SupTech at scale: The tipping point | Keynote at RegTech Convention 2024

* Keynote presentation during the RegTech Convention 2024, Frankfurt, 18th November 2024.

It is my honor and privilege to be with you today while we stand at a pivotal moment in financial supervision—a moment when technology is reshaping not just the tools of supervision but the very philosophy that underpins how we safeguard financial systems. I see suptech not merely as an upgrade; it is a paradigm shift that will transform financial sectors.

For decades, financial supervision relied heavily on manual audits, qualitative judgment, and sectoral expertise. Whilst data analysis played a role, it often involved basic statistical tools applied to limited datasets. This traditional approach is struggling to keep pace with the digital complexity and speed of innovation in today’s financial markets.

INFRASTRUCTURE READINESS

In the broader context of the digital transformation of financial authorities, suptech introduces advanced data science techniques, including machine learning, Natural Language Processing (NLP) and predictive analytics into supervisory processes to give supervisors the superpowers they have been seeking for decades.

These advanced technologies capture much of the spotlight these days, however, it is equally important to recognise the importance of infrastructure readiness and the transformational impact of foundational technologies that underpin the advanced technology that nearly everyone in this space says they need and want, such as secure and scalable cloud computing to handle large datasets and high computational requirements, data lakes and warehouses to centralized repositories for structured and unstructured data, and Application Programming Interfaces (APIs) and integration frameworks.

APIs might not be cutting-edge in the same way as AI or blockchain, but they are foundational to the suptech ecosystem and to progress toward AI readiness, enabling:

• Seamless data integration: APIs allow supervisors to collect, validate, and analyse data from disparate systems, and in (quasi) real-time when needed.
• Automated reporting: Regulatory reports can be submitted, processed, and validated through APIs, drastically reducing the manual burden on financial institutions and supervisors. This year, the Central Bank of the Philippines became the first financial authority to fully deploy APIs for this use case, building on a prototype we developed together. This milestone is particularly significant, as validation processes are typically resource-intensive and time-consuming. Automating these tasks frees up substantial resources for other critical activities.
• Scalability and interoperability: APIs enable standardised data exchange between agencies in the same countries and across jurisdictions, fostering inter-agency and cross-border collaboration and global alignment.
• Building blocks for innovation: APIs create a modular environment, where new technologies like machine learning models or risk dashboards can plug into existing supervisory systems without disrupting core functions.

The result? Foundational technologies like APIs lay the groundwork for suptech ecosystems to function efficiently and scale effectively. They ensure that 1) advanced tools such as AI or blockchain are not operating in silos but are instead part of a cohesive and integrated supervisory framework, 2) only quality data are locked-in, and 3) suptech also leverages diverse data types and sources to enhance supervisory capabilities:

• Structured financial data from regulatory reports, transactions, and balance sheets.
• Unstructured data from the web and social media (an area of focus for the Lab for the past two years due to the rising demand from supervisors), from consumer complaints (another use case where the Lab has done groundbreaking work that we are now scaling across the globe and across other government verticals), and extracted from PDF and images (e.g., minutes of board meetings, services agreements).
• Real-time inputs: High-frequency market data, blockchain transactions, and IoT-generated data for risks like climate events.

As a result, increasingly supervisors are becoming equipped to:

1. Identify systemic risks proactively.
2. Monitor compliance in real-time or near-real-time.
3. Detect anomalies such as fraud or money laundering with unprecedented accuracy.

THE SUPTECH JOURNEY

This brings us to a critical question: Where are we on the journey to fully realising suptech’s potential?

Through our digital tools and our flagship annual research, the , we have identified at least 103 countries where at least one suptech application has been deployed by 173 financial authorities. These significant figures underscore that the suptech evolution is not only well underway but also truly global in its reach. It highlights the growing recognition among financial authorities worldwide of the transformative potential of suptech solutions in enhancing regulatory and supervisory processes.

The true answer, however, lies in understanding the tipping point – a moment when the adoption of suptech by financial authorities globally becomes systemic, not sporadic.

From a global and sectoral perspective, the tipping point in suptech adoption occurs when a critical mass of financial authorities worldwide integrates suptech into their core supervisory practices, catalysing systemic change within the agencies and across the sector.

