The European Central Bank (ECB) is significantly stepping up its investment in innovative technology, having kicked off its first ‘SupTech’-specific procurement with a planned spend of more than £200m.
SupTech – shorthand for the use of innovative technology by supervisory agencies – has growing importance for authorities such as the ECB, which wants to boost its capabilities in developing fields such as artificial intelligence and machine-learning.
By launching the procurement, the Frankfurt-headquartered institution – which oversees banking supervision in Europe through the Single Supervisory Mechanism (SSM) and, in cooperation with national supervisors, is responsible for ensuring banking supervision is effective and consistent – is laying down a major statement of intent in the emerging SupTech field.
Its move comes three months after the Financial Stability Board (FSB) published a report on the use of SupTech and regulatory technology (‘RegTech’) by FSB members and regulated institutions. Its report found that technology and innovation are ‘transforming’ the global financial landscape, presenting opportunities, risks and challenges for regulated institutions and authorities.
“This tender shows the importance the European Central Bank is paying to cutting-edge supervisory and regulatory technologies, including artificial intelligence and machine learning. It is our goal for ECB banking supervision to be at the forefront of these developments,” an ECB spokesperson told Global Government Fintech.
ECB’s growing SupTech capabilities
The ECB’s ‘SupTech Digital Transformation Delivery and the Exploration, Prototyping, Deployment and Training of Emerging Technologies’ contract notice sets out how that the work is split into two ‘lots’: the first is for ‘suptech digital transformation delivery including business process re-engineering and the deployment of emerging technologies’; and the second is for ‘brokerage of emerging technologies exploration, prototyping and training services for banking supervision and central banking’. The ‘estimated total value’ is €227.5m (about £202.25m).
‘Lot one’ is the largest part, valued at €30m per year for an initial four years with up to three 12-month renewals (so, potentially €210m total); and ‘lot two’ is valued at €2.5m/year with the same stated contract length (so, potentially €17.5m total). The latter is aiming at prototyping the latest ideas in the field and staying abreast of trends, also going beyond SupTech with the aim of exploring and exploiting emerging technologies and trends both in the ECB’s Supervisory and Central Banking functions.
The ECB has been building its in-house SupTech capacity in recent years, with its work evolving from more traditional banking supervision to the use of emerging technologies for the more than 6,500 users of the ECB’s banking supervisory IT systems. It regularly undertakes multi-year tenders of €100+ for IT services but, even within the IT realm, its SupTech procurement a larger one.
The ECB, which is developing a cloud-based SupTech platform called ‘Virtual Lab’ that will provide the digital infrastructure for remote collaboration across the SSM, has about 15 people in its core Supervisory Technology Section, part of its Technology & Innovation Division, which sits in the Directorate-General SSM Governance & Operations. Ultimately, many more people than that across SSM D-Gs in total are involved in SupTech-related activity, for example, IT professionals.
SupTech development challenges
The FSB’s ‘The Use of Supervisory and Regulatory Technology by Authorities and Regulated Institutions’ report, published in October, provides an extensive overview of how authorities such as the Monetary Authority of Singapore, Bank of England and the De Nederlandsche Bank, as well as the ECB, are developing their SupTech capabilities.
Opportunities offered by SupTech, as well as RegTech, have been created by the substantial increase in availability and granularity of data, and new infrastructure such as cloud computing and application programming interfaces (APIs), the publication notes. For both authorities and regulated institutions, the efficiency and effectiveness gains, and possible improvement in quality arising from automation of previously manual processes, is a ‘significant’ consideration, it says.
The 76-page report, which includes 28 case studies giving practical examples on how SupTech and RegTech tools are being used, is informed by a survey of FSB members. It says that authorities are ‘vigilant’ to possible risks that could arise from the use of SupTech and RegTech technologies. Survey responses indicated that the risk reported to be of greatest concern was around resourcing, followed by cyber risk, reputational risk and data quality issues.
‘Due to security concerns, it may be difficult to outsource much of the SupTech development and implementation process to external vendors. As such… the majority of authorities continue to rely on internal development of SupTech tools,’ the report says. It also notes that multi-lingual environments such as that of the ECB ‘have presented challenges to deploying SupTech tools that rely heavily on the accuracy of their linguistic capabilities’.
The ECB procurement’s ‘requests to participate’ deadline is 16 February. Invitations to tender or participate are expected to be sent out around 30 April.
Separately, the ECB has announced that its digital euro consultation – which began last October – received more responses than any previous ECB public consultation, with 8,221 citizens, companies and industry associations completing the online questionnaire. A ‘detailed analysis’ will be published in the spring. The ECB said its initial analysis showed that privacy of payments ranked highest among the requested features of a potential digital euro (41 per cent of replies), followed by security (17 per cent) and pan-European reach (10 per cent).
