Central Bank mulls using AI and Machine Learning to supervise banks

Amid increased use of advanced technologies in their day-to-day management and oversight functions, the Central Bank is now mulling to make use of Artificial Intelligence (AI) and Machine Learning to assist their regulatory supervisory functions of licensed banks. 

The consideration to gradually shift from human involvement in its oversight and supervisory functions of banks’ operations to a technology-based environment was also necessitated by the prevailing COVID-19 pandemic. 
However, banks are required to upgrade their existing systems and processes to facilitate such remote supervisory mechanism by the Central Bank. 

“ …..the Central Bank will explore possibilities of the implementation of Supervisory Technology (SupTech) and Regulatory Technology (RegTech) solutions to streamline the data-intensive offsite supervision function by harnessing the capabilities of Artificial Intelligence (AI) and machine learning,” the Central 
Bank said. 

“Adoption of such frameworks and supportive human resource policies will enable the Central Bank to keep pace with the rapidly evolving technology-driven financial innovations, so that financial system stability could be further strengthened in the period ahead,” they added. 

Currently Central Bank supervision of banks happens in annual cycles through on site visits by a team of officials assigned for a bank who will station there for couple of months, which is referred as Central Bank audit and they will issue a report afterwards highlighting the areas that need remedial action with time lines assigned.
Ongoing offsite supervision happens throughout the year using regular reporting by the banks on various performance indicators.  

However, the on site audit was disturbed in 2020 when the pandemic struck as there were guidelines issued for in-person activities inside an institution and the maximum number of people that can 
be stationed. 

“The Central Bank will continue to adapt its supervisory approaches to suit the new normal. A regulatory framework for technology risk management and resilience of licensed banks will also be introduced. This would prompt banks to upgrade and strengthen their information systems and technology platforms in line with international standards and best practices,” the banking sector regulator said.