The tipping point is the point of transformation where

• Suptech stops being a collection of innovative tools and becomes the baseline expectation for effective supervision.
• Financial authorities embody a culture of innovation.
• They are equipped with adequate tools for ongoing innovation because, as we wrote last year in the State of SupTech Report 2023, “suptech is a journey, not an event.”

These are the three elements that in my opinion redefine supervision as a global, technology-driven discipline that fundamentally integrates data science into its core operations, shifting the paradigm of how supervision is conducted and innovation is driven.

I like to think that once we cross the tipping point, the entire financial supervision landscape changes and all financial sector stakeholders experience network effects and compounding returns, for example:

• Sectoral efficiency: Reduced duplication of reporting efforts, streamlined compliance processes, and faster cross-border risk assessments.
• Future-proofing: Suptech enables responsiveness to new risks, such as AI-driven financial products, decentralised finance (DeFi), and climate shocks.
• Reduced divides: Developing economies gain access to advanced tools, leveling the global playing field.
• Global stability: Enhanced capabilities for preventing systemic risks and responding to global crises.
• Aligning innovation with public interest goals: Supervision-powered open data commons empower consumers and drive private sector innovation toward reducing social and economic divides.

THE TIPPING POINT FOR AN AGENCY

At the level of individual authorities, crossing the tipping point transforms suptech from a collection of tools into a cohesive, system-wide enabler of modern, resilient financial supervision. This enables financial authorities to experience:

• Efficiency gains: Risk-based supervision enabled, and streamlined operations
• Better outcomes: Improved market stability, consumer protection, and fraud prevention.
• Future-ready systems: Increased capability to respond to market changes, new products and business models, evolved consumer’s behaviours and expectations, and to adapt to emerging risks, such as climate-related financial risks or offer of digital asset.

Of course, this systemic tipping point effect is derived from the cumulative effect of each agency’s own journey in reaching its respective tipping point. Double-clicking on a given agency within the ecosystem, we can note that before an agency crosses this threshold:

1. Fragmented adoption:
   • Financial authorities still rely on basic data analytics and manual processes.
   • Suptech tools are adopted sporadically and are often limited to pilot projects or specific use cases (e.g., AML/CFT, reporting compliance).
2. Resource constraints:
   • Authorities often face budgetary and technical resource limitations, making large-scale suptech investments challenging. In some cases, it has been noticed that they withdraw for deploying solutions that they have successfully tested. A focused investigation by the Netherlands Court of Audit into 70 government agencies, examining 433 AI systems, revealed an intriguing trend: agencies often express enthusiasm for AI systems they no longer use. One-fifth of the tested systems were discontinued even though they performed as expected or even exceeded expectations, largely due to challenges such as insufficient capacity for further development. This highlights a critical gap in sustaining innovation within govtech and emphasises the importance of long-term resource planning and support to fully realise the potential of AI in the public sector.
   • Adoption is driven by individual departments or teams, without cohesive institutional strategies.
3. Reactive approach:
   • Suptech solutions address existing problems reactively, focusing on compliance enforcement rather than proactive supervision or risk mitigation.
   • Siloed data and systems hinder real-time insights and cross-agency collaboration.
4. Minimal automation and AI:
   • Authorities primarily use descriptive analytics and simple rule-based systems.
   • Advanced technologies like machine learning, blockchain, or natural language processing are in early experimental phases.
5. Limited interoperability:
   • Suptech tools often lack standardisation and interoperability, leading to inefficiencies and difficulties in cross-border supervision.

Crossing the tipping point is an incremental transformation that takes an agency toward:

1. Institutionalised suptech frameworks:
   • Suptech adoption becomes a core strategy for the financial authority, supported by leadership, budgets, and regulatory frameworks that address the legal, procedural, and technical conditions under which suptech tools are developed, deployed, and used by financial authorities.
   • Comprehensive suptech strategies guide deployment across multiple supervisory areas.
2. Proactive and predictive supervision:
   • Suptech tools enable real-time monitoring, risk prediction, and early warning systems.
   • Supervisors shift from a retrospective focus on compliance to forward-looking risk assessments.
3. Automation and scalable AI:
   • Automation reduces manual reporting and data analysis, freeing up resources for strategic decision-making.
   • Regulatory reports are collected and validated via APIs.
   • Authorities deploy AI-driven tools for fraud detection, sentiment analysis, stress testing, etc.
4. Data-driven culture:
   • Proper policies define data governance.
   • Data schemas and taxonomies are standardised, improving the quality and comparability of supervisory data.
   • Multiple departments rely on centralised, high-quality datasets integrated with suptech tools for informed decision-making.

