three workshops we are organizing in 2021 on the subject of RegTech/SupTech and related topics, such as Big Data and Artificial Intelligence.
My initial remark is to stress the relevance of these topics to our organisations and how we embrace all the initiatives that enable the acceleration of the digital transformation to benefit supervisory work.
1. Let me start with some words on the Importance of SupTech and RegTech
SupTech and RegTech are often said to be two sides of the same coin.
Just as technological innovation is changing financial services, it is also changing how supervisory authorities implement and enforce regulations.
However, the pace and speed of change for regulatory compliance by financial institutions can only progress on its own up to a certain point, from which it depends on the level of technology adoption by supervisors to progress any further.
And the premise holds the other way around.
In other words, it takes two to dance. And the more we dance, the better we dance.
Technological innovation by financial institutions in their own internal regulatory and other compliance requirement activities is interweaved with the monitoring of those activities by supervisors, and by the supporting technology.
This changes the complete value chain around two important aspects of supervision work - Data Collection and Data Analytics.
As such, technological innovation in regulatory reporting have implications in terms of data formats, data volumes, data frequency, data quality, communication ways and other changes and this have to be compatible with supervisors infrastructures and platforms.
On the other hand, supervisors can only innovate in their supervisory tools and practices if financial institutions are also following the same innovation path.
While the speed of change and growing complexity of the financial ecosystem leads to new risks and additional challenges for supervisors, they also represent opportunities to evolve the current supervisory model, increasing efficiency and creating an agile, intelligence-driven approach to supervision.
SupTech can at minimum help supervisors meet common challenges in discharging some activities, with a focus on data collection, data analytics and digitalization of processes and working tools.
In such a way, SupTech offers opportunities for automation, greater mobility, better data and data management and enhanced analytics. It could lead to lower costs over time and to have a more efficient allocation of supervisory resources by gradually shifting them from “robotic” tasks (e.g., data crunching and paper gathering) to tasks that depend more on human judgment, expertise and experience.
And even these latter aspects, supervisors work can benefit from machine learning tools and alike, providing new, and hopefully meaningful, complementary insights.
In a word, it is about increasing efficiency and effectiveness. Improving efficiency by using automation, data digitalization and new capabilities to streamline business workflows and processes; and increasing effectiveness thanks to more advanced modelling including predictive analysis and real-time risk alerts enabling better oversight.
2. Let me share with you some major aspects of the journey of Banco de Portugal in SupTech: how we started and where we stand.
What motivated Banco de Portugal to start its SupTech journey?
The need to change (driven by financial services industry digital transformation) combined with the ability to change (enabled by the availability of new and more granular data greater computing power and advances in technology, data analytics and AI tools)
In May 2019, the Prudential Supervision Department at Banco de Portugal launched the program “Innovation in Supervision” with the aim to obtain efficiency gains in supervisory business processes.
With the development of the first experimentations in collaboration with the BdP Innovation Lab (for example, the early warning signals’ tool to combine structured and non-structured data), we struggled with some classic challenges (e.g., difficulties in envisioning the whole process, obstacles to obtain and gather sensitive data and the use of cloud services).
In this sense, we performed a first benchmark exercise regarding NCAs developments in this area, in order to help define the strategic approach to this program. We needed to position ourselves and define where we envisaged to go.
More recently, the setup of the SSM Digital Agenda and all the discussions in working groups around SupTech, allowed us to refine the framework to approach SupTech and to build a better strategic plan for the next years.
Currently, the Innovation in Supervision Program at Banco de Portugal that is part of our overall Innovation Strategic Plan has two main goals:
- Develop innovation to create agile supervision processes and
- Promote a data and analytical driven culture to accelerate the digital transformation.
Linked to these objectives, we identify several Critical Success Factors (CSF). Let me stress a few:
- Support from the Board;
- A Clear Governance Model;
- Mitigation of innovation risks right from the start;
- Continuously nurture new initiatives in a SupTech portfolio;
- Assure the Development of internal competences, in particular staff skills through the dedicated training programmes;
- Last but not least, the need to cooperate and share ideas and practices with other domestic and international authorities in the different fora we participate.
As of today, Prudential Supervision has a diversified SupTech portfolio of several initiatives and projects that are proving business value for supervisors. One of the most recent projects implemented is a Robotic Process framework that fully automates and orchestrates a critical end-to-end business process that was manual and very time-consuming.
Besides this prudential supervision journey, there are several other SupTech journeys at Banco de Portugal at different maturity stages, for example, in Market Conduct and AML supervision. All these different journeys feed each other. This is the case for regulatory reporting but also for analytical and predictive tools.
3. Let me finish
The innovative and digital transformation journey in the financial ecosystem will continue to grow.
The coordinated SupTech and RegTech adoption will be a challenging and continuous task, but we need to embrace this challenge and move fast.
We need to evolve in the way supervision is organised, the way we work and in assuring we have the right people and technological skills.
On a SupTech perspective, our focus will be to continue to explore business use cases that can benefit from technologies such Robot Process Automation, Natural Language Processing and Understanding and other Machine Learning techniques and models to offer the best conditions to supervisors to perform and improve their work.
On the RegTech side, as stated in a recent EBA report on RegTech use in the EU, we subscribe the need to foster RegTech responsible adoption and overcome the challenges that will arise even if, and let me stress that, regulatory and supervisory barriers were not identified among the top barriers to innovation.
Finally, we need to remain vigilant to risks that arise from the adoption of SupTech and RegTech, namely, third-party risk, cyber risk, data quality issues and be aware of the limitation of automatic techniques.
My last word goes to all the speakers, thanking them for accepting our invitation and being here with us on a Friday summer afternoon.