Elizabeth McCaul: The future of European banking supervision -
connecting people and technology
Keynote speech by Ms Elizabeth McCaul, Member of the Supervisory Board of the
European Central Bank, at the Supervision Innovators Conference 2024, Frankfurt am
Main, 18 September 2024.
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Introduction
I'm honoured to welcome you again to this conference, which is already being held for
the fifth time.
It's the fifth anniversary of this conference but we are also celebrating the tenth
anniversary of the Single Supervisory Mechanism (SSM). Naturally, it is a moment of
reflection about what the future holds and how European banking supervision should
continue to evolve. And, right now, various societal, political, technological,
environmental and economic mega trends are shaping the future of the financial
industry. In the tech area, for example, we are in the midst of a fast-paced and
unprecedented development which is changing every aspect of the economy.
The ways of working are changing profoundly.
My son is a computer programmer. This weekend while driving we spoke about the
possibilities for his future and what sort of work he might do, given the rapid innovation
taking place. He told me he uses AI now regularly to produce code for him that he then
reviews. Very different from the work he was hired for just two years ago when he
graduated!
In the aviation field artificial intelligence (AI) is being used to enhance the safety and
efficiency of air traffic control by analysing historical and real-time flight data to predict
potential collisions. Predicting accidents before they occur: isn't that also a goal worthy
of banking supervision? And in the health care field, common applications include
diagnosing patients, end-to-end drug discovery and development, improving
communication between physician and patient or transcribing medical documents such
as prescriptions. All of this change in the industries around us are food for thought as
we consider in a clear-eyed, realistic and vigilant way the risks and opportunities for us
in banking supervision.
Disruptive technologies like AI are playing a growing role in banks' day-to-day activities,
and access to technology is becoming widespread. At the same time, banks are
becoming ever more dependent on data, IT platforms and third-party providers.
To keep the banking sector safe and sound in the face of these trends, we need to
equip the supervisors of the future with the right tools and skills. And it is this principle
that has guided our strategic work on the digital agenda.
Since the inception of European banking supervision in 2014 we have built up and
continuously improved a set of core IT systems, launched our suptech efforts and
created multiple cutting-edge tools which are already up and running. And now it is time
to shape a new common strategy covering both our core IT systems and our suptech
tools, as well as, most importantly, their integration.
SSM tech strategy for 2024-2028
The new SSM tech strategy for 2024-2028 builds on two main pillars: people and
technology. The strategy not only addresses several critical business needs Any smart
strategy developed for the future must have at its foundation the recognition that people
and technology are increasingly, even inextricably intertwined.
How have we incorporated that?
We have done so by setting as our goal connecting people and technology so we can
deliver "supervision at your fingertips", This way, human expertise and technological
innovation go hand-in-hand. We are structuring our work to ensure efficient, effective
and integrated supervision that keeps pace with the trends and structural changes in
the banking sector which I touched upon earlier. We are working on several levels to
make sure that supervisors can fully use the applications and data available to them
and that technology is seamlessly integrated into their day-to-day work. And we aim to
consolidate IT to further strengthen European banking supervision, allowing supervisors
to work as a single team with shared technology across the ECB and national
competent authorities (NCAs).
But what does this mean more concretely for our banking supervisors of the future?
What impact will this strategy have on their work? What tools will they use?
To make this tangible, let's imagine a future supervisor called Pete. The name "Pete"
symbolises the two key pillars of our strategy: "Pe" stands for people, and "te" for
technology. So, how does our new strategy support Pete?
People
Let me start with the first pillar of our new strategy and the most important asset we
have: our supervisors, people like Pete. Under this pillar, we plan to support Pete's
work in the following three ways.
Promoting a user-focused innovation culture
First, we aim to instil a culture that supports the adoption of our suptech tools and
embeds advanced technology into regular supervisory processes. We are convinced
that having a clear user focus in all our technological activities and ensuring an
enhanced user experience will encourage the take-up of our tools.
One way of fostering the adoption of tools is our European banking supervision-wide
suptech champions initiative. Under this initiative, Pete and other colleagues at the
NCAs and in various business areas across ECB Banking Supervision can become
trained experts in suptech tools.
These suptech champions can then provide local and easy-to-access support to users.
They also collect feedback and identify user needs in order to further develop the tool.
