On 19 November 2018, the Bank of England (BoE) published a speech by James Proudman, (Executive Director, UK Deposit Takers Supervision) on the application of advanced analytics in prudential supervision.

In the speech, Mr Proudman explores the impact of AI and advanced analytics broadly on the safety and soundness of the firms supervised by the PRA, and how AI can be applied to the supervision of firms.

Key takeaways from the speech include:

  • the adoption of advanced analytics across the financial sector has been slow;
  • increased automation could improve the safety of firms. For example, most firms have been using a rules based approach to anti-money laundering monitoring. However, with the introduction of machine learning, more accurate results on fund flows are being produced;
  • the implementation of machine learning and AI may in the short term increase operational risk within firms, due to the complexity of the technology used;
  • the PRA is currently conducting a project to use advanced analytics to understand the complexity of the PRA Rulebook. The PRA hopes to use the results to identify ways to simplify its rules to make them easier to comply with; and
  • digital regulatory reporting (the automation of regulatory data collection) would allow regulators to collect data on an ad hoc basis from firms as required, in close to real time without any manual intervention at either end – saving time and money.