The European Central Bank, the 'regulator's regulator' in the financial realm of the European Union, believes that banking supervisors can only be effective if they use supervisory technology or SupTech. With this in mind, it aims to become a SupTech pioneer in its own right.
The ECB, according to board member Pentti Hakkarainen, thinks that supervision is about to become a house. This is literally what Hakkarainen said a few days ago in front of a group of banking supervisors from Central and Eastern Europe when he uttered the phrase: "European banking supervision is in the process of becoming a digital innovation house."
In the interests of clarity, he then belatedly turned to the ECB's vision for SupTech, which he said was based on four things: (i) an effective 'innovation model,' (ii) a digital culture, presumably in its offices in Paris, (iii) an 'innovation ecosystem' and (iv) successful business-related 'use cases.'
A 'use case' is a list of actions or event steps that typically define the interactions between a role (known in the Unified Modelling Language as an actor) and a system to achieve a goal. The actor can be a human or other external system. Even though FinTech (financial technology) and RegTech (regulatory technology) use the same technology (artificial intelligence, blockchains and so forth), their 'use cases' are very different from one another.
The 'innovation model'
Hakkarainen said that he wanted the ECB and the national regulators to take similar approaches to using certain pieces of software or processes, so that they could start developing them together. He revealed the existence of an ECB unit called a 'Suptech Hub' which lends a hand to all the ECB's efforts to bring supervisors and IT together. It wants to collaborate with various people 'openly.'
The ECB's approach to SupTech, according to him, was to "be a user rather than a researcher." Its motto, he said, was “start small, and if it doesn’t work, just try again.”
The same digital culture for all
The ECB, for the first time in its history, wants to help national regulators use the right skills - in this case in connection with the use of IT. It appears to be having trouble convincing its members of staff to use SupTech and this appears to be an impediment to its desire to force all EU national regulators to take the same approach as each other to IT. It has funded a six-week training course for various people - perhaps regulators themselves - to take this standardised approach to IT. In his speech, however, Hakkarainen never explained the reason for his outfit's drive towards standardisation.
An 'innovation ecosystem'
This term appears to be shorthand for the ECB's desire to talk to academics, start-ups and various regulators about IT. Hakkarainen claimed that various people within the EU's borders - all of whom the ECB presumably wants to consult - were developing 100 SupTech 'tools.'
Worthwhile SupTech use cases
The most important item on the ECB's wish-list is its desire to provide front-line supervisors with 'tools' (pieces of software) that use the most up-to-date technology. It is developing these itself, concentrating on ones that use natural language-processing techniques. These techniques allow the ECB to structure and assess large quantities of text. Such 'tools' can analyse bank documents and newspaper articles much faster than humans can.
The entire initiative appears to be an ECB 'power-grab,' the object of which is to control the ways in which national regulators communicate with it, each other and their charges. The EU, in this area as in all others, is marching towards total centralisation.