Supervisory technology – known as SupTech refers to the use of innovative technology by central banks and financial supervisory authorities to support their tasks in supervision and statistics.
According to the paper by the Financial Stability Institute of the Bank for International Settlements, the technologies used by regulators can be grouped into four distinct generations: The first and second SupTech generations offer only limited automation, and data from different sources is typically distributed across disjoined data silos, impeding gainful insights. The third and fourth SupTech generations are characterized by end-to-end automation and consolidation of data from different sources in a single ‘data lake’, facilitating access, analysis and informed decision-making.
The envisioned capabilities of the third and fourth SupTech generations are impossible without a modern software architecture. The software solutions used by regulators belonging to the first and second generations are typically of a classical, monolithic architecture. This leads to significant restrictions regarding scalability and elasticity. Here, scalability refers to a software solution’s capability to cope with increasing workloads by utilising more computational resources. Elasticity means its ability to allocate resources only when they are needed and to free them automatically afterwards.
Modular software architecture founded on containers – sometimes dubbed ‘microservice-driven’ architecture – allows software solutions to reach much higher degrees of horizontal scalability by spawning an additional, containerised processing instance for each submission or task received. As this upscaling is undertaken in a dynamic fashion and instances are terminated automatically after their task is completed, such software architecture intrinsically advances elasticity as well.
Increasing data volumes not only require a paradigm shift for solution architectures as a whole, but also for data storage in particular. Software solutions belonging to the first and second generations typically rely on classical relational databases for storing regulatory report data. For the third and fourth generations, data storage must shift to distributed, cloud-native storage formats, which are commonly referred to as second-generation big data technologies. Instead of residing in a single monolithic database, regulatory report data is spread out across a data lake filled with a multitude of small, individual files, allowing for tremendously increased performance of parallel data access.
Software solutions for regulators need to integrate with a diverse IT ecosystem. The monolithic architectures of software solutions belonging to the second generation have often significantly complicated such integration. To advance to the third and fourth SupTech generations, solutions must adopt a thoroughly API-driven approach to information exchange. By replacing tasks that require human interaction from graphical user interfaces as well as proprietary application-to-application interfaces with de facto standard API approaches integration is either streamlined or, in many cases, made possible in the first place. Furthermore, while solutions belonging to the first and second generations have often locked away their data in inaccessible databases or proprietary storage formats, software solutions belonging to the third and fourth generations should strive to make their data as accessible as possible to external solutions by employing standard technology. This can be achieved either via dedicated APIs or even via direct SQL queries to their data lakes. T
The envisioned capabilities of the third and fourth SupTech generations are impossible without a modern software architecture. We have been deeply influenced by the concept of SupTech generations in the development of our new generation of Abacus Regulator, a standard software solution for central banks and financial supervisory authorities for data collection, management, and supervisory workflows. Our new generation of Abacus Regulator is the first standard software solution of the third SupTech generation.