Creating a leading central bank

Central banks and financial supervisors play an important role in creating appropriate prudential regulation, policies and rules to enable an orderly transition to a green financial system. At the same time, they should take action to green their own assets and infrastructure to ensure that they themselves are positive contributors in the drive to net zero.

As guardians of the monetary system, central banks are keenly aware of the risk and impact of a cyberattack. An attack on a large bank or asset manager could destabilise the entire system. A successful attack on the financial market infrastructure or on the central bank itself could destabilise the entire country. Central banks should focus on integrating cyber resilience within decision-making processes across all business units, supported by a well-defined risk management process.

Central banks can no longer afford to stand on the side lines as private digital currencies parallel financial circuits around the world. Central banks need to move quickly and recognise that a central bank digital currency (CBDC) should be part of the solution. 

The market has changed, and central banks need to transform to stay relevant. Transforming a central bank is a monumental task. Operational transformation can be difficult for any organisation, but for central banks the challenges are often much more complex, unique and nuanced.

The IFRS accounting standards were not created with central banks in mind. Yet central banks still need to account for their financial positions. They are responsible for massive amounts of public funds, play a significant role in the economy and oversee the stability of the financial system.

The impact on human resources (HR) and talent functions has been significant. The rapid digitisation experienced through the pandemic created entirely new ways of working. For central banks, the challenges are perhaps even greater. The pool of experienced central bank employees is fairly small, particularly when one delves into the niche job descriptions related to monetary policy or regulation. Central banks tend to experience a lower turnover rate and hold great appeal to employees driven by a greater purpose.

The SupTech market is booming. And the different types of technologies now available to supervisory authorities have grown exponentially in the past few years. Banking supervisors know they need to change; the banks they oversee are going digital and are playing in new channels, new tools and new products. That means a greater need for oversight and, as a result, more data and reporting.

Central banks want to play in digital currencies. They want to share real-time data with their stakeholders. They want to innovate and automate their processes. And they want their people to focus on more strategic, value-adding activities. They know none of that is possible on old mainframes or in private clouds.

Central banks are hugely complex and massively diversified organisations. Depending on their mandate, they may be responsible for bank notes and currency, banking supervision, financial stability or even the collection of statistics. They require all the usual back-office functionality found at any commercial bank or in government departments. And internal audit's job is to provide independent assurance over it all.

Central bank fraud events can be big, public and messy. Central banks should have a high level of confidence in compliance with the seven elements outlined in the Committee on Payments and Market Infrastructures (CPMI) strategy. Those not in compliance don’t just run the risk of failing an audit by the Bank for International Settlements (BIS), they also are at higher risk of experiencing a fraudulent event.