Tarisa Watanagase: Supervisory concerns in an IT environment Speech by Dr Tarisa Watanagase, Deputy Governor of the Bank of Thailand, at the 2nd SEACEN/ Federal Reserve System Course on Electronic Banking and Technology Risk Supervision, Bangkok, 12 May 2005. *  *  *  Financial institutions increasingly rely on technology to do their businesses, as a result, improper management and operation of IT will bring risks to financial institutions. Also, issues associated with IT including technological changes, new threats and vulnerabilities will no doubt affect financial institutions' performance and risk profile. Therefore, it is necessary to integrate IT risks with risk-based supervision in order to obtain a comprehensive risk profile of a financial institution. Today is a good opportunity for me to share with you our thoughts and experiences on Supervisory Concerns in an IT Environment. 1. Overview of current IT environment in the banking sector    The Thai financial institutions have been using IT in their businesses for decades. Initially, IT was used as a supporting tool for banking operations, helping staff do their work faster, more conveniently and with less human errors. Then, along with more advanced technology, many financial institutions now offer their products and services through electronic channels such as internet banking, mobile banking, ATM, etc. These alternative banking channels provide customers much easier and more time-saving ways to do their transactions with banks.   In addition to offering alternative banking channels, financial institutions currently also take advantage of IT to innovate financial products and services.

There should be a policy and procedure in place to manage the risks. Internal control: The financial institutions should set up preventive, detective and corrective control mechanisms that may be built in the operating procedure or programmed in the system involving new product and service delivery. Contingency plan: The financial institutions should formulate the contingency plan to carry on the business under unexpected events. Staff development: The financial institutions should establish a staff development plan to enhance personnel capabilities to conduct new product and service operations. Last topic of presentation is new challenges for BOT supervision and ways to overcome. 5. New challenges for BOT's IT supervision and ways to overcome  (1)  While the financial industry is moving fast with innovations and new developments, supervision needs to ensure the stability of the financial system. Supervisors need to encourage financial institutions to operate their businesses in a safe and sound manner as new delivery channels or services could exacerbate some of the same risks inherent in traditional banking. However, the prudential regulatory framework has to be congruent to the evolution of the e-banking business. Therefore, we need to strike a balance between the need to maintain the stability of the financial system and to foster developments, competition, and a level playing field. There are ways to overcome this challenge. BIS Review 35/2005  7  -  Regulators need to keep up with the development of the market while being proactive in formulating the regulatory framework.