Supervising the New Normal: On-Site Supervision – Early Lessons and Challenges Ahead
Thursday, Dec 10, 2020

Supervising the New Normal: On-Site Supervision – Early Lessons and Challenges Ahead

Part of the New Normal series. This episode features:


Kuben Naidoo, Deputy Governor & CEO of the Prudential Authority, South African Reserve Bank

Maurene Simms, Deputy Governor, Financial Institutions, Supervisory Division, Bank of Jamaica

Moderated by Clive Briault, Chair, Banking Advisory Board, Toronto Centre

 

Read the full transcript:

Clive Briault:                   

Hello, everyone. Good morning, good afternoon, or good evening, depending on where you're located, and welcome very much to another episode of Toronto Center's virtual webinar series on supervision post COVID-19. We have today 352 registered attendees for this webinar from 52 countries all the way from Anguilla through to Zimbabwe. So thank you very much to those who've joined and welcome again. My name is Clive Briault and I'm the chair of Toronto Center's banking advisory board, and our distinguished panelists today are Maurene Simms, who is the deputy governor financial institutions in the supervisory division of the Bank of Jamaica, and Kuben Naidoo, the deputy governor and chief executive officer of the prudential authority within the South African Reserve Bank. You should already have received their bios by registering for this event. So welcome to Maureen and Kuben. It's great to have you with us today.

Maurene Simms:            

Thank you.

Clive Briault:                   

Managing through the pandemic and adjusting to the new normal has not been easy for financial supervisors, and as its contribution to this effort, Toronto Center published in late September a comprehensive, practical add cross-sectoral guide to supervision in the COVID-19 world with input from a wide range of supervisory authorities and standard setters. I do encourage you to read it. I will put up a link to it in the chat function in a few minutes. But today, we want to focus particularly on responses to the impact of COVID-19 on the use of on-site visits to supervise financial institutions. And obviously among the many impacts of COVID-19, it has made it more difficult, if not impossible, to undertake on-site supervisory visits.

In response to that, we've seen many workarounds and alternatives to substitute for on-site visits. Some of those are reasonably straightforward such as telephone calls and video conferencing as an alternative to physical face-to-face meetings. But it may be more difficult to find good alternatives to some other types of supervisory work typically undertaking during on-site visits. As discussed in the previous webinar in the series, the recording of which can be found on the Toronto Center website, the constraints on on-site visits have also been one factor in supervisory authorities accelerating their adoption of the use of technology and data analysis to assist with their supervision.

Now, we do intend today to leave time for questions and answers, so do please use the Q&A tab on your Zoom screen to submit your questions. The Q&A tab please rather than the chat function. Finally, I'd like to thank the key sponsors of Toronto Center, namely Global Affairs Canada, Swedish SIDA, the IMF, Jersey Overseas Aid, USAID, and Comic Relief, and finally also a word of thanks to Demet Çanakçı and Diana Bird of the Toronto Center who've worked so hard to bring you this quality webinar. So without further ado, let's start to hear from the panelists. The first questions that I'd like to ask them is just to check in on what they did as supervisors in terms of on-site visits before COVID-19. What distinction was drawn in their supervisory authorities between off-site and on-site supervisory activities? So Maurene, would like to go first on that one, please?

Maurene Simms:            

Oh, thank you. Thank you so very much. And I should say welcome to all the participants that are watching from all over the world. Well, in Jamaica, what did we do? Now, maybe I should start by saying that over the past four years or so, we have been ruling out our risk-based supervisor methodology. And that methodology somewhat removes that distinction between on-site and off-site supervision. Examiners are engaged in ongoing supervision with frequency and duration of the on-site examination being dependent on the stage of development of the risk profile of the institution. So for example, for entities currently being brought onto the methodology, on-site visits are more frequent and are more intensive, while for those entities where we have already established the methodology in terms of ruling out for them, visits are less frequent and are more targeted.

And that involves undertaking a series of assessments of significant activities undertaken during that examination to determine inherent risk, the effectiveness of risk management and mitigation at the line management level, and the quality of the oversight of capital and earnings and liquidity on the relevant risks. Fast-forward to COVID-19 and how that has impacted us. Firstly, the impact on the economy was the most significant and an urgent aspect for us because it increased the vulnerability of licensees of the banking system, given the fallout in the economy. So the kind of intensive monitoring that is now required during this pandemic forced us to have more frequent interaction with licensees from daily liquidity monitoring, more intense reports, discussions with boards of management and with boards and senior management.

