One of the things that I strongly encourage for all countries is a review of implementation of the Basel Committee’s Core Principles for Effective Banking Supervision. These principles are key to laying a successful supervisory foundation. Likewise, sound accounting and provisioning standards are critical to ensuring that the capital ratios, however calculated, meaningfully reflect the bank’s ability to absorb losses. This brings me to the second stage. Supervisors do not need to wait for the formal adoption of Basel II to start introducing or using the principles of the three pillars. On the contrary, incorporating these principles is excellent preparation for adopting Basel II in the future. For example, supervisors might choose to move towards a more risk-based approach to supervision, developing skills in assessing the quality of a bank’s risk management and its ability to assess risk exposures. At the same time, banks could be reminded of their responsibility to develop their own processes for evaluating their capital needs and a strategy for maintaining their capital levels, consistent with the principles of Pillar 2. With regard to the principles of market discipline in Pillar 3, supervisors may wish to focus initially on ensuring a baseline level of disclosures across all banks. This might include discussing with banks, investors, and other users of financial information their information needs and the tools available so that supervisors can tailor requirements accordingly. In my view, these two preliminary stages provide an excellent preparation for the “final” stage of moving to Basel II.
In the case of banks, it is important that they rethink their sources of income: one response could be to diversify the range of services – both proprietary and via partnerships – that they offer to customers, and possibly change existing pricing policies, with fewer flat-rate prices and more pricing by use. The digital transition will also involve preparing for shifts in jobs and in skills, through dialogue with social partners. It will also require adopting an open approach, with the creation of partnerships with FinTechs and the scientific community. Finally, it will call for major IT investment to provide services that are increasingly aligned with customer needs, to reduce structural costs and improve regulatory compliance. IT systems will need to be – and this is the crux of the challenge – more secure so that they provide strong protection against cyber-risks, but at the same time more flexible and open to interconnectivity. In the case of insurers, the digital revolution is also starting with a complete overhaul of customer relationships and user habits. But it goes further than that. I’d just like to underline two topics that I think are essential. First, with the help of reinsurers, insurers need to be capable of meeting demand for coverage against cyber-risk, a concern that affects all companies – both small and large.