Home Policy & Governance Public sector “not always the easiest of customers”: BIS’s Skingsley on innovation

Public sector “not always the easiest of customers”: BIS’s Skingsley on innovation

Skingsley: told an audience in London today (15 April) that “there is still a long way to go to achieve a technology-first approach” among central banks | Credit: Ian Hall

The Bank for International Settlements (BIS) Innovation Hub’s head has acknowledged the challenges private companies can face in working with the public sector and proposed a two-point “framework” to help central banks and supervisory authorities to “embrace” innovation.

In a speech at a fintech conference in London today (15 April 2024), Cecilia Skingsley urged that her recommendations “must inform the actions we take if we want financial stability and safety to be integral to progress”. 

“The public sector may not always be the easiest of customers,” she conceded, setting the context. “Often having more vague objectives than you typically find in companies, we are also complex organisms with a multitude of specialisations and different priorities.”

“Today, I would like to propose a framework to help guide us in embracing innovation and at the same time solve some of the challenges confronting the central banking and regulatory communities,” she said, adding that she believed her framework would be “particularly useful in the interaction between the public and private sector.” 

The BIS Innovation Hub’s work programme spans six focus areas but Skingsley focused on just one of them – supervisory technology (‘SupTech’), which she defined as “using technology to support global financial stability”.

In her speech, titled ‘Sharper supervision in an era of technology races’, she lamented “a lot of experimentation but little deployment” of SupTech in jurisdictions across the world, saying that “there is still a long way to go to achieve a technology-first approach.”

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‘Transparent and honest’ engagement needed

The BIS Innovation Hub is a joint-venture established almost five years ago between the central bank-owned BIS and a number of individual central banks. It has grown to nearly 100 staff across six centres around the world. “As a laboratory aimed at developing public goods, we know a lot about what it takes to experiment and bring value in a public sector context,” she told the largely British audience at the ‘Innovate Finance Global Summit’ – a two-day annual event organised by the UK fintech sector’s trade association (Innovate Finance). “We also have a clear understanding of where the challenges are.”

She said the first “key point” of her framework was “transparent and honest engagement with a broad range of stakeholders”.

“Central banks and supervisors face challenges like modernising legacy systems and technology infrastructure and designing tools using new technologies to enable us to be fit for the future,” she said. “With these challenges, we have some hard questions.”

“For those of us on the public sector side, are we willing to be transparent to a satisfactory level, knowing that our work is complex, challenging and sometimes very sensitive? As digital transformation accelerates, can we honestly assess and communicate where we stand and where we should be going?,” she asked rhetorically.  

“This self-appraisal can be difficult for organisations at the best of times, and central banks and other authorities on the financial side of our societies are no exception.”

RELATED ARTICLE SupTech on the rise: financial supervisors explore innovative technology – a write-up of a session at the Global Government Fintech Lab 2023 during which representatives from Norway, Croatia and Bermuda described how their authorities are using SupTech and barriers to greater uptake

SupTech ‘appetite’ on the rise

Skingsley, who has been the BIS Innovation Hub’s head since moving from a role as Sveriges Riksbank’s first deputy governor in 2022, described ‘collaboration’ as her framework’s second ‘key point’.

“We – as in ‘the public sector’ – need to join forces with the private sector to build technology solutions that can shape the future of supervision and support financial stability,” she said. 

Companies can sometimes find it challenging to work with the public sector, she acknowledged. But she argued that the public sector also “needs specific processes to ensure fair and systematic decision-making and to be transparent about how public money is spent”.

She went on to say that “we are not the most profitable types of customers” and, in a directly related point, described SupTech as a “small market”. This view was, she said, based on a survey undertaken by the BIS Innovation Hub’s London centre during 2023 (the full results are, she said, expected to be published ‘later this year’).

There is, however, definite interest in SupTech among financial authorities. She cited research undertaken alongside the BIS-housed Financial Stability Institute across 50 jurisdictions that found that more than 90 per cent of jurisdictions have used SupTech tools – most commonly for regulatory reporting, assessing risk and automating supervisory processes. Specific use-cases include dashboards to monitor capital, liquidity, credit and market risk; natural-language processing to monitor and analyse news, financial statements and social-media; and tools to automate supervisory tasks such as licensing.

Eighty per cent of institutions surveyed had, she said, a dedicated internal resource to build these tools, “with many more solutions in development”, including in areas such as environmental, social and governance (ESG) reporting and crypto-asset monitoring. “So, we know that both the appetite and the technical capability are there. That’s the good news,” she said. 

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Tools at ‘early stage of maturity’

She went on to make her point that a ‘tech-first approach’ appeared to be a “long way” away.

“The majority of these [SupTech] tools are at an early stage of maturity, focusing largely on digitalisation and automation of existing workflows,” she said. “We also know that they are not being widely adopted inside institutions, as many solutions built in-house remain at proof-of-concept or prototype stage, thus limiting the potential value they could bring.”

“There is a lot of experimentation but little deployment,” she said.

Referring to the BIS Innovation Hub London centre survey’s findings, she said that “breaking down the barriers and allowing further collaboration between financial authorities and SupTech solution providers is not easy.” 

“Half of the SupTech vendors told us that ‘lack of visibility into the prioritised needs of financial authorities’ is a key challenge for expanding their SupTech portfolio. This makes it hard to match our problems with their solutions. So financial authorities need to collectively think of ways to bridge this gap,” she said.

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‘SupTech TechSprint’ on the way

Skingsley urged the public and private sector to “continue to think creatively about how to better understand each other” and that, in this spirit, the BIS Innovation Hub would be organising a ‘SupTech TechSprint’ at some point “later this year”.

“We also discovered [in the BIS Innovation Hub London centre’s survey] that more than two-thirds of vendors complain that ‘length or complexity of procurement processes’ affects their ability to successfully engage with financial authorities,” she said.

“One critical aspect is that this is more likely to hurt smaller firms, as it increases uncertainty and costs. That could mean that only the large and established ones are able to engage, at the expense of the smaller start-up community where true innovation and cutting-edge thinking often happens first,” she continued.

But she emphasised that public institutions “need” to run procurement processes. “We are mandated by law to be transparent and fair when purchasing from the private sector, and we need to be able to prove it,” she said. But she added that “perhaps there is scope to improve our processes to make them truly inclusive for firms of all sizes.”

“In some ways, it is up to us in the public sector to be better customers,” she continued. “We need to better articulate our needs to the market and find ways to be more inclusive. In this way, we benefit from all the choices available in the SupTech marketplace and continue to be up to date with the latest technologies. We might be missing a lot. We don’t know what we don’t know.”