ESRB: IT may play an important role in managing regulatory complexity

The Advisory Scientific Committee of the European Systemic Risk Board published a report discussing how excessive regulatory complexity can contribute to systemic risk and possible ways to address the issue, in view of the existing significant complexity and uncertainty in the financial system.

One of the observations was that developments in information technology (IT) may play an important role in managing regulatory complexity. IT expands human capacity to manage complexity and can also contribute to dealing with regulatory complexity at a low cost. Indeed, IT makes it possible to manage complex data and complex rules in ways and at speeds that would have been impossible a few decades ago. For example, calculating the capital requirements of a large bank would take many workers many days without the help of computers.

In this sense, any discussion of the increase in regulatory complexity in recent years must also take into consideration that the costs of some aspects of regulatory complexity — such as the execution of massive routine calculations on a regular basis — have been significantly reduced. Further developments in areas such as big data, artificial intelligence and machine learning are opening up scope to accommodate apparently complex data and tasks into user-friendly, low-cost management and regulatory systems.

Read the full report

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