Digitalisation of banking creates new risks, says global watchdog

The skyline with the banking district is seen during sunset in Frankfurt, Germany, February 27, 2024. REUTERS/Kai Pfaffenbach/File Photo

LONDON (Reuters) - The digitalisation and entry of Big Tech into finance create new vulnerabilities and amplify existing risks in the banking system that may need new rules to mitigate, global banking regulators said in a report on Thursday.

The growth of cloud computing, whereby key banking services are aided by outside tech companies, the rise of AI, use of distributed ledger technology (DLT), and spread of open banking, or external fintechs sharing customer data with banks, create new risks, the Basel Committee of banking regulators said.

"These can include greater strategic and reputational risks, a larger scope of factors that could test banks’ operational risk and resilience, and potential system-wide risks due to increased interconnections," it said.

External operators used by banks create "new nodes of channels and interconnections" as they may not be subject to the same level of regulatory standards as lenders, the committee said in its report.

Regulators often compile reports to ascertain facts and scope out a sector to provide a foundation for any new rules.

"Where necessary, it will consider whether additional standards or guidance are needed to mitigate risks and vulnerabilities," the committee said.

The Basel Committee is made up of central bankers and banking regulators from the G20 economies and other countries, whose members commit to applying rules it approves.

(Reporting by Huw Jones; Editing by Alison Williams and Mark Potter)

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