A ‘SupTech Lab’ has launched at the Cambridge Centre for Alternative Finance (CCAF) for the creation and adoption of scalable SupTech (supervisory technology) solutions.
The Cambridge SupTech Lab’s initial focus is boosting the capabilities for financial regulators in low- and middle-income countries. But it ultimately aims to accelerate innovation in all financial supervisory bodies worldwide.
It is believed to be the first time a major academic institution has launched such an initiative focused on boosting innovation in SupTech, a rapidly emerging space that is among six thematic priorities in the Bank for International Settlements Innovation Hub’s work programme for 2022.
The SupTech Lab has received funding of $3.1m (about £2.36m) from US-headquartered philanthropic organisation the Bill & Melinda Gates Foundation (BMGF) for 2022-2023 to focus on accelerating applications that ‘transform’ financial consumer protection and supervision, helping to ‘drive the sustainable development of digital financial services’ in low- and middle-income countries.
During its first year, the Lab’s team plan to work with financial authorities in 15 nations to develop at least ten proof-of-concepts (PoCs) and five new applications for market conduct supervision. The SupTech Lab will also make available 90 scholarships for central bankers and financial supervisors.
Central banks ‘seeking to modernise’
Financial authorities’ use of SupTech tools has accelerated and proved ‘indispensible’ during the Covid-19 pandemic but ‘formidable’ implementation challenges mean barriers remain to broader adoption and acceptance, according to a paper from the Financial Stability Institute (FSI), a BIS-housed body, published last December.
The FSI’s paper, ‘Suptech tools for prudential supervision and their use during the pandemic’, set out how travel restrictions and social distancing protocols ‘severely curtailed’ on-site inspections and prompted financial authorities to use more SupTech tools for day-to-day oversight of companies. At the same time, supervisory authorities recognised the need to develop new data analytics tools for prudential purposes.
Twenty authorities that took part in the FSI research reported using, developing or experimenting with 71 different prudential supervisory tools, up from just 12 tools in 2019. In total, authorities that responded to the survey reported 130 SupTech ‘use cases’.
But ‘limited’ data science skills within supervisory authorities, data quality issues that underpin SupTech models and ‘settling on an appropriate calibration of SupTech parameters’ are all hampering broader adoption of SupTech tools, according to the paper.
“The fast pace of financial services’ digitalisation has exacerbated the challenges that central banks face in implementing their mandates. With limited supervisory capabilities and outdated tools, they are seeking to modernise their approaches, methodologies, technologies and skillsets,” said Simone di Castri, who is co-head of the Cambridge SupTech Lab alongside Matt Grasser (both are physically located in New York City).
Di Castri told Global Government Fintech that although the SupTech Lab had already received expressions of interest for several jurisdictions classified as low- and middle-income countries, it had not yet confirmed any partnership. “We welcome applications from any qualifying jurisdiction,” he said.
‘Focused on supporting innovation leaders’
CCAF co-founder and director Prof Robert Wardrop said the BMGF funding enabled the CCAF – a research centre at the University of Cambridge Judge Business School established in 2015 and which has 40 full-time staff – to “further deliver on its aim to create and transfer knowledge within the financial sector, particularly where gaps exist.”
“The Cambridge SupTech Lab is focused on supporting innovation leaders who will be able to drive institutional digital transformation and effective adoption of SupTech in the era of digital finance,” said CCAF executive director and co-founder Bryan Zhang.
“This initiative allows us to walk that innovation journey with them by providing empirical evidence to inform decisions, scalable and transferrable digital tools to enhance supervisory capability, and the capacity building and training programmes to create leaders of future.”
The SupTech Lab team is also seeking opportunities to work with supervisory authorities in other areas, such as the growing priority of anti-money laundering (AML) and crypto supervision, as well as the oversight of environmental, social and governance (ESG) risk management.
A public launch event for the SupTech Lab is scheduled for 13 April. This will include a panel discussion featuring: Bank of Ghana’s head of fintech and innovation, Kwame Oppong; BIS Innovation Hub London centre head Francesca Hopwood Road; BMGF senior programme officer (consumer protection and RegTech) Anna Wallace; Adam Scott, director of design and development at the US Consumer Financial Protection Bureau; and CCAF’s Prof Wardrop.
‘BIS Open Tech debuts with “potentially game-changing” SupTech tool’ – our news story (1 April 2022) on an ‘open’ platform for sharing nascent financial and statistical software as public goods being launched by the Bank for International Settlements (BIS): one of the first two projects published there is a prototype SupTech platform ‘Project Ellipse’
‘BIS Innovation Hub reveals 2022 workplan’ – our news story (25 January 2022) on the presentation of this year’s Innovation Hub programme, which has SupTech and RegTech as one of six focus areas
‘SupTech use rockets but adoption barriers remain: survey’ – our news story (8 December 2021) on the Financial Stability Institute paper (as mentioned in our story, above)
‘CBDCs and SupTech among priorities as BIS Innovation Hub maps out 2021 agenda’ – our news story (23 January 2021) on the BIS Innovation Hub’s work programme for last year
‘ECB eyes “cutting-edge” tech as it launches first SupTech procurement’ – our news story (18 January 2021) on the Frankfurt-based authority’s first ‘SupTech’-specific procurement