The European Central Bank is to undertake targeted reviews and on-site inspections at banks after uncovering a number of shortcomings in digital transformation strategies.
Last summer, the ECB conducted a survey among 105 large banks to assess the status of their digital transformation. The central bank says early results reveal some interesting trends falling across six policy areas.
The survey found that almost all European institutions have a digital transformation strategy, typically consuming a fifth of the IT budget, although the degree of maturity differs. Main objectives are becoming more customer-centric in how products and services are offered as a lever to increasing revenues and improving operational efficiency by automating processes and modernising IT infrastructures.
However, most of the banks still face challenges in developing Key Performance Indicators (KPIs) to monitor digital progress, quantify the impact of digital transformation on their profitability and track effectiveness of implementation. Keeping track of digital customers and sales also remains a challenge for many.
Having sufficient IT experience both in the board as well as the second and third lines of defence remains an attention point, with advances in new technologies such as cloud, APIs and artifical intelligence gaining greater relevance.
"As banks open up their IT infrastructures and increasingly rely on third party providers, they face heightened risks of third-party dependency, money laundering, fraud and cybersecurity," states the ECB. "These risks require further monitoring and must be taken into account in banks’ governance and risk appetite frameworks. These risks are also among the supervisory priorities of ECB Banking Supervision for 2023-2025."
Another survey conducted last year by tech vendor ITRS among 300 technology and IT executives across North America, Europe and Apac, found that many belive the rapid rate of digital transformation in the financial services industry is distorting the capability of their IT systems, raising serious concerns about ongoing operational resilience.
The ECB stresses that its aim is not to discourage digital transformation initiatives, acknowledging that it is "not just an option any longer for banks, but a necessity to remain competitive and continue meeting customers’ evolving demands".