In this way, suptech champions act as ambassadors, both promoting awareness and
supporting the use and development of suptech tools. Already, 45 champions across 17
NCAs have reached over 1,000 supervisors through multiple channels, including
workshops and providing guidance on the use of suptech tools.
Future-proofing our organisation
Second, we are continuing to make our organisation ready for the future by establishing
a steady-state tech function that connects internal tech and supervision experts across
business areas and NCAs. We want to cultivate a collaborative approach to shaping
SSM technology and enhancing the adoption and use of available tools.
In one of our flagship initiatives, NCAs can become suptech centres, which are at the
forefront of developing technology for European banking supervision. They deliver tools
that can subsequently be made available to the ECB and other NCAs.
A case in point is that one NCA has developed a new use case for assessing the group
structures of banks over time in our network analysis platform, Navi, which benefits
European banking supervision as a whole.
Deepening our global partnerships
Third, we seek to tap into the global innovation networks with which we have
established strong ties in recent years. For instance, we have been working closely with
leading academic institutions to deliver state-of-the-art training to supervisors on
machine learning, programming for data analytics, prompting and other topics.
We are also working closely with industry leaders in other areas, such as generative AI,
cloud technology and big data, as well as with start-ups to bring the latest and most
advanced technologies to banking supervision. At the same time, we are partnering
with other authorities across the world to experiment with new ways of solving common
problems. Such partnerships mean that Pete has access to knowledge and state-of-the
art technology that boost efficiency and improve supervisory outcomes, which brings
me to the second pillar of our strategy, technology.
Technology
Through our SSM tech strategy, we want to connect people with technology. In other
words, we need to equip Pete with the necessary tools and capabilities.
Working as a single team with shared technology
The first cluster in the technology pillar concerns our core IT systems.
On the one hand we will continue to future-proof our core systems and data
infrastructure by making them more modular, scalable and innovation-friendly while
keeping them secure. We aim to optimise the IT landscape by integrating and
consolidating systems across European banking supervision.
On the other hand, we will decommission legacy systems to maximise the use and
impact of existing applications. Working as a single team across the ECB and NCAs
with access to shared technology will allow Pete to collaborate more intensively with
European central banking colleagues.
Olympus is a notable project in this regard.
Through Olympus, we aim to proactively shape our IT landscape and make it ready for
the upcoming challenges and opportunities offered by new technologies. This ambitious
project reviews the full IT landscape and sets out a roadmap and action plan for the
future of IT in European banking supervision. For this project, we have identified four
high-level targets rooted in our supervisory needs that guide all activities.
Our first target is to strengthen our data-driven work. Imagine having easy access to
data and efficient processing within a few clicks. This will empower our teams to make
informed decisions swiftly and effectively.
The second target is to provide common and connected tools and systems. Using
integrated systems to foster collaboration among all European banking supervisors, we
will create a cohesive working environment that allows everyone to work together
smoothly.
The third target is to ensure seamless access and navigation. By unifying access and
identity management, we will make it easier for our staff to find and use the resources
they need, free from technical obstacles.
Lastly, we will establish common IT standards and delivery. By adopting consistent IT
standards, we will drive rapid and user-friendly digital innovation, ensuring our
technology keeps pace with the latest advances.
Under the Olympus project we have set out the concrete action needed to reach these
targets.
What does this mean for Pete, though? Let me give you an example.
Pete will be able to use the SSM Cockpit to navigate through supervisory tasks. The
SSM Cockpit will provide a user-centric platform integrated with core systems to
facilitate access and navigation to various tools and systems. By design, it will be a
flexible solution that meets the diverse information and reporting needs of different
supervisory roles. The Cockpit will feature advanced, AI-powered capabilities to help
supervisors efficiently carry out their core tasks.
Generating new insights through supervisory analytics
Supervisory analytics are the second cluster under the technology pillar. These seek to
enhance risk assessment by augmenting analytical capabilities and combining
structured and unstructured data. There is also a pressing business need to address
emerging risks such as climate-related and environmental risks, as well as IT and cyber
risks. To do so, we must explore new datasets and information sources, including social
media. Supervisory analytics will give Pete and his colleagues new insights which will
help them stay ahead of emerging risks and provide more robust and timely risk
assessments.
We have been working on a tool called Delphi which uses natural language processing
to integrate market risk-based indicators and information from news items into a single
web-based platform with a user-friendly interface. The insights afforded by combining
such quantitative and qualitative information mean that supervisors like Pete can
adequately assess the underlying risks and better understand the real-time risk
development affecting individual banks.
