BoU steps up pressure on banks to limit risks

Increased adoption of technology is transforming the global financial landscape, raising opportunities and challenges for both authorities and regulated institutions in countries.

Using technology in capturing, storing and analysing data in the fourth industrial revolution increases the risk of data misuse and privacy violations in the financial services sector. 

 One important area of innovation is the application of financial technology for regulatory and compliance requirements and reporting by regulated institutions and applications of FinTech used by authorities for regulatory, supervisory and oversight purposes.

Bank of Uganda (BoU) governor Emmanuel Tumusiime Mutebile during a virtual presentation at the annual bankers’ conference last week said, “An increasing reliance on technology solutions and third party service providers increases operational risks, including cyber-security and money laundering risks.” 

BoU has started reviewing regulations to mitigate technological risks in financial services as the 4th Industrial Revolution (4IR) is set to change the way banks do business.

“The other marginal risk with cloud computing is that open banking is round the corner. The concept that the customer owns the information and the customers’ information data which has a comparative advantage for the service provider now has to be permissioned in the sense that that customer can make that information available to any other service provider irrespecticve of the fact that the financial institution that holds that data was using that as a competititive advantage and the other person won’t have to pay a dollar or shilling for it,” Dr Tumubweine Twinemanzi, the executive director of Supervision Bank of Uganda said. 

Put up mitigation measures

As such, banks/ financial service providers in Uganda should identify the risks of technology and put effective measures in place to counteract the dangers that are being exacerbated with technology advancement in this era of industrial revolution.

 On the other hand, the authorities responsible for financial consumer protection (FCP) are increasingly facing the challenge of addressing these risks but often lack the technical expertise or tools to do so. 

 The 4th annual bankers conference took place last week under the theme: “Bend but Don’t Break: How Players in the Financial Services Sector can thrive in the Era of the 4th Industrial Revolution.”

 Dr Twinemanzi, one of the panelists at the bankers’ conference, said Bank of Uganda is adjusting its regulatory role to mitigate risks that come with technology.   

“The technology always runs much faster and is ahead of the regulation and supervision. The fourth industrial revolution will outpace the rate of regulation and supervision. It is inevitable to be one step behind but not being very far,” he said.

 Technology and innovation are transforming the global and national financial landscape. But it also presents opportunities, risks and challenges for regulated institutions and authorities.

 Dr Tumubweine said banks and the financial institutions should identify the risks and ensure effectiveness of their system to minimise the negative impact and put in place risk mitigation measures.

 Technology is transforming the global financial landscape, raising opportunities and challenges for both authorities and regulated institutions.

 Some of the risks for financial services in technology include: strategic risks of IT, Cyber security and incident response risk, IT resiliency and continuity risk, Technology vendor and third-party risk, data management risk, IT programme execution risk and technology operation risk. 

 Dr Tumubweine augured that banks should be prepared and positioned to identify emerging trends to deal with any risks that may occur.

 iAs the fourth industrial revolution unfolds with technological advancements, Dr Tumubweine said some risks will never go away. So, banks should have the technologies that can minimise the impact of the risk posed by technology usage in financial services.

 The fourth industrial revolution is coming in at a time when achieving total financial inclusion for the citizens is still a challenge to many government and policy makers especially the less developing countries.

Financial inclusion

 Financial inclusion is a priority in many economies and, increasingly, at the global level and several countries have implemented or are in the process of implementing financial inclusion policies. 

 Financial inclusion is an international policy priority and demand-side initiative including financial education have an important role to play in helping individuals to access and use appropriate, formal financial products.

 The chief executive officer of Stanbic Bank Uganda, Ms Anne Juuko, said the fourth industrial revolution is going to change everything for banks intermediaries’ role.

 Ms Juuko said: “The fourth industrial revolution is the surest way for realising financial inclusion in Uganda.”  

 Big data compilation is one of the key elements that entail financial services in the era of the fourth industrial revolution. Financial access to data are usually collected from either financial services providers (FSPs) or users.

 When customer data is properly organised and interpreted, business leaders can leverage that information to improve customer engagement through personalised outreach. 

Ms Juuko said the availability of big data is very important for the banks in the provision of financial services to the general public.

However,  Ms Juuko highlighted that emerging technologies are coming with high costs for the intermediaries to fully provide the digitalised financial services.

 Ms Juuko said there is still a problem of high costs in administering technologies in financial services which the regulator must look into.

Financial education is increasingly important, and not just for investors. It is becoming essential for the average family trying to decide how to balance its budget, buy a home, fund the children’s education and ensure an income when the parents retire.

As the fintech is increasingly recognised as a key enabler for financial and competitive financial markets while expanding access to traditionally underserved consumers.

 The board chair of the Financial Technologies Service Providers Association (FITSPA), Mr Peter Kawumi said there is need for collaboration between the fintech companies and banks in providing financial services.

Mr Kawumi said Uganda lacks skilled people in technology services and there is need to develop these skills.

 The Mastercard East Africa country manager, Mr Ali Shehryar said technology has caused a departure of the traditional ways of banking services around the world.