Financial institutions need controls that keep pace with growth as technology speeds up services without removing underlying risks, a speech published by the Bank for International Settlements said.
Faster lending and simpler customer checks can weaken safeguards if institutions remove steps without understanding their purpose. The BIS published “Growth with responsibility - the next balance sheet” on Oct. 26 in its central bankers’ speeches series.
The speech assessed how financial institutions should manage growth, customer trust and their ability to withstand disruption as services become more digital and interconnected. It offered a supervisory argument, without presenting a research dataset or a defined study period.
Independent checks, separate staff preparing and approving transactions, and waiting periods can reduce errors and fraud. Replacing those checks with algorithms changes how institutions must control risk rather than making the risk disappear.
The same responsibility applies when institutions use outside companies to find borrowers, distribute products or support decisions with models. Institutions retain responsibility for activities carried out under their licences, even when contractors perform the work.
India’s financial system has improved asset quality and comfortable capital positions. Institutions must preserve those strengths while expanding services and adopting technology that can lower costs and reach customers previously difficult to serve.
Trust can deteriorate even while business volumes rise if sales incentives put completing transactions ahead of meeting customer needs. Obtaining consent to use customer data is insufficient if its use falls outside customers’ reasonable expectations.
Customer complaints can help institutions identify problems in product design, sales incentives, digital services and outside providers. Fraud can also damage confidence across the financial system because customers may not distinguish between the institutions involved.
The speech cited $42 billion in deposits moving in a single day during the 2023 U.S. banking stress as an example of technology compressing response times. It did not identify the institution involved in that example.
Capital, liquidity and money set aside for losses remain fundamental protections. Institutions also need to measure how quickly they detect trouble, assess its implications, make decisions and restore essential services.
The time bad news takes to reach decision-makers offers one measure of governance. Giving risk, compliance and audit staff sufficient authority, encouraging them to raise concerns and ensuring boards seek emerging problems can help institutions respond sooner.
Growth should therefore be judged by the controls behind it, treatment of customers and ability to sustain trust, alongside its pace and scale.