Automating processes by harnessing AI
Our third and last cluster under the technology pillar concerns process automation and
collaboration. Think about how the automotive industry is being transformed by smart
manufacturing. In a smart factory, machines, devices and systems are interconnected
and can communicate with one another, enabling real-time data collection, analysis and
decision-making. What can we learn from other industries to become more effective
and efficient in our supervision?
We are committed to delivering additional breakthrough solutions that use AI - and
more specifically generative AI - to simplify and automate workflows, while improving
collaboration within European banking supervision. For a while now, we have been
harnessing AI and making it available in some of our tools, such as Athena, which helps
supervisors analyse extensive textual information in various formats and languages,
and Virtual Lab, a platform for SSM-wide digital collaboration as well as code sharing,
cloud computing and the development of generative AI (GenAI) capabilities. We are
also planning to deploy AI in the AFM Medusa project which will support our
supervisors in drafting, consistency-checking and benchmarking findings and
measures. Our vision is for supervisors to be increasingly empowered by GenAI, while
remaining engaged in the process since they will be the ones who continue to review
and approve work and take the final decisions. This technology will provide
suggestions, assist in drafting input and help with analysis.
To this end, we have been collecting use cases and are determining where it makes
sense to implement European banking supervision-wide solutions, where specialised
applications with narrower scopes and user groups are appropriate, and where
off-theshelf tools are sufficient. One of the solutions we have been working on is AthenaGPT,
which complements Athena. Using AthenaGPT, supervisors like Pete are able to
interact with several supervisory information sources at once. This boosts efficiency, as
supervisors can then focus on the most relevant information. Searching for information
in large supervisory repositories has never been easier. And in Agora, we are testing
the ability for supervisors to query the data lake in English and use AI to translate into
SQL, which is how the data can be accessed. This reminds me of how the work of my
son is changing!
Conclusion
As you can see, we have ambitious plans for Pete and all our supervisors. Continuous
investment in technology will remain key for ECB Banking Supervision to keep pace
with changes in the banking landscape and address emerging supervisory risks.
I am confident that we will be successful in this endeavour and that we will help Pete
become a supervisor of the future: a strong SSM collaborator working in a single team
with shared technology, an empowered data expert who bases decisions on advanced
supervisory analytics and an agile supervisor making use of process automation and
the latest technology.
At the same time, I am incredibly proud of what we have already achieved. We have
developed and fully implemented suptech tools that harness modern technologies such
as AI across Europe. These tools have changed the way we do supervision. We have
been surprised at how some of our tools have been received in our supervisory
community. For example, we only expected to have around 200 users for Agora, the
SSM single data lake. But we already have over 1,200 users, who have made over 1.6
million data queries using the tool. Our top innovation and collaboration tool, Virtual
Lab, is being used by around 4,000 colleagues. And our network analytics tool, Navi,
has now grown to cover almost a dozen major use cases. We have also trained almost
3,000 colleagues, including leaders, on topics related to innovation and digital
transformation. This has helped broaden supervisors' skillsets and established a
mindset within our organisation that embraces technological change. Last, but not least,
we have won four global innovation awards in three consecutive years.
While we can be proud of these achievements, I believe that much remains to be done.
There is a famous quote by the American sociobiologist Edward O. Wilson that
continues to occupy my thoughts of late: "The real problem of humanity is the following:
We have Palaeolithic emotions, medieval institutions and godlike technology."
You know that I spend a great deal of my waking hours thinking about the implications
of the changing financial services environment we find ourselves in today. It's an
increasingly complex landscape, where we are facing geopolitical, climate and
operational resiliency risks emanating from third party dependencies and cyber-attacks.
We are facing changes to business models incorporating partnerships and responding
to competition from and new entrants BigTech and FinTech. And the exponential
growth of the global markets since the Great Financial Crisis in the interconnectedness
of entities categorized as non-bank financial institutions with banks, especially private
credit and equity funds operating outside the regulatory perimeter, is concerning, even
worrying as we think about the effects on supervision and financial stability.
Successfully connecting our technology and people to empower them in this changing
landscape is essential.
I would say that if we want to truly equip Pete for the future, it's clear that our work has
only just begun.
Thank you very much for your attention. I hope you enjoy the rest of the conference.