Home Data ‘Relatively low’ open-source collaboration among financial authorities: SupTech survey

‘Relatively low’ open-source collaboration among financial authorities: SupTech survey

Technology collaboration: several financial authorities told researchers that their organisation’s policies do not allow use of open source due to potential cyber and information security risks | Credit: Antoine Pernot (Pixabay)

Use of open source environments – where technical solutions are developed and maintained collaboratively by different parties – remains ‘relatively low’ among financial authorities worldwide despite ‘very strong desire’ for international collaboration, according to an analysis of supervisory technology (SupTech) use.

‘Building a more diverse suptech ecosystem – findings from surveys of financial authorities and suptech vendors’ has been published as part of the Financial Stability Institute (FSI) of the Bank for International Settlements (BIS)’s ‘FSI Briefs’ series. The 12-page analysis is informed by a survey of financial authorities (undertaken in summer 2023) that attracted responses from 50 national authorities across 45 jurisdictions and also – from the perspective of SupTech suppliers – a questionnaire undertaken by EY and the RegTech Association (RTA) that attracted 25 responses.

Of the 50 financial authority respondents, just three are not pursuing any SupTech initiatives. But less than a quarter described themselves as ‘experienced’ users of open source. Authorities from advanced economies are much more likely to report experience in using open source but were also much more likely to report internal barriers to doing so. A vast majority of authorities in emerging market and developing economies have not explored the use of open source at all.

Barriers to using open source mentioned by respondents included a lack of foundational IT infrastructure that would enable collaboration on projects and sharing of code in a secure environment. They also cited governance and legal challenges, particularly related to intellectual property rights. Several mentioned that their organisation’s policies do not actually allow use of open source due to potential cyber and information security risks.

Open source environments are also not a preferred choice for collaboration for some authorities. Instead, they would prefer to co-develop solutions in secure, closed IT environments, which could be accessed by other public sector institutions, according to the report. ‘This could alleviate some of the security concerns but also raise some new questions, for example around ownership and licensing of solutions,’ the authors point out.

RELATED ARTICLE Public sector “not always the easiest of customers”: BIS’s Skingsley on innovation – a news article (15 April 2024) on Cecilia Skingsley’s speech (which drew upon the newly released full survey findings) at a fintech conference in London

“The public sector may not always be the easiest of customers…”: a post on X (formerly Twitter) on Cecilia Skingsley’s speech in April

SupTech focus areas

The paper summaries financial authorities’ SupTech initiatives as being focused on four broad areas: data visualisation, regulatory reporting, financial risk assessment and supervisory automation.

Due to organisational, legal or infrastructure constraints, financial authorities typically rely mostly on internal resources in building SupTech solutions and ‘much less’ on private vendors or collaborations with other authorities. If financial authorities engage with SupTech vendors, it is mainly with regard to developing regulatory reporting solutions.

Elements of the analysis’s findings had already been aired by Bank for International Settlements Innovation Hub head Cecilia Skingsley during a speech at a fintech conference in London in April. 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’.

The paper states that SupTech vendors are ‘generally optimistic about the future direction of the SupTech market despite its inherently small size’. But that ‘they find it challenging to engage with financial authorities because they do not have a clear view of the authorities’ needs, complex procurement processes and organisational siloes’.

‘Therefore, there is room to improve private-sector involvement and collaboration with other authorities in the development and adoption of SupTech solutions,’ the paper states. ‘This would entail facilitating transparency in SupTech requirements, simplifying internal processes and establishing infrastructure and policies that are more conducive to secure collaboration.’

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

International collaboration preferences

‘Big Data’, natural language processing and generative AI are the main SupTech areas where authorities want to collaborate internationally, the paper states.

‘These technologies have a range of proven applications in supervision and regulation,’ it states. ‘Distributed-ledger technology (DLT) / blockchain and quantum computing were also frequently reported, reflecting the technologies’ wide-ranging implications for regulated institutions. Exploring quantum computing is a particular concern for financial authorities in advanced economies,’ it adds.

In her speech a few weeks ago, Skingsley acknowledged that 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’ but that ‘with these challenges, we have some hard questions.’

In a separate development, the BIS announced today (4 June) that it was launching a project to explore how instant cross-border payments could be improved using a ‘modular’ foreign exchange (FX) component combined with settlement in wholesale central bank digital currencies (CBDCs).

Project Rialto’ – which a collaboration of the BIS Innovation Hub’s Eurosystem and Singapore centres in partnership with several central banks – is exploring a new automatic FX settlement layer solution using wholesale CBDC as a safe settlement asset that could be deployed for interlinked instant payment systems or digital asset systems.