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The current regulatory framework outlines a broad range of requirements and expectations that apply to banking activities more generally, including technological innovation. It is also important to recognize the significant, ongoing progress made by the banking sector following the financial crisis — banks are now safer and sounder, the financial system is more stable and consumers are better protected. Moreover, policymakers and regulators continue to actively monitor developments within the banking sector so that emerging, potential risks are appropriately addressed.

To maintain the progress achieved to date, policymakers and regulators need to confirm that key players within the broader financial services ecosystem operate in a safe and sound fashion and comply with consumer protection, AML/KYC and other applicable requirements — particularly if they engage in bank-like activities (e.g., payments, lending). Additionally, as new technologies continue to emerge and mature, further clarifications to the existing regulatory framework may be warranted to enable implementation of more nascent innovations in a timely, safe and efficient manner.

Further, policymakers, regulators and industry should expand their outreach and enhance coordination with one another both domestically and internationally, not only to keep abreast of technological developments, but also to provide industry with a clear
and consistent message concerning requirements and expectations. This will provide industry with the additional clarity and confidence needed to move forward
on investments in emerging — and potentially much more transformative
and beneficial — technologies that are consistent with regulatory objectives.

Technological innovations driving change

Banks are undergoing a fundamental transformation resulting from a range of technological innovations. Six technologies are currently most prominent in financial innovation: cloud computing, big data and analytics, artificial intelligence (AI)/machine learning (ML), robotic process automation (RPA), distributed ledger technology (DLT) and the Internet of Things. These technologies are at different stages of maturity, and some have the potential to significantly change the industry in the coming years.