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Banking Digitalization Creates New Risks – Global Regulators Report

Published:

  • Banking digitalization and the advent of giant tech companies into finance create new risks in the banking system, says global regulators report.
  • Also, the report noted such threats in the industry will require the implementation of new rules to mitigate.
  • Some of the highlighted triggers include the use of distributed ledger technology (DLT), the rise of artificial intelligence (AI), etc.

In a report on May 16, the global banking regulators disclosed the growing risks associated with banking digitalization. According to the report, the entrance of giant tech entities into the financial industry poses more risks and increases the existing ones.

Further, the regulators noted that the financial system now needs to devise new rules to mitigate such threats.

Additionally, the report pointed out how these tech firms introduced new practices into the banking services. These include the use of distributed ledger technology (DLT) and the emergence of artificial intelligence (AI).

Other activities include the spread of open banking and the sharing of clients’ data with banks by external fintechs.

Moreover, the tech companies aided some key banking services and operations by creating growth in cloud computing. The Basel Committee of Banking Regulators noted that such acts trigger new risks in the system.

The report stated: “These can include greater strategic and reputational risks, a larger scope of factors that could test banks’ operational risk and resilience.”

Report Highlights Implications of Banking Digitalization for Banks and Supervisors

Also, the report highlighted some regulatory and supervisory implications of digitalization on banks and regulators. These include the following:

  • Tracking the evolving risks and adopting a responsible method for such innovation.
  • Data protection and implementation of robust risk management procedures.
  • Inputting the relevant resources, workforce, and processes to access and curb emerging risks from innovative technologies and business models

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