In a report released on Thursday, global banking regulators cautioned that the digitalization of banking and the involvement of Big Tech companies in finance introduce new vulnerabilities and magnify existing risks in the banking system, potentially requiring the implementation of new regulations to address them.
The Basel Committee, comprised of central bankers and banking regulators from the G20 economies and other nations, highlighted the expansion of cloud computing, the adoption of artificial intelligence (AI), the utilization of distributed ledger technology (DLT), and the proliferation of open banking as factors contributing to these new risks.
According to the committee, these developments could lead to increased strategic and reputational risks, broaden the scope of factors testing banks’ operational risk and resilience, and potentially pose system-wide risks due to heightened interconnections.
Furthermore, the involvement of external tech companies in providing key banking services creates “new nodes of channels and interconnections,” as these entities may not be subject to the same regulatory standards as traditional lenders, the report noted.
Regulators typically produce such reports to gather information and assess the landscape of a sector, laying the groundwork for potential new regulations.
The committee emphasized its commitment to evaluating whether additional standards or guidance are necessary to mitigate risks and vulnerabilities identified in the report.
