Rapid advancement and gains to the banking sector  1.1 Overall, technological innovation has brought about the speedy processing and transmission of information, easy marketing of banking products, enhancement of customer access and awareness, wider networking and, regional and global links on an unprecedented scale. IT development has thus changed the product range, product development, service channels and type of banking services, as well as the packaging of such services, with significant efficiencies not only in the banks, but also the ancillary and feeder services to banks. The financial services industry has thus become virtually dependent on IT development. Most banks make visible efforts to keep up with new systems and processes. 1.2 The development in ICT has enabled banks to provide more diversified and convenient financial services, even without adding physical branches. The present day ATMs are more sophisticated machines that can scan the customer and a bank teller, accept cash or cheques, facilitate customer application for loans and allow for face-to-face discussion with a service representative via video. 1.3 The development of Internet services, which is an extensive, low-cost and convenient financial network, has facilitated banking services to customers, anywhere and anytime. Along with Internet and Web-based services, a need for changing core banking architecture has emerged. The introduction of new core banking systems by some banks and their links with the improved telecommunication network has enabled banking transactions to be done on-line, in contrast to the batch-processing mode used earlier.

The increased IT knowledge of the general public and proliferation of cheap computer technology mean that weaknesses in card payment systems are exploited fraudulently. Banks need to address these new operational risks through acceptable BCPs. 6. Advanced technology, legal framework and regulatory compliance  6.1 Market discipline is extremely important to establish an efficient and stable banking system. There is no harm in banking institutions constantly looking for sound management and higher profitability, but the banking institutions’ behaviour is being closely watched by the markets, customers and investors. It is, therefore, important for the banks to disclose their financial conditions according to appropriate accounting methods, including International  BIS Review 13/2008  3  Standards such as IAS 32, 39 and IFRS 7. Further, the banks have to enhance disclosures and introduce improvements to risk management and the provisioning for non-performing assets as per the Basel II framework. These requirements call for advanced infrastructure and technological transformation in banks. In moving towards advanced approaches under Basel II, “Data Warehousing” technology, along with sophisticated application programs for customer rating will be needed. 6.2 From a regulator’s point of view, technology has supported the modernization of the supervisory approach and risk-based regulatory processes. As banking business continues to grow through innovative products and electronic information based services, it has also necessitated a more risk-focused approach to supervision. Regulators need to be alert to the nature of banks’ activities, compliance with regulatory requirements, and their systems and controls, for which a continuous flow of information is necessary.