reality is that innovations will always move ahead of rules. the key is in understanding whether a particular innovation or new business model is simply a regulatory arbitrage. if so, we should deal with that directly such as by bringing that activity within the regulatory ambit or even banning it altogether. another consideration is whether an innovative business model while purposeful will create incoherence or inconsistency of treatment. in such a case, a review of that regulatory policy may be necessary. there is no one - size - fits - all supervisory answer. it simply means that as regulators, we need to keep abreast with technological developments. only then, can we exercise thoughtful judgment. the fact that many financial regulators including the mas have allowed regulatory sandboxes to be set up highlights a preparedness to allow innovative financial models to first be tested within defined parameters. harnessing technology to strengthen supervision 21 there is a growing area of technology use that will be directly relevant to financial supervision – regulatory technology ( or regtech ). this is the use of advanced technology systems and algorithms to enhance risk management and regulatory compliance. 22 many financial institutions have embraced regtech, such as : predictive analytics being used in stress testing ; artificial intelligence and machine learning - powered systems to identify money laundering risks ; and cognitive computing and behavioural algorithms to detect suspicious trading and possible misconduct. 23 on the supervisor ’ s end, the mas is developing our own ‘ suptech ’ to improve and sharpen our surveillance and analytical capabilities. since about a year ago, we have set up a dedicated unit for suptech within our data analytics group. 24 the aim is to make greater use of technology and “ smart tools ” to guide our financial surveillance and supervision functions. to do so, building the infrastructure for our data analytics projects is important. we are putting in place an mas private cloud. this will serve as the foundation to provide computing power to all data analytics projects in mas. there are a number of ongoing system - enhancement projects around data storage, accessibility and usability. but importantly to fully benefit from the insights of a broader set of high - frequency real - time data, in both structured and unstructured formats, our supervisors will also need to acquire strong digital fluency in various data analytics and visualisation tools. 25 only then can we harness the full computational capabilities from better data analytics to sharpen our surveillance and understanding of different risks, and to support more effective decision - making. there is also a

for release on delivery 11 : 10 a. m. est december 18, 2020 strengthening the financial system to meet the challenge of climate change remarks by lael brainard member board of governors of the federal reserve system at “ the financial system & climate change : a regulatory imperative ” hosted by the center for american progress washington, d. c. december 18, 2020 i want to thank the center for american progress for inviting me to join you in discussing climate change and the u. s. financial system. 1 let me start by noting these are my own views and do not necessarily reflect those of the federal reserve board or the federal open market committee. climate change and the transition to a sustainable economy have important implications for the financial system. the financial system can be a powerful enabler to help the private sector manage climate - related risks and invest in the transition. it is vitally important to strengthen the u. s. financial system to meet the challenge of climate change. meeting the challenge of climate change climate change is one of the major challenges of our time. 2 there is growing evidence that extreme weather events related to climate change are on the rise — droughts, wildfires, hurricanes, and heatwaves are all becoming more common. 3 climate - related events are already adversely affecting the lives of many americans. the economic and financial impacts are also increasingly evident : we are already seeing i am grateful to morgan lewis, beth kiser, carrie johnson, diana hancock, and nami mukasa, as well as norah barger, angelyque campbell, benjamin dennis, carol evans, joseph firschein, michael kiley, molly mahar, nancy riley, glenn rudebusch, john schindler, susan stawick, kevin stiroh, nicholas tabor, and aurite werman of the federal reserve for assistance in preparing this text. see intergovernmental panel on climate change, global warming of 1. 5°c. an ipcc special report on the impacts of global warming of 1. 5°c above pre - industrial levels and related global greenhouse gas emission pathways, in the context of strengthening the global response to the threat of climate change, sustainable development, and efforts to eradicate poverty ( geneva : intergovernmental panel on climate change ), https : / / www. ipcc. ch / sr15 /. see wmo task team, global warming and hurricanes : an overview of current research results ( princeton : geophysical fluid dynamics