Management and Supervision of Cross-Border Electronic Banking Activities

Note: This consultative document has been superseded by the final version of Management and Supervision of Cross-Border Electronic Banking Activities in July 2003.

Executive Summary

The purpose of this paper prepared by the Electronic Banking Group (EBG) of the Basel Committee on Banking Supervision is to further the Committee's dialogue with the banking industry and supervisory community on the risk management and supervision of cross-border e-banking.

This paper has two main areas of focus. The first is to identify banks' risk management responsibilities with respect to cross-border e-banking. This discussion supplements the Basel Committee's Risk Management Principles for Electronic Banking (May 2001) by stressing the need for banks to integrate cross-border e-banking risks into the bank's overall risk management framework. It contains refinements to the risk management principles concerning the responsibility of banks to conduct appropriate due diligence and risk assessment, provide adequate disclosures, and establish an adequate ongoing risk management oversight process prior to engaging in cross-border e-banking.

The second objective is to focus attention on the need for effective home country supervision of cross-border e-banking activities as well as continued international cooperation between banking supervisors regarding such activities This is essential to promote safe and sound cross-border e-banking without creating undue regulatory burden or impediments to banks' use of the Internet delivery channel to meet customer needs. Discussion on such an issue identifies the role and responsibilities of the home country banking supervisor and of local supervisors. Home country supervisors should satisfy themselves that their banks' due diligence, risk management, and disclosure policies and practices are adequate for the intended cross-border e-banking activities. Further, in the exercise of their supervisory responsibilities, local banking supervisors should consider the facts and circumstances of the cross-border e-banking activity with local residents and the effectiveness of home country supervision before making a determination as to whether they need to take action in the role of a local supervisor, and the nature of such actions.

The Committee recognizes that the EBG's work to promote enhanced management and supervision of e-banking activities deals with cross-border supervisory issues that are not unique to e-banking and need to be explored with other groups both within and outside the Committee. Specifically, the EBG has worked closely with the Committee's Cross-Border Banking Group to address cross-border e-banking supervisory issues. It will continue to do so as issues emerge, given the evolution of the Internet banking delivery channel, with the goal of ensuring a consistent supervisory approach to cross-border banking whether it is conducted through a physical distribution channel or over the Internet.

Comments on issues outlined in this paper would be welcome, and should be submitted to relevant national supervisory authorities and central banks and may also be sent to the Secretariat of the Basel Committee on Banking Supervision at the Bank for International Settlements, CH-4002 Basel, Switzerland, by 31 December 2002. Comments may be submitted via email: jean-philippe.svoronos@bis.org or by fax + 41 61 280 9100.