THE GLOBAL TIPPING POINT

Let’s now zoom back out: How does this translate into a global crossing of the tipping point?

Here’s what distinguishes the global pre-tipping point from the post-tipping point:

Before the global tipping point:

1. Isolated leaders and laggards:
   • A few advanced financial authorities lead the way, experimenting with suptech innovations.
   • Most agencies remain in exploratory or early implementation phases, with significant disparities between developed and developing countries.
2. Regional inequities:
   • Advanced economies dominate the suptech landscape, while developing economies face challenges in infrastructure, funding, and expertise.
   • Suptech remains largely inaccessible to smaller jurisdictions, widening the supervisory capability gap.
3. Proliferation of proprietary solutions:
   • The market is flooded with uncoordinated suptech solutions developed by vendors, resulting in siloed tools and limited interoperability across jurisdictions.
   • Financial authorities rely mostly on systems that are built in house or customised by a vendor, which restrict scalability and cross-border collaboration.
4. Lack of standardisation:
   • Absence of global standards, schemas and ontologies for data collection, reporting, and interoperability hampers the integration of suptech solutions.
   • International supervisory bodies like the Basel Committee, IOSCO, IAIS or FATF provide guidance, but the level is too high and adoption is inconsistent.
5. Reactive adoption drivers:
   • Suptech adoption is often driven by crisis moments, such as regulatory failures, financial scandals, or the emergence of fintech risks (e.g., digital assets or DeFi).
   • Supervisory innovation lacks consistent long-term vision and is primarily reactive.

After the global tipping point is crossed

1. Widespread adoption:
   • A majority of financial authorities worldwide adopt suptech tools, moving beyond pilots to full-scale integration into supervisory workflows.
   • Emerging economies gain access to affordable, open-source tools, leveling the playing field.
2. Standardisation and interoperability:
   • Shared data models, schemas and ontologies facilitate greater interoperability of applications and alignment with international standards facilitates cross-border supervision. Global data standards and taxonomies become the norm, enabling seamless cross-border supervision and data sharing.
   • Suptech systems across jurisdictions can interact, fostering global collaboration on risks like financial crime, climate-related risks, and systemic stability.
3. Proactive sectoral supervision:
   • Suptech enables sector-wide risk monitoring, where authorities across borders detect, predict, and mitigate risks collectively (e.g., AI-based early warning systems for systemic shocks).
   • Supervisory bodies work in real-time, aided by global data networks and integrated platforms.
4. Inclusive and collaborative Global suptech ecosystem:
   • Financial authorities, suptech providers, regulated financial institutions, and ecosystem partners to enhance shared platforms, standards, and tools.
   • Global infrastructure like suptech marketplaces and assets repositories enhances access and scalability, while collaborative platforms enable financial authorities to share tools, data, code, and insights securely.
   • Suptech transforms global coordination, improving the efficiency and data-driven nature of efforts like FSB reviews, FSAPs, FATF mutual evaluations, and cross-border risk monitoring, such as for cryptoassets and AML/CFT/CFP compliance.
   • Shared suptech assets and collaborative platforms empower small, resource-constrained authorities to navigate the suptech journey.

OUR SHARED AGENDA

Considering these factors, the suptech transformation of financial authorities is steadily progressing toward a tipping point. The combination of widespread engagement, technological advancement, and the (slow, but) ongoing development of strategic assets frameworks indicates that a critical mass is forming, which could soon lead to a more profound and systemic integration of suptech solutions globally.

To achieve this transformation on a global scale, we must come together with our respective areas of expertise to collaboratively build equitable, ethical systems to ensure standardisation and interoperability, cost efficiency and accessibility, and a shift in global coordination.

We have an opportunity to work together to achieve this vision. The Cambridge SupTech Lab is advancing this vision by developing a suite of digital tools designed to facilitate seamless sharing and collaboration. Democratizing access to ensure inclusivity and global participation is one of our objectives.

The tipping point for suptech adoption is not just a milestone — it is a redefinition of financial supervision. As we move closer to this moment, the question is not whether we will cross the tipping point, but how quickly and how inclusively we can get there.

With visionary leadership, global collaboration, and a commitment to innovation, we can ensure that suptech becomes the foundation for resilient, data-driven, and equitable financial supervision across the globe.

Thank you.