But, to compound all of that, work from home mandates and how you pivot it around that particular requirement forced us to adopt new ways to do our examinations. We had to, for example, design very quickly tailored reporting forms, meetings with boards all took place virtually, and our discussions all had to happen virtually as well. If you're in a place like Jamaica where the internet system is not very reliable all the time, then you would need also determine how you communicated, the time you communicated, and whether or not you needed to use communication pods in that... whether or not you would need to have a couple of examiners in the same place to ensure that you had reliable connections in terms of supervising. But it forced us to be innovative in how we supervise.

That is how it changed for us. Lots of things happened virtually and continue to do so. If you look at my background for example, I'm working from home and I've been working from home for the most part since March or April when the work-from-home orders went into place. Right.

Clive Briault:                   

Okay. Thank you very much, Maureen. Kuben, over to you. The same question, what was on-site supervision looking like before you entered the COVID-19 pandemic?

Kuben Naidoo:               

Good morning, Clive and Maurene, and good morning to all the viewers of the webinar. Good afternoon, good evening, I guess, depending on where you are. I think our experience is not too different from Maurene's. Over the last four or five years, we've gradually reduced the number of on-site visits, on-site meetings. We rely more and more on data, we rely more and more on audit reports, internal audit, external audit reports. We rely more on the assurance functions that we have in place to interrogate the data and to have discussions with the banks. That doesn't mean to say that there was a reduction.... So there was certainly a reduction in the intensity of on-site visits. On-site visits used to feel like inspections five or 10 years ago, they much more meetings now.

So we still have many meetings with banks from a CEO prudential to a board prudential, ops risks, IT risk, credit risk, the teams would meet the banks, but much of the work is done beforehand. Much of the data analysis takes place from the office or from home today, but what I would call off-site effectively. And it's a discussion about key issues, it's a discussion about top of mind issues. So if we were having a particular meeting with a particular bank, we would say, "Look, you particularly exposed in the retail property sector, in the income-producing real estate sector. We a little bit worried about you on that regard. We've seen the data, we know what your plans are, but talk to us, give us a feel for how you see the picture."

And it's that eye-to-eye contact that that is useful in the meetings to get a sense of whether they see income-producing real estate as a big risk or not. So that's certainly the one case. I should state that the one area which is pretty... or was pretty unchanged for 10 years was AML/CFT supervision. In general, it was on-site, and in general it took on the format of sort of the security police walking into the building, putting everything on ice, and asking for the series of data reports and documents. I'm being facetious, but actually it wasn't much more modern than that. And we've had to adapt that dramatically. So since COVID, I'm working from home, I've not been to the office once since the 23rd of March.

All of our prudential meetings have taken place virtually, all of our CEO prudentials, board prudentials, detailed discussions with banks on credit risk score or market risk score, ops risk score, cyber issues, have all taken place remotely or virtually. It took us about two or three months to adapt the AML/CFT inspection process, the audit process, to be suitable for virtual remote working. But we got it right in the end. It's working pretty well now. So, Clive, that's a brief summary of how it used to be and what the picture is under COVID.

Clive Briault:                   

Okay, great. Thanks for that, Kuben. The next question I'd like to ask is, what have been the main challenges that have arisen as a result of these alternative and substitute approaches? And perhaps as part of that, we could pick up the first two questions that have come in from the participants today. So thank you very much to those who asked the questions. And two questions both of which I think relate to the challenges, the first is; regarding virtual on-site interviews, how would you ensure that only the relevant persons are present during the interview? The second question; how do you deal with the issue of trust? Which I'm assuming means that particularly if you're doing things virtually, you just need to be a little bit more trusting of the responses you receive.

It's a little bit more difficult to follow up and check. So do you feel you're having to trust your financial institutions a little bit more as a result of operating virtually? So one of the challenges, and within that, those two specific questions that have been posed by the participants. Maurene, do you want to take tat first?

