Download Report - The Use of Supervisory and Regulatory Technology by Authorities and Regulated Institutions Market developments and financial stability implications 

One for all the #regtech and #suptech ambassadors / champions in the network (and you may have spotted it) - Use of Supervisory and Regulatory Technology by Authorities and Regulated Institutions covering:

• Drivers of SupTech and RegTech developments
• Benefits, challenges and risks for authorities and regulated entities
• SupTech and RegTech strategies, market interaction and monitoring developments
• SupTech resource considerations
• Applications of new technologies by regulated institutions & authorities
• Future technology use by the regulator
• Ethics of using AI models for supervision
• Case studies and examples

As you will see in the images below and in the report, less than 50% of supervisory authorities responding to the FSB survey had a Chief Data Officer or equivalent.  Areas where new RegTech tools and uses for data have been developed post 2016 are:

• Risk reporting
• Stress testing
• Microprudential reporting
• Other Macroprudential reporting

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Whereas pre-2016, the supervisory authorities were focused on:

• Fraud Detection
• AML/CFT
• KYC & Identity and Verification
• Risk assessment
• Risk management

Future technology use by the regulator 
I thought the section 9.2 Future technology use by the was regulator interesting. The FSB reports that rapid changes to the financial landscape and evolving market structure could be accompanied by changes in supervisory surveillance techniques. [Oakes - Ok so that is relatively obvious]

85% + of survey respondents expect that the continued evolution of available technologies will result in changes to supervisory processes, with 68% expecting this to be a considerable change. However, authorities expressed concern that undue reliance on SupTech tools could lead to misplaced focus on areas where risks can be easily measured. [Oakes - so just because you can do something doesn't mean you should do it]. This may deflect attention from areas of concern that are not as easily given to quantifiable measurement [Oakes - so true].

Retaining a forward-looking human based supervisory process
Thus while authorities may recognise the importance of integrating technology into their supervisory approaches, they could also acknowledge the importance of retaining a forward-looking human based supervisory process. The modern supervisory philosophy in most jurisdictions surveyed is based on predictive and human judgement-based oversight of regulated institutions. Technology offers the opportunity to automate routine tasks, develop new analytical techniques and provide better information. Using tools such as AI and ML to analyse increasing volumes of regulatory data provides opportunities for authorities to shift their focus to those aspects where humans excel over machines, e.g. judgement-based decision making. [Oakes- couldn't add anything further to that].

Cases Studies
I also recommend a read of Annex 1 where the Case studies and examples are contained.  There are case studies from 26 supervisory authorities:

1. De Nederlandsche Bank - Becoming a smart supervisor
2. European Central Bank - Supervisory Technology Hub
3. European Central Bank - ECB’s Virtual lab
4. Bank of England - Unstructured data extraction and analysis using ML
5. People’s Bank of China - Off-site Payment Transactions Supervision Based on API and AI
6. Bank of England, Financial Conduct Authority - Digital Regulatory Reporting (DRR)
7. European Securities and Markets Authority - Web scraping, NLP and analysis of Key Information Documents
8. European Central Bank - Machine-reading of Fit and Proper Questionnaire
9. China Banking and Insurance Regulation Commission - Multi-party secure computing (credit field)
10. Banco de España - Use of NLP in relation to ESG disclosures in Spain
11. Banco de España - Tools for detection of mis-selling in Spain
12. Monetary Authority of Singapore - Network Analysis for STRs
13. Banca d’Italia - Anomaly measurement in transactions using Big Data
14. Commissione Nazionale per le Società e la Borsa (CONSOB) - Market Surveillance
15. European Central Bank - Early Warning System for Less Significant Institutions
16. European Central Bank SREP – Truffle Search Analytics for structured text documents
17. Monetary Authority of Singapore - Predictive modelling to identify representatives at higher risk of misconduct
18. Monetary Authority of Singapore - Text analysis of audited financial statements
19. Monetary Authority of Singapore - Data analytics for inspections
20. European Central Bank - Sentiment analysis 
21. European Central Bank - Network Analytics
22. Banque de France/ACPR - Augmented supervisor
23. Banque de France/ACPR - Advanced network analysis for banking supervision purposes
24. Federal Reserve Board of Governors - NLP for continuous monitoring, web searches and COVID-19 monitoring
25. Bank for International Settlements - BIS Bulletins
26. Bank of England - Policy Response Tracker
27. De Nederlandsche Bank - COVID-19 SAS-VA Dashboard
28. Monetary Authority of Singapore - Monitoring and enforcement of safe distancing measures 

Source:
https://www.fsb.org/2020/10/the-use-of-supervisory-and-regulatory-technology-by-authorities-and-regulated-institutions-market-developments-and-financial-stability-implications/

​https://www.fsb.org/2020/10/the-use-of-supervisory-and-regulatory-technology-by-authorities-and-regulated-institutions-market-developments-and-financial-stability-implications/

Here's one for the #moneylaundering typology case studies for #MLROs as part of regulatory training requirements!
 
Relates to the collapse of major investigation into the Kinahan cartel and more than half a billion euros- particularly €500,000,000 stash of cars, properties & cash handed back to the accused by a Spanish judge after collapse of money laundering case.

Continue reading at CompliReg by clicking here.

Bullet Point Summary

• This enforcement action is the 136th enforcement settlement since 2006 under the administrative sanctions procedure, bringing total fines imposed to over €103 million.
• Relates to a previous enforcement action against RSA Ireland Insurance DAC (RSAII), an insurance undertaking authorised and regulated by the Central Bank where Rory O’Connor was an Executive Director and Chief Financial Officer from 2010 to 2013.
• RSAII was fined in December 2018 €3,500,000 for what is termed a 'prescribed contravention', in that case serious breaches of financial services law (admitted by RSAII), including but not limited to the failure to establish and maintain technical reserves in accordance with Article 13(1)(a) of the European Communities (Non-Life Insurance) Framework Regulations 1994, S.I. No. 359 of 1994.  Technical reserves are the amount set aside by an insurance company to cover its liability for claims.
• Mr O'Connor's "misconduct merited a disqualification period of 12 years and a monetary penalty of €100,000"; however following a settlement discount, the sanction was reduced to 8 years 4 months and €70,000 respectively.

• The action against Mr O’Connor arose, as admitted, by his participation in the prescribed contravention in RSAII’s breach of Article 13(1)(a) of the 1994 Regulations, which requires an insurance undertaking to maintain sufficient levels of Technical Reserves (the Prescribed Contravention). 
• ​The Central Bank’s investigation found that Mr O’Connor participated in the prescribed contravention through his involvement in the deliberate manipulation of large loss claim reserve estimates, referred to in the enforcement action against RSAII as the “Under-Reserving Process”. 
• Unrelated to this matter, the Irish government announced in its programme for work release on 15 June 2020, the Irish government announced it will "introduce the Senior Executive Accountability Regime to deliver heightened accountability within the banking system".  (see page 25 of the Programme for Government Our Shared Future. 
• The comments from the Central Bank signal that behaviour and culture, not just conduct risk, prudential risk and fitness and probity are squarely on the Central Bank's agenda where it comes to supervisory and enforcement actions.​

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