of the eurosystem, we are actively engaged in this debate. banking regarding banking, threats to incumbents are coming from two broad categories : challenger banks and other business models. challenger banks are digital only offerings with a low cost base and, being free from the constraints of legacy infrastructure, they can more easily leverage the benefits of mobile technology and cloud computing. these firms promise to enhance customer experiences such as enabling easy account opening and servicing, and to adapt more quickly to changing consumer demand than incumbents. other business models include those arising from open banking, which offers the possibility of the creation of entirely new business models, leveraging banking data to offer new services, such as personal financial management and data aggregation platforms. these innovations in banking have highlighted some of the fees that banks have traditionally relied on as a key source of revenue and created the possibility that banks could lose their relationships with customers and end up providing ‘ back end ’ banking services. to keep apace, there is therefore a need for irish banks to substantially invest in their technology and data capabilities. many banks are still using outdated and fragmented it systems which do not yet provide the foundations to effectively manage the technology risks. we have also seen examples of start - ups developing ai based loan origination platforms for lenders to smes. these use open banking solutions to pull data from the company ’ s bank account, feeding the data through a rules based risk engine designed together with the institution. such platforms tell the credit institution the likelihood of the loan application meeting their own approval standards, thus promising to improve efficiency and customer experience. for firms who utilise technologies such as robo - advice, big data analytics, and ai interactions with consumers, there are opportunities for cost reductions and delivering of efficiencies and also the potential for cheaper products and accessibility for customers. however, there are also risks for consumers where ai is concerned. bias can creep into algorithms. ai systems are trained on data and if this data contains biased human decisions or if the data suffers from selection bias, then the ai output may be problematic. for example, joy buolamwini at mit working with timnit gebru found that facial analysis technologies had higher error rates for some ethnic groups and particularly for women within those groups, potentially due to unrepresentative training data ( buolamwini et al 2018 ). such risks have implications for how ai is used and the central bank is cognisant of these potential negative impacts on consumers

incumbent firms, the central bank considers these issues in a number of different ways, working from the top down through the lenses of strategy, governance, oversight, risk management, and so on ; and from the bottom up focusing on the management of the technology itself, and the broader topic of operational resilience. the central bank also aims to keep abreast of the emerging trends brought about by technological innovation so that we can identify, understand and manage the risks these changes present. while today i will speak about financial innovation, digital transformation and disruptive technology, it is important to stress that the rules and principles of regulation and supervision apply to all the firms we regulate, regardless of the technology they deploy. our focus rather, is to ensure that where innovation facilitates new and better solutions, it does so in a framework which does not prevent regulators from meeting their mandates and strategic responsibilities. the central bank ’ s approach to financial innovation the central bank is proactively seeking to understand and anticipate how innovation is changing financial services provision. we consider this from financial stability, monetary policy, payments system, prudential supervision, market conduct and consumer protection perspectives. we need to understand the threats to the sustainability of existing business models, how technology is driving change to them, the business models of potential new entrants and the wider implications for the financial services system and consumers of financial services and products. supervision of existing firms the central bank is responsible for the prudential and conduct regulation and supervision of regulated firms. our prudential supervisors seek, in part, to ensure that regulated firms have sustainable business models and that they are well run, appropriately governed, have effective risk management and control functions and effective cultures. in this way, we can increase the financial resilience of the system and individual firms, a fundamental aspect of protecting consumers. the central bank has significantly enhanced the intensity and intrusiveness of its supervision of it related risk across the financial services sector. identified issues are required to be resolved through risk mitigation programmes and we will continue to issue thematic findings from our work to highlight areas for improvement for all firms so that their foundations are sufficiently strong to effectively manage the technology risks. where necessary we have used our powers to sanction failures and required the use of third parties to help drive improvements. innovation hub2 the central bank of ireland launched its fintech and innovation engagement initiative in 2018. a key feature of this initiative is the central bank ’ s innovation hub, launched in