Maurene Simms:            

Sure. The issue of trust, one of the things that we have done in our banking laws is to ensure that banks have a legal, mandatory, statutory, whichever you choose, obligation, to provide true and fair information to the supervisor. And it is an offense if they provide bad information. So over the years, we have developed that kind of trust in terms of prudential data that institutions provide us. Additionally, all our institutions are required to do external audits. And the external audit reports, those financials, are published. If there is any significant deviation from those financial information, with the information that is provided, prudentially, over time, if there is any significant or material difference in that information, they're required to republish and to state what those material changes or differences are.

So over time, we've developed a good relationship and a good trust in the type of information or the efficacy of the information that institutions give to us. We have years of tradition of prudential reporting. The challenge is, one of the big challenge is the type of prudential information traditionally collected and the type of information that we would need now, now that on-site is constrained to a great deal. How do you change or evolve that data to make it more relevant and to make it more effective for what you're doing? To the question of how you use technology, our IT department, they play a big role in all of this in ensuring that only persons who are invited to the meeting literally get onto the sites. They control that link and they do some amount of verification before getting into the meeting.

So for example, I couldn't just set up a virtual meeting on my own. I need to send it to the IT department or a specific person who will then arrange the meeting and send me a link. So there are controls built around that. Those challenges, we're working through and we get better at it every day. That's a good thing that practice does. So, yes, the type of information that we collect, we need to re-look. Clive spoke to how it took them a couple of months to rejigger how they did their email safety supervision. We're doing that for example. We are using data analytics firm, third-party firms, for example, to help us in our email safety supervision. And I can speak a little bit more about that later on, but that is how we have been treating some of the challenges that we are facing.

We will have to revise our suite of prudential information, we do also have to revise the kind of interface that we have and cut those data collection to make it more seamless and for the sharing of less structured data in a way that will facilitate analysis.

Clive Briault:                   

Okay. Thank you very much Maurene. Kuben, over to you, the challenges, and if you have an opportunity, the particular points raised in the questions from the participants.

Kuben Naidoo:               

Sure, thanks. Look, I would say that it differs quite dramatically between big institutions and small institutions, developed institutions and less developed institutions. So we supervise banks with a balance sheet of $100 billion, and we supervise banks with a balance sheet of a few tens of thousands of dollars on the other extreme. And you do have to have a differential approach. You cannot expect the same level of digitalization or sophistication from a co-operative bank or some mutual banks or corporate financial institution as you do with a big bank, and you've got to live with that. It took us a few months to be able to have virtual meetings with some of the smaller corporative banks in rural areas.

But actually, there was absolutely seamless transition to virtual meetings for the bigger banks, the ones that are based in the urban centers. It was extremely smooth and seamless. So that is something you've got to bear in mind. And I think in the crisis months of March, April, in South Africa certainly, you got to focus on the big systemic institutions, and in some ways ignore the rest, right? And it's about financial stability is top of mind, the liquidity requirements of the banks, the capital requirements of the banks. We moved to weekly reporting and then daily reporting at some point for many metrics including COVID infections per bank, et cetera, et cetera, branch openings, closings, all of those sorts of things.

You actually just have to, I guess, close your eyes and ignore the fact that you're not sure of the data that comes from the small institutions. By June, July, August, we were able to get a better handle on those institutions. We were able to verify a bit more of the data, we were able to, I guess, pay more attention to them. Maurene made a similar point at the beginning. In general, we trust the institutions we regulate, right? In general, we've got pretty mature relationships with the institutions we regulate. In general, they are honest with us. If there's a problem, they're the first to tell us. That's not always the case and there are things that slip through the cracks and there are banks that hide things, duck and dive, but in general, we've got a pretty mature, honest, open relationship.

The culture of supervision that we try to issue is one where we the fire marshall in the town, we're not the traffic policemen hiding behind the tree. All right? "Hey, you've been speeding." We're fire marshall in the town and the banks are the big buildings and the tenants in these buildings and it's in both of our interests that there be no fires. Our success is not measured by the number of fires we put out. In an ideal world, there should be no fires. So we can have a mature discussion with the bank about, "That fire escape is a bit rickety, it needs some paintwork, it may fall apart. We'd like you to spend some money fixing it." Most bankers will say, "Thank you for pointing that out. We're on it." Some bankers will say, "Well, I actually can't afford it. I'd like to cut corners with fixing it." And you've got varying degrees of supervisory instruments to deal with the institution in that regard.

