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Suptech on the Rise As Consumer Protection and Prudential Banking Prioritised by Financial Firms

Supervisory technology (suptech) adoption is on the rise amongst financial authorities according to new research by the Cambridge SupTech Lab, as 10 per cent more firms are increasing their suptech initiatives.

The Lab, an initiative of the Cambridge Centre for Alternative Finance at the Cambridge Judge Business School, University of Cambridge, found in its survey that despite positive indications of adoption, full integration is still a while off as most firms are still in the early stages of a complete digital infrastructure where suptech can thrive.

The data is based on a survey of 64 financial authorities such as central banks, securities and capital market authorities, financial conduct authorities, and insurance supervisors from six continents, representing financial sector oversight for a significant population of approximately two billion people. The survey was conducted by the Lab between August and November 2023, and the findings are presented in the annual State of SupTech Report.

What is being integrated

A thriving ecosystem is quickly becoming a reality as 81 per cent of firms have indicated some form of suptech initiative: a 10 per cent increase from last year. Furthermore, financial authorities are identifying which technologies are being implemented the most.

Descriptive analytics (83 per cent), dashboards, on-premise relational databases, web portals (79 per cent) and static reports (73.6 per cent) persist in bolstering data quality, management, and overall efficiency in supervisory processes. But financial authorities are beginning to explore next-gen technology such as generative AI, with 7.6 per cent of respondents reporting having incorporated it into their suptech solution.

Simone di Castri, a co-head of the Cambridge SupTech Lab
Simone di Castri, a co-head of the Cambridge SupTech Lab

Simone di Castri, a co-head of the Cambridge SupTech Lab, said: “The most impactful change we can make in financial services today is to accelerate the digital transformation of supervisory agencies worldwide.

“Advanced suptech solutions can help financial authorities manage the challenges presented by digitalisation, datafication, globalisation, and the diversification of business models. It can help them address pressing issues such as financial crime, fraud, exclusion, climate change enablers, consumer protection, and artificial intelligence biases. The results of our survey indicate that financial authorities are beginning to embrace the immense opportunities of suptech.”

How can suptech help?

Suptech use cases focus on prudential banking (69 per cent) and consumer protection and market conduct (62 per cent). These are followed by anti-money laundering/counter-terrorism financing and proliferation (AML/CFT/CPF) (59 per cent), and cyber risk supervision (39.3 per cent). Surprisingly, digital assets and
cryptocurrency oversight is reported to be a priority for only 21 per cent of responding authorities, and ESG for only 15 per cent.

Gender inclusion commitments are also growing. Forty-five per cent of financial authorities are now collecting sex-disaggregated data. 91.7 per cent use the data to support the design of national financial inclusion strategies and establish specific objectives and targets for financial inclusion. Furthermore, 79 per cent use sex-disaggregated data to identify gaps in the access, usage, and quality of financial services.

Financial authorities should expand data collection beyond demographics to gain more nuanced insights into gender-specific challenges.

Identifying impacts

A cultural shift is taking place alongside the digital transformation, with financial authorities creating new roles to drive suptech adoption, training staff, and collaborating across the supervisory ecosystem.

Surveyed financial authorities report the biggest impact of their suptech implementation is the speed with which they are able to respond to emerging risks and take supervisory action (76 per cent). They also cite more efficient information flows between consumers and supervisors (65 per cent). This enables better and more transparent data analysis and timely response to potential issues.

Suptech initiatives also positively impact consumer outcomes (52 per cent). Consequently, there has been improved protection and increased confidence in financial markets.

Strategies and structures dictating data flow
Matt Grasser, principal technologist and a co-head of the Cambridge SupTech Lab
Matt Grasser, principal technologist and a co-head of the Cambridge SupTech Lab

Matt Grasser, principal technologist and a co-head of the Cambridge SupTech Lab, said: “Through the Lab, we endeavour to serve as a catalyst for the responsible integration of technologies, empowering public sector authorities to manage more effectively and efficiently some of the most pressing economic risks we face as a society.

“The diverse perspectives from the global supervisory community reflected in State of SupTech Report serve as the guiding force in shaping our research, training programs, and digital tools. This year’s report dives particularly deeply into the strategies and structures that dictate data flows within financial authorities, which necessarily inform how suptech solutions can be tailored and harmonised with existing supervisory processes.

“Such nuance is crucial in mindfully accelerating the next generation of underlying digital supervisory infrastructure for data collection, validation and storage, but moreover for deriving value from suptech solutions that leverage advanced techniques like natural language processing, machine learning, and even the emerging family of technologies under the banner of generative AI.”

Author

  • Francis is a journalist and our lead LatAm correspondent, with a BA in Classical Civilization, he has a specialist interest in North and South America.

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