Financial Crime World

Regulators and Self-Regulatory Bodies Must Work Together to Properly Regulate Financial Digitalization

Financial digitalization is transforming the industry at an unprecedented pace, and regulatory bodies must work closely with self-regulatory organizations to ensure effective oversight of firms and products.

Digital Governance: A Critical Element in Supervision

The Japanese Financial Services Agency (FSA) has highlighted the importance of “digital governance” in ensuring that financial institutions’ IT strategies align with their business models and mission. This requires a deep understanding of how digitalization can create shared value for users and society, while also addressing potential risks and vulnerabilities.

  • Key takeaways:
    • Digital governance is critical to ensure alignment between IT strategies and business models
    • Understanding the potential benefits and risks of digitalization is essential

Adapting to the Three Lines of Defense Model

The report also notes the need to adjust the conventional “three lines of defense” model in light of changing technological landscape. This includes strengthening internal controls, enhancing risk management practices, and improving communication between different levels of the organization.

  • Key takeaways:
    • The three lines of defense model needs to be adapted to address the changing technological landscape
    • Strengthening internal controls, enhancing risk management practices, and improving communication are essential

Developing SupTech to Stay Ahead of FinTech/RegTech

To stay ahead of the curve, regulatory bodies must develop their own IT capabilities for supervisory oversight, or “SupTech.” The FSA recognizes that this will require embedding the needs for SupTech into the development of FinTech and RegTech.

  • Key takeaways:
    • Regulatory bodies need to develop their own IT capabilities for supervisory oversight
    • Embedding the needs for SupTech into the development of FinTech and RegTech is essential

Human Resources: A Key Challenge for Supervisors

In addition to developing SupTech, regulatory bodies must also invest in human resources with expertise in areas such as blockchain, cybersecurity, and digitalization. This will enable them to effectively supervise financial institutions and respond to emerging risks.

  • Key takeaways:
    • Regulatory bodies need to invest in human resources with expertise in areas such as blockchain, cybersecurity, and digitalization
    • Effective supervision of financial institutions requires a deep understanding of digitalization

Customer Education: A Critical Component of Financial Digitalization

To maximize the benefits of financial digitalization, customer education is essential. This includes literacy about cyberattacks, sophisticated financial crime using digitalized tools, and other risks associated with digital transactions.

  • Key takeaways:
    • Customer education is critical to maximize the benefits of financial digitalization
    • Literacy about cyberattacks, financial crime, and other digital risks is essential

COVID-19 Accelerates DX and Presents New Challenges

The COVID-19 pandemic has accelerated the adoption of digital technologies in all aspects of life, including financial services. Regulatory bodies must adapt to this new normal and prioritize issues such as health, hygiene, safety, employment, education, and community solidarity when reviewing business models.

  • Key takeaways:
    • The COVID-19 pandemic has accelerated the adoption of digital technologies
    • Regulatory bodies need to adapt to the new normal and prioritize essential issues

Financial Sector’s Role in Overcoming the Pandemic

The financial sector has a critical role to play in supporting economies and overcoming the effects of COVID-19, including producing vaccines. Financial digitalization can also benefit users by providing new products and services that fit the new normal under pandemic conditions.

  • Key takeaways:
    • The financial sector has a critical role to play in supporting economies
    • Financial digitalization can provide new products and services that fit the new normal under pandemic conditions

In conclusion, regulatory bodies and self-regulatory organizations must work together to ensure effective supervision of firms and products in light of financial digitalization. This requires a deep understanding of digital governance, risk management practices, customer education, investment in human resources, and IT capabilities.