Global banking regulators warn that the digitalization of finance and Big Tech’s entry into the banking sector introduce new risks, potentially requiring new regulatory measures to ensure system stability and resilience.
17 May 2024 – Global banking regulators have identified new vulnerabilities and amplified existing risks in the banking system due to the digitalization and entry of Big Tech into finance, according to a report released by the Basel Committee on Thursday. This development may necessitate new regulatory measures to mitigate potential threats.
The report highlights the impact of cloud computing, artificial intelligence (AI), distributed ledger technology (DLT), and open banking on the banking sector. These advancements, while offering significant benefits, also introduce new risks that could challenge banks’ operational resilience and create potential system-wide threats due to increased interconnections.
The Basel Committee notes that the involvement of external tech companies in key banking services creates new channels and interconnections that may not be subjected to the same regulatory scrutiny as traditional banks. This discrepancy could lead to greater strategic and reputational risks, as well as increased operational vulnerabilities.
The report serves as a foundation for regulators to assess the sector and determine the necessity of new rules or guidelines to address these emerging risks. “Where necessary, it will consider whether additional standards or guidance are needed to mitigate risks and vulnerabilities,” stated the committee.
The Basel Committee, comprising central bankers and banking regulators from G20 economies and other nations, plays a crucial role in shaping global banking standards. Its members are committed to implementing the rules it approves, ensuring a coordinated approach to managing risks in the financial sector.
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