Modern technologies are dramatically changing the world of finance. And the coronavirus pandemic has accelerated digital transformation. It’s a good thing that Germany’s banking supervisory authorities are also setting the course towards a digital future: BaFin and the Bundesbank have now defined their strategic objectives in a joint digital agenda – a comprehensive digital upgrade for banking supervision.

Our mission is to be one of the players at the forefront of digitalisation. Our objective is not only to supervise or regulate the digital transformation of banks but to unlock the potential of digital technologies as far as possible for us, too. This will allow supervisors to respond to new trends in an even more effective and flexible way, which, in turn, will not only help enhance the stability of the banking sector but also provide operational relief for institutions.

What is banking supervision based on? It essentially involves gathering, examining and analysing data and information, which is mostly done by financial supervisors – i.e. humans. But over the last few years, the amount of data has continued to grow and the pace at which data is generated has quickened as a result of increasingly interconnected financial markets. We are responding to this in three innovation areas:

• Firstly, we will seek to obtain and process data more rapidly and more easily. The current banking supervisory reporting system is elaborate and highly complex for both banks and financial supervisors. And it is still significantly tied to the rigid structure of reporting forms. All too often, we need to request further information on an ad hoc basis – with supervisors having to call or write an e-mail to the bank in question. We want to establish more flexible digital channels in future. Instead of requesting information to be reported by a specific deadline as part of an inflexible procedure, supervisors should be able to obtain the information they need from the institutions directly if and where required. Ideally, supervisors would be able to gather more up-to-date and tailored information without overburdening the banks. The important thing is to establish a modern and practical reporting system that adds value, too.
• Secondly, we will improve the quality of our analyses. The objective is to allow financial supervisors to easily access, link and analyse all of the available data and information regarding a bank. Ideally, this would not only involve the data that must be reported to us but also information from the media, analysts and other sources. Our goal is to rapidly evaluate large amounts of data and, for instance, use artificial intelligence to find ways to alert supervisors – with analytical tools that are based on advanced analytics methods, machine learning and text mining, to name a few examples.
• Thirdly, we will optimise our internal processes – also between the Bundesbank and BaFin. The plan is to make all relevant information in the area of banking supervision available on a common desktop, similar to a dashboard. This will ensure that BaFin and the Bundesbank can see the same data and information at any given time. On this basis, we can improve the way we jointly process cases, which supervised institutions will benefit from as well.

The digital agenda makes the following clear: we are joining forces to play an active role in shaping this digital transition and to build expertise. We are doing this in an ongoing exchange with banks, digitalisation initiatives, the research community and, of course, our European partners in the field of banking supervision.

But there is one element that remains indispensable, both now and in the future: humans. Supervisors will continue to be the ones who assess information and ultimately reach decisions. Even the best algorithm cannot replace human judgement. Nevertheless, the digital agenda will certainly help supervisors reach decisions on the best possible informational basis.