Spaces:
Running
Running
File size: 8,636 Bytes
c014fda |
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 170 171 172 173 174 175 176 177 178 179 180 181 182 183 |
# Pushing through undercurrents
### Technology’s impact on systemic risk: A look at banking
As more financial institutions embrace digital innovation, risks emerge that could threaten the stability of the
financial system. Some of these risks originate from a single sector. Either way, they could proliferate and become
systemic without appropriate management.
To understand what these technology-driven risks look like, the World Economic Forum (the Forum) and Deloitte
consulted over 100 financial services and technology experts in the development of a new report, Pushing
through undercurrents. This group shared more specific perspectives on the forces behind technology-driven
[systemic risk in the banking sector. Here’s a summary of what we learned. You can learn more in the full report](https://www.deloitte.com/global/en/Industries/financial-services/perspectives/pushing-through-undercurrents.html)
_[from the Forum, and the executive summary from Deloitte.](https://www.deloitte.com/global/en/Industries/financial-services/perspectives/pushing-through-undercurrents.html)_
|How can the industry mitigate it?|Col2|
|---|---|
|Goal Mitigation opportunities||
|Strong security for BaaS platforms and API connectivity Properly vetted BaaS partners Institutional knowledge transfer from banks to BaaS partners|• Use input validation protocols • Apply network segmentation and access control measures • Improve due diligence on BaaS providers • Help BaaS and other fintech providers get better at risk management and compliance|
## [Risk 1: Risk exposure from Banking as a Service offerings]
**What could go wrong?**
Banking as a service (BaaS) increasingly relies on application programming interfaces, introducing vulnerabilities
that can pose risks for banks. The risk is growing because:
**• Customers’ sensitive data and funds may be at risk from phishing and social engineering attacks**
**• Flawed APIs might provide a back door for hackers to penetrate banks’ systems**
**• Noncompliance with data privacy rules by BaaS providers might expose partner banks to reputational risks**
This risk could become systemic if, for example, a malicious actor launches a distributed denial-of-service attack on
a BaaS provider, keeping customers from accessing their accounts or making transactions.
**What sectoral and regional** **How can the industry mitigate it?**
**forces could amplify the risk?**
**Goal** **Mitigation opportunities**
**• A complex BaaS technology** Strong security for **• Use input validation protocols**
stack BaaS platforms and API
**• Apply network segmentation and**
connectivity
**• Limited redundancy measures** access control measures
**• A lack of input validation,**
enabling attackers to upload
malicious code into a bank’s Properly vetted BaaS **• Improve due diligence on BaaS**
systems through its APIs partners providers
Institutional knowledge **• Help BaaS and other fintech providers**
transfer from banks to BaaS get better at risk management and
partners compliance
**What sectoral and regional** **How can the industry mitigate it?**
**forces could amplify the risk?**
**Goal** **Mitigation opportunities**
-----
## ^
##### Risk 2: Inadequate stability mechanisms for stablecoin arrangements
|How can the industry mitigate it?|Col2|
|---|---|
|Goal Mitigation opportunities||
|Standardization and oversight of stablecoin arrangements Investor and customer protection Transparency of capital reserves|• Requirement for anti-money laundering and “know your customer” processes for stablecoin issuers • Offer insurance coverage for stablecoin tokens • Enforce responsible marketing rules and customer education • Periodically audit and stress-test stablecoin issuers’ reserve assets|
**What could go wrong?**
Stablecoins mimic fiat currencies but without the backing of a central bank, heightening the probability of a run.
The risk is growing because:
**• Governance and regulatory gaps could perpetuate illicit activities that might threaten the integrity of the broader**
financial system
**• The novel technologies used for minting and managing stablecoins are exposed to security risks**
**• The absence of a stability mechanism like deposit insurance increases the risk of a run**
This risk could become systemic if, for example, a significant stablecoin issuer fails to promptly honor large
customer withdrawal requests, touching off a run and eventually collapsing the stablecoin arrangement.
**What sectoral and regional** **How can the industry mitigate it?**
**forces could amplify the risk?**
**Goal** **Mitigation opportunities**
**• A less mature regulatory** Standardization and oversight **• Requirement for anti-money laundering**
environment of stablecoin arrangements and “know your customer” processes
for stablecoin issuers
**• Stringent capital controls, which**
may encourage individuals in
those jurisdictions to park their
assets in global stablecoins
Investor and customer **• Offer insurance coverage for stablecoin**
**• Unsecure systems and poorly** protection tokens
managed internal processes
**• Enforce responsible marketing rules**
and customer education
Transparency of capital **• Periodically audit and stress-test**
reserves stablecoin issuers’ reserve assets
**What sectoral and regional** **How can the industry mitigate it?**
**forces could amplify the risk?**
**Goal** **Mitigation opportunities**
_[To learn more about technology’s impact on systemic risk in banking, including examples, please see pages 60-70 of the full report.](https://www.deloitte.com/global/en/Industries/financial-services/perspectives/pushing-through-undercurrents.html?id=gx:2em:3int:4GC1000205:5awa:6fs:20230330:WEFDel)_
**What could go wrong?**
Stablecoins mimic fiat currencies but without the backing of a central bank, heightening the probability of a run.
The risk is growing because:
#### Contacts
**Neal Baumann**
Financial Services Industry leader
Deloitte Global
[[email protected]](mailto:nealbaumann%40deloitte.com?subject=)
**Rob Galaski**
Vice-Chair and Managing Partner
Deloitte Canada
[[email protected]](mailto:rgalaski%40deloitte.ca?subject=)
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (DTTL), its global network of member firms, and their related entities (collectively, the “Deloitte organization”). DTTL ( also referred to as
“Deloitte Global”) and each of its member firms and related entities are legally separate and independent entities, which cannot obligate or bind each other in respect of third parties. DTTL and each DTTL
[member firm and related entity is liable only for its own acts and omissions, and not those of each other. DTTL does not provide services to clients. Please see www.deloitte.com/about to learn more.](http://www.deloitte.com/about)
Deloitte provides industry-leading audit and assurance, tax and legal, consulting, financial advisory, and risk advisory services to nearly 90% of the Fortune Global 500® and thousands of private
companies. Our people deliver measurable and lasting results that help reinforce public trust in capital markets, enable clients to transform and thrive, and lead the way toward a stronger economy,
a more equitable society, and a sustainable world. Building on its 175-plus year history, Deloitte spans more than 150 countries and territories. Learn how Deloitte’s approximately 415,000 people
[worldwide make an impact that matters at www.deloitte.com.](http:// www.deloitte.com)
This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms or their related entities (collectively, the “Deloitte
organization”) is, by means of this communication, rendering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, you should
consult a qualified professional adviser. No representations, warranties or undertakings (express or implied) are given as to the accuracy or completeness of the information in this communication, and
none of DTTL, its member firms, related entities, employees or agents shall be liable or responsible for any loss or damage whatsoever arising directly or indirectly in connection with any person relying
on this communication. DTTL and each of its member firms, and their related entities, are legally separate and independent entities.
© 2023. For information, contact Deloitte Global.
-----
|