But actually, in the vast majority of cases, it's an honest, mature, open, honest relationship. And so that, I guess, boils down to the issue of trust, but also I'm not sure if there's a person on the line that shouldn't be on the line. But I guess part of me feels, so what, right? I mean, these discussions are confidential, they sometimes deal with client-specific issues, but they're not secret to the point where they're market sensitive. If they were, we would use special technologies. So we use MS Teams for most of our discussions with the banks. If it's a highly confidential discussion, we'll use Cisco WebEx, and if it's even more confidential, and there have been one or two of those discussions, certainly within the central bank, we would use encrypted lines.

But for the vast majority of discussions, we've used MS Teams. You take the regular checks and balances to make sure that there isn't any untoward visitors on the line.

Clive Briault:                   

Okay. Thanks very much for that, Kuben. Perhaps I could stay with you, Kuben, and post you some questions we've been receiving from participants, specifically about first of all credit files in the institutions you supervise, and secondly, a point you mentioned in your first answer given about AML compliance. And I think all of those questions really boil down to; if it's not possible simply to access to those files digitally, if the banks don't have that systems, perhaps it goes back to your point about the smaller base, Kuben, what do you actually do? How do you handle that? So perhaps start with you, Kuben.

Kuben Naidoo:               

So for the larger institutions, they send data automatically to a database at the Reserve Bank. It's a highly automated process and supervisors can access the data remotely sitting at home. We also supervise insurance companies, and for the first five weeks, for very big data downloads, staff actually had to go into the office. But by week five, week six, we sorted that problem and they were able to access the data at home. And so in that sense, there's absolutely no difference between whether the analyst is getting the data at home or the analyst is getting the data at the office. It's all downloaded onto a central database- (silence) mailed XL file to [inaudible 00:24:17]-

Clive Briault:                   

Sorry, Kuben. We're losing you. Maurene, perhaps I could ask you to pick up on the same question. Sorry, you're on mute?

Maurene Simms:            

Okay. The experience in Jamaica is very similar to Kuben's. For those institutions who are digitized, we can access their files digitally. We have, for example, data sharing platform where we can share that kind of information that doesn't come through the prudential portal. For smaller banks that are not digitized, we're not able to see those credit files for example. But to the extent that they the credit adjudication process, that that is somewhat digitized, they can share the files and we can see the information via the data sharing platforms where we can look and see, revise, review that and analyze that information and give a feedback. For smaller institutions, it's a bit more challenging, and so now we have to rely more on their own processes and we pays a lot of attention to their reporting.

So we look to see the quality of assets to see how those indicators are moving and the trend in those indicators, and then have a conversation around that with the institutions. We also work a lot with the financial stability department, so we have a view of what is happening in the economy and what the prognosis of the economy is. And using that type of... that top-down stress to see how credible the information from the various institutions are bearing in mind their positions, their status at the point of COVID in terms of the evolution of their own balance sheets and the credibility of that, relying of course on their reporting. But we are constrained for those banks that are less digitized in the type of information that we can see.

Clive Briault:                   

Okay. Thanks for that. Welcome back, Kuben. Perhaps I could just move on and ask you a slightly different question, Kuben. If you just wanted to pick up on anything from the previous one, please do. But it's really a question of, given the lessons you've learned from the various ways in which you've substituted for on-site visits and as a result of your analysis of where that's gone well, where that's gone less well, which activities that you previously did on-site do you think you will do differently once the COVID-19 restrictions are lifted?

Kuben Naidoo:               

So I certainly hope that we do have more virtual meetings. It's just more practical, it's more efficient, I get to drive less and spend less time in traffic. But the same is true for sort of board members of a bank or in some cases executives. What I certainly miss is the face-to-face contact, the eye contact. In some cases, you're dealing with new-ish people that you don't know well, it's hard to develop a rapport. The, I guess, what would be called the water cooler chat before the meeting, the chit-chat over the biscuit tray, you don't get that. So yeah, I miss that. So I hope that the future is a blend, I hope the future is not entirely virtual, but I certainly hope not to go back to the old days where I spend a lot of time driving from one place to another or commuting from one place to another.

