Sharper supervision in an era of technology races

People often say that time stops for no one. I like to say the same about technology: it won’t slow down to wait for anyone. It is hard to avoid the impression that the world around us is getting ever more complex: the growth of new activities, for example, or how we explore and think about the role of AI. What to bring into the realm of regulation and when is also changing.

I would like to propose a framework to help guide us in embracing innovation and at the same time solve some of the challenges confronting the central banking and regulatory communities. I think this framework will be particularly useful in the interaction between the public and private sector.

A core question is: how, over the next decade, do we wish to respond to what is likely to be more and faster change, bringing with it significant opportunities and potentially some profound challenges?

I will argue that this framework must inform the actions we take if we want financial stability and safety to be integral to progress.

But before I go ahead, let me present you with some information about the BIS Innovation Hub. A joint venture between the central bank-owned Bank for International Settlements and a number of individual central banks, the Innovation Hub has been in operation now for nearly five years. As a laboratory aimed at developing public goods, we know a lot about what it takes to experiment and bring value in a public sector context. We also have a clear understanding of where the challenges are.

We develop projects to create proofs-of-concept prototypes of new platforms and technologies. In these five years, we have expanded from a handful of people to an almost 100-strong staff. We’ll soon have seven centres around the world. We have started more than 30 projects.

Our work spans six focus areas: central bank digital currencies, next generation financial market infrastructures, green finance, open finance and the one I want to focus on – supervisory technology, or Suptech. It is about using technology to support global financial stability.

By the way, our work also includes regulatory technology (Regtech) and a new area that we call monetary policy tech, which focuses on helping central banks use technology for the core tasks of research and monetary policy.

So now that you know who we are, let’s go back to how we should approach the challenges ahead.

The first key point in my framework today is transparent and honest engagement with a broad range of stakeholders. Central banks and supervisors face challenges like modernising legacy systems and technology infrastructure and designing tools using new technologies to enable us to be fit for the future.

With these challenges, we have some hard questions. For those of us on the public sector side, are we willing to be transparent to a satisfactory level, knowing that our work is complex, challenging and sometimes very sensitive? As digital transformation accelerates, can we honestly assess and communicate where we stand and where we should be going?

This self-appraisal can be difficult for organisations at the best of times, and central banks and other authorities on the financial side of our societies are no exception.

A core question is: how, over the next decade, do we wish to respond to what is likely to be more and faster change, bringing with it significant opportunities and potentially some profound challenges?

Which brings me to the other key point in this framework: collaboration. We, as in the public sector, need to join forces with those in the private sector to build technology solutions that can shape the future of supervision and support financial stability.

The public sector may not always be the easiest of customers. Often having more vague objectives than you typically find in companies, we are also complex organisms with a multitude of specialisations and different priorities.

The public sector needs specific processes to ensure fair and systematic decision-making and to be transparent about how public money is spent. And so we are not the most profitable types of customers.

Suptech is also a small market. When the BIS Innovation Hub London Centre conducted a survey in this field last year, about half of the vendors we asked pointed this out. I will come back to this survey a few more times. We expect to publish its full results later this year.

At the Innovation Hub, we think SupTech is critical in supporting effective and efficient supervision, from achieving real-time risk alerts to supporting automated regulatory compliance.

We know our colleagues across the central banking and supervisory worlds think so too. Recent research we undertook with the Financial Stability Institute, also a part of the BIS, across 50 jurisdictions highlighted that over 90% of them have already deployed SupTech tools – most commonly for regulatory reporting, assessing risk and automating supervisory processes.

Examples include dashboards to monitor capital, liquidity, credit and market risk; natural language processing to monitor and analyse social media, news, financial statements, etc; and tools to automate supervisory tasks such as licensing.

And 80% of the institutions surveyed have a dedicated internal resource to build these tools, with many more solutions in development, including in emerging areas such as environmental, social and governance reporting and crypto asset monitoring. So we know that both the appetite and the technical capability are there. That’s the good news.

However, the majority of these tools are at an early stage of maturity, focusing largely on digitalisation and automation of existing workflows. We also know that they are not being widely adopted inside institutions, as many solutions built in-house remain at proof of concept or prototype stage, thus limiting the potential value they could bring. There is a lot of experimentation but little deployment. Clearly, the job is not yet done, and there is still a long way to go to achieve a technology-first approach.

The Innovation Hub is trying to accelerate this important change in two ways: through experimentation and collaboration. We are building proofs of concept and prototypes aimed at monitoring stablecoins; working to better understand the economic significance of DeFi and cryptoassets; monitoring electronic markets; building a regulatory reporting and data analytics platform; using large language models to enable climate risk analysis; and encoding policy and regulatory requirements into cross-border payment protocols.

Our portfolio of projects is multi-pronged, experimenting at the cutting edge of supervisory activity while also focusing on some of these entrenched challenges to supervisory effectiveness, addressing both present and future challenges.

A second defining feature of the Innovation Hub’s work is how we use cooperation to support innovation. In our projects we bring in central banks as partners and make sure that we procure vendors that can deliver what we do not have ourselves.

Which brings us to what I would call the ‘supply side’ of SupTech. We do work with the private sector in our projects. But the current dynamic of the supply and demand sides of the SupTech market is not without its challenges.

Coming back to the London Centre survey, we find that breaking down the barriers and allowing further collaboration between financial authorities and SupTech solution providers is not easy.

Half of the SupTech vendors told us that “lack of visibility into the prioritized needs of financial authorities” is a key challenge for expanding their SupTech portfolio. This makes it hard to match our problems with their solutions. So financial authorities need to collectively think of ways to bridge this gap.

At the Innovation Hub we believe that one way of achieving this is to have more showcasing events. TechSprints and hackathons are invaluable, and we know that the private sector also values them as a way to engage with us1. By the way, we will be holding a SupTech TechSprint later this year. We need to continue to think creatively about how to better understand each other.

We also discovered that over two thirds of vendors complain that “length or complexity of procurement processes” affects their ability to successfully engage with financial authorities.

One critical aspect is that this is more likely to hurt smaller firms, as it increases uncertainty and costs. That could mean that only the large and established ones are able to engage, at the expense of the smaller start-up community where true innovation and cutting-edge thinking often happens first.

As I mentioned earlier, public institutions need these procurement processes. We are mandated by law to be transparent and fair when purchasing from the private sector, and we need to be able to prove it. But perhaps there is scope to improve our processes to make them truly inclusive for firms of all sizes.

In some ways, it is up to us in the public sector to be better customers. We need to better articulate our needs to the market and find ways to be more inclusive. In this way, we benefit from all the choices available in the SupTech marketplace and continue to be up to date with the latest technologies. We might be missing a lot. We don’t know what we don’t know.

Let me conclude. The BIS Innovation Hub aims to create public goods that promote global financial stability. As those of you who work in innovation know, it is hard work. It is risky and in many ways countercultural to how central banks traditionally work.

But in our view, Suptech innovation continues to be essential to safeguarding our financial system. All of us – central banks, supervisors and regulators, the private sector – need to focus on this important task. To best achieve it, we need to operate within a framework that combines recognising the needs of multiple stakeholders with working more effectively with the private sector.

We at the Innovation Hub are genuinely excited to play our part, and we invite you to join us in creating the financial infrastructure of the future.


1. SupTech vendors identified ‘showcasing solutions’ (28%) and hackathons (16%) as two key areas by which they engage with financial authorities.

This article is based on a keynote speech delivered at the Innovate Finance Global Summit, London, 15 April 2024.