Electronic Banking Group Initiatives and White Papers

Introduction

This discussion note explores the cross-border supervisory issues and challenges related to electronic banking (e-banking) activities and points out the need for international co-operation among supervisors to address these issues. It concludes by identifying four action items, which the Electronic Banking Group (EBG) believes will promote international co-operation and exchange of information among supervisors regarding e-banking risks and supervisory issues.

Background

The Basel Committee has issued a number of papers addressing sound supervisory practices for "home" and "host" country banking supervisors including guidance on effective cross-border communication and coordination. These papers serve as a basic reference for bank supervisory and other financial market authorities in all countries. They establish several key cross-border principles pertaining to (i) global consolidated supervision; (ii) contact and information exchange with host country supervisory authorities; (iii) and supervision of local operations of foreign banks.

The Basel Committee guidance has provided comfort to host-country supervisors that cross-border branches and subsidiaries licensed and supervised within their borders are capably supervised by the parent bank's home-country supervisor. However, many cross-border issues arise from the rapid expansion of e-banking activities that were not contemplated when the Basel Committee's existing guidance was developed.

E-banking is based on technology that by its very nature is designed to expand the "virtual" geographic reach of banks and customers without necessarily requiring a similar "physical" expansion. Such market expansion can extend beyond national borders, which significantly increases cross-border cooperation challenges for bank supervisors due to:

(i) The potential ease and speed with which banks located anywhere in the world can conduct activities with customers over interconnected electronic networks into countries where a bank is not licensed or supervised.

(ii) The potential ability of a bank or non-bank to use the Internet to cross borders and to seamlessly link banking activities that have typically been subject to supervision with non-banking activities that might be unsupervised by any financial market authority.

(iii) The practical difficulties faced by national authorities wishing to monitor or control local access to e-banking sites originating in other jurisdictions without the cooperation of home country authorities.

Adapting Basel Committee guidance as necessary to address e-banking issues is therefore a principal goal of the EBG.