Simone di Castri, Matt Grasser, Juliet Ongwae
The report provides a global snapshot across several facets of supervisory technology (suptech), including underpinning digital infrastructure and technologies, supported supervisory use cases, approaches employed for developing and deploying suptech applications, and the related challenges and risks. It also presents year-to-year analysis using data from the State of Suptech Survey 2022.
The State of Suptech Report 2023 focuses on how the development and implementation of suptech is evolving across the globe, extracting insights from the information provided by 64 financial authorities such as central banks, securities and capital market authorities, financial conduct authorities, and insurance supervisors from six continents.
This year’s survey leverages the 2022 Report as a baseline to provide a picture of emerging trends, persisting and new challenges, maturing strategies, and attained impacts. Compared to last year, the 2023 survey included five times more questions, allowing for a substantially more detailed and expansive analysis, with the trade-off of having a smaller sample size of respondents.
Highlights
1
The positive trend in the adoption of suptech continues
Eighty-one per cent of surveyed financial authorities indicate their involvement in various suptech initiatives, an increase from the 71% reported last year. Additionally, 59% of financial authorities now confirm the utilisation of one or more suptech applications, marking modest growth from the 54% reported in the previous year. Notably, there is an expanding disparity (25%) in suptech adoption rates between authorities in advanced economies (AEs) (79%) and those in emerging market and developing economies (EMDEs) (54%) compared with 2022, when 50% of financial authorities from AEs had deployed one or more suptech applications, compared to 31% from EMDEs, a gap of 19%.
2
Financial authorities at first-and second-generation stages of complete suptech digital infrastructure adoption
Financial authorities are at first-and second-generation stages in the adoption of a complete suptech digital infrastructure. Foundational technologies from early generations such as descriptive analytics (83%), dashboards, on-premise relational databases, and web portals (79%) and static reports (73.6%) persist in bolstering data quality, management, and overall efficiency in supervisory processes.
3
The adoption of next-generation technologies by financial authorities is slowly advancing
The adoption of emerging, next-generation technologies, particularly generative artificial intelligence (GenAI), by financial authorities is slowly advancing but met with a range of challenges. 7.6% of respondents reported the incorporation of Generative AI (GenAI) technology to support suptech. Among the 35% of respondents utilising AI for supervisory processes, a predominant issue is the intricate nature of training, validation, and testing procedures to ensure the resilience and robustness of AI models in handling complex financial tasks. Additionally, data privacy and protection and poor data quality are identified as significant obstacles.
4
Diversity in application design shows commitment to intuitive and effective tools
The diversity in approaches to designing these applications, particularly the prominence of human-centred design philosophies, reflects a commitment to intuitive and effective tools that cater to the nuanced needs of end-users, especially supervisors. Agile methodologies, including the adoption of strategies like producing or procuring Minimum Viable Products (MVPs), play a pivotal role for financial authorities, with 50% implementing such approaches to swiftly address critical needs, encompassing iterative activities such as conducting diagnostics (64%) to inform system requirements and developing working prototypes (68.2%) for real-time feedback and refinement.
5
Few financial authorities have formulated a comprehensive suptech strategy or roadmap
While 59% of financial authorities currently utilise one or more suptech applications, merely 9% have formulated a comprehensive suptech strategy or roadmap. However, investments and progress are being made toward a more comprehensive approach that includes a cultural transformation through governance, skilled resources and interdisciplinary collaboration.
6
Leadership roles for suptech are being established
Fifty-four per cent of the respondents have created new positions to lead digital transformation and suptech. Additionally, 48.2% of the financial authorities report that they strategically organise their data science capabilities primarily through dedicated roles within supervisory highlights from the state of suptech report 2023 areas, recognising the pivotal role that data plays in supervisory functions.
7
Financial authorities report personnel’s lack of IT skills and data science capabilities
Financial authorities cite challenges arising from a lack of adequately trained personnel possessing essential IT skills (69%) and data science capabilities (73%). To upskill staff, 63% of respondents have instituted training programs, and 48% of financial authorities have proactively begun capacity-building initiatives.
8
Financial authorities have engaged and collaborated with the broader suptech ecosystem
Financial authorities have also engaged and collaborated with the broader suptech ecosystem by participating in and even hosting forums for peer learning and knowledge exchange (51%), and undertaking partnerships between regulatory bodies, regulated entities, and technology service providers within jurisdictions (47%).
9
Suptech for prudential banking and consumer protection remains steadfast
The focus on using suptech solutions for prudential banking and protecting consumers from unfair, abusive and illegal practices remains steadfast. Prudential banking (69%), consumer protection and market conduct (62%), anti-money laundering/counter-terrorism financing and proliferation (AML/CFT/CPF) (59%), and cyber risk supervision (39.3%) persist as the primary areas of focus for suptech applications.
10
There is work to be done in leveraging suptech to build a more gender-inclusive financial system
Fewer than 50% of financial authorities actively collect comprehensive sex-disaggregated data. The primary focus of sex-disaggregated data collected by financial authorities revolves prominently around demographic data (91.7%). To gain more nuanced insights into gender-specific challenges, financial authorities should prioritise comprehensive data collection that includes transactional, financial, and operational data.
11
Environmental, Social, and Governance (ESG) factors are of increasing importance
Financial authorities are recognising the increasing importance of Environmental, Social, and Governance (ESG) factors, with 32% incorporating oversight mechanisms to address associated risks and align financial activities with broader sustainability goals.
12
Respondents cite numerous benefits after adopting suptech
A significant advantage is the acceleration of supervisory action (76%), facilitated by suptech tools enabling swift analysis and response to emerging risks. More efficient information flows between consumers and supervisors (65%) enables supervisors to collect and analyse information from financial market participants more effectively, promoting transparency and ensuring a timely response to potential issues. Furthermore, these initiatives have a positive impact on consumer outcomes (52%), leading to improved protection and increased confidence in financial markets.