Global Banking Regulators Highlight New Risks From Digitalization And Big Tech's Entry Into The Financial Sector

The Basel committee warns that digitalization creates vulnerability in the banking world. (photo: x @BIS_org ·)

JAKARTA - Global banking regulators warn that digitalization and entry of big tech companies (Big Tech) into the financial sector creates new vulnerabilities. In addition, it also increases the risks that exist in banking systems, which may require new rules for mitigation.

The growth of cloud computing, where major banking services are supported by external technology companies, increased use of artificial intelligence (AI), distributed ledger technology (DLT), and the spread of open banking, or sharing customer data with external fintech, creates new risks, the Basel Committee of banking regulators said in a report released on Thursday, May 16.

"This can include greater strategic and reputational risks, a wider scope of factors that can test the operational risks and resilience of banks, as well as the potential systemic risk due to increased interconnections," the report said.

External operators used by banks create new nodes of channels and interconnections because they may not be subject to the same regulatory standards as lenders, the committee added in its report.

Regulators often draw up reports to determine facts and explore sectors to provide a basis for new rules.

"If necessary, it will be considered whether additional standards or guidelines are needed to reduce risk and vulnerability," the committee said.

The Basel committee consists of central banks and banking regulators from G20 economies and other countries, whose members are committed to implementing rules approved by the committee.