Elizabeth McCaul, a member of the ECB supervisory board, outlined in an article for Revue Banque on Monday 26 February the significant strides European banking supervision has made in integrating artificial intelligence to enhance the efficiency and effectiveness of supervisory processes. McCaul highlighted the unprecedented pace at which data are being generated in today’s digital era, stating that the challenge no longer lies in whether to utilise AI but in how to deploy it most effectively and responsibly.
The question is no longer about whether or not to use artificial intelligence, but rather about how it can be used most effectively and responsibly.
AI’s capabilities in analysing vast amounts of data, improving risk identification, supporting decision-making, and automating repetitive tasks can significantly bolster the work of banking supervisors, noted McCaul. However, she also cautioned about the risks associated with AI, which remain not fully understood.
Banks
Banks face a similar dilemma, according to McCaul. While AI can enhance customer experience, operational efficiency and risk management processes, it also presents several challenges, including data governance risks and emerging operational, model management and accountability risks. McCaul noted that banks are increasingly recognising the need to embrace AI to remain competitive while upholding their risk management responsibilities.
At an early stage we recognised the need to embrace digital innovation and AI to make European banking supervision more efficient and effective.
Banking supervision
McCaul advocated for a future-proof approach to understanding and using AI within the realm of banking supervision. She mentioned that the ECB banking supervision has leveraged AI to augment its internal supervisory capabilities and gain deeper insights into the risks faced by supervised banks as they deploy AI technologies. The wide-ranging risks affecting business models, governance frameworks, risk management processes and financial stability were emphasised as areas of focus for the ECB's supervisory efforts.
Case studies
An ambitious digital agenda was introduced to enhance the analytical capabilities of European banking supervision, recalled McCaul. This initiative has led to the development of 14 supervisory technology (suptech) applications and platforms over the past three years, serving more than 3,500 users across the ECB and national supervisors. These AI applications have enabled the querying of supervisory data, the use of chatbot functionalities for regulations, and the analysis of supervisory documents through textual and big data analytics, as well as network analysis to visualise complex ownership structures of supervised banks.
GenAI
McCaul also touched upon the role of generative AI in supporting the daily tasks of supervisors, with more than 40 potential use cases collected in 2023 alone. She cited examples of GenAI facilitating instant retrieval of answers to supervisory methodology questions and translating plain language queries into code for data point identification. This, McCaul argued, exemplifies how AI can simplify traditional technologies and make suptech more accessible.
Despite these advancements, McCaul maintained that human judgement and expertise remain indispensable to ensuring reliable outcomes. She underscored the importance of fostering a digital culture within the organisation, through regular training courses and annual conferences aimed at enhancing digital skills and promoting best practices among supervisors.
The full article is available .