It's just extremely convenient. I mean, the other day I had a meeting with a major shareholder of a small bank, and at the last minute, that person had to go to Kenya for the day. There was no change in the arrangements, the meeting still continued. If we were not in the COVID world, the meeting would have been canceled or postponed or something like that. So yeah, I think there are certainly efficiencies that we have to have to mark.

Clive Briault:                   

Okay. Thanks for that. Maurene, same question for you. What are you going to keep and what do you get back to?

Maurene Simms:            

What am I going to keep? Definitely the meetings. You get better participation for the same reason Kuben just mentioned, especially at the board. Normally, you have a meeting with the board and you may have 50, 60% of the board. Now, there's no excuse for not having the entire board or the board subcommittees. Definitely those meetings will continue virtually. The networking though is a part that I think that cannot be replaced virtually. And there's a need for that kind of networking, especially among regulators. There's information that is shared among regulators in a conversation and that conversation can only be had if you have a relationship with that person. It's very difficult and challenging to build relationships virtually. So as Kuben said, a blend will still need to happen.

I definitely don't miss the commute. My days are much more productive, and the downside of that, longer hours, work time and personal time blend into each other. And so you find that you're working longer hours, but it's more manageable because then you're using that commute time in a much more productive way. Definitely don't miss the commute. And I think, again, a blend of what we do is going to be the new norm going forward. What do I keep? Certainly, especially on email safety supervision, the use of data analytics in that kind of supervision. I do not think I will be going back to the days where I am going in, as Kuben said, as a police and literally checking this, that.

I will now be more looking at your systems and I will now more rely on the reports coming from those systems and whether the efficacy of those reports is good based on the quality of those systems. So yes, there are a number of things that we will keep, will not go back to, but face-to-face contact, that kind of interface is not replaceable for the virtual format.

Kuben Naidoo:               

Clive, can I take the other question on the chat [crosstalk 00:32:15]?-

Clive Briault:                   

Yeah, of course. Yeah, please do. So this is a question about the psychological impact arising from working from home, just to explain to the participants [crosstalk 00:32:27] the question.

Kuben Naidoo:               

Yeah. COVID has had huge advantages and huge disadvantages. I mean, in the midst of March, April, I work, my wife works, and the kids were at home, and I had a real challenge to ensure that sort of my son wasn't watching videos on YouTube and actually doing his schooling. And I'm trying to manage a banking crisis or an economic crisis while at the same time trying to ensure that my son is not on YouTube and actually visiting his class online. And that's life. Right? I mean, that's life under COVID, it's incredibly challenging. There was another time when I was having what was an extremely difficult argument with somebody from a stock exchange and it was such a negative, difficult argument that I think it affected the whole family. Right?

And that would never happen at all at the office. I felt somebody was being dishonest with us and it was not a pleasant discussion. You got to deal with that. I live in a fairly nice house with fairly decent space, but some of our employees live in one bedroom apartments, sometimes there two or three people in the apartment, a husband and wife, and maybe one or two kids all working, trying to work online, it's incredibly tough. We have been pretty accommodative. A, we provided counseling services to our staff. Some have taken it up. We have given special permission for some staff to go in to the office under certain circumstances, because they just felt that their home environment was not conducive to working. But sort of gender violence has increased under COVID. We've had to worry about that if you employ hundreds of supervisors.

So those are the behind the scenes things that in some ways the real heroes of the central bank worry about and doesn't get much airtime, doesn't get much attention. But as a responsible employer, you have to have those systems. I mean, after a few months, I sort of sent for my chair. It's a small thing, but actually it's nice to sit in a comfortable chair if you're doing it eight, nine, 10 hours a day. So those things count, those things are part of the process.

Clive Briault:                   

Maurene, sorry you're on mute, I think.

Maurene Simms:            

Yes, I do agree. At the central bank, we do have a mix of work from home and persons who go into the office. So the staff compliment at the bank I think now it's about 55, 60%, working from the office while the rest work from home. We have put in place a work-from-home policy to ensure that those persons are working from home have the environment that will actually allow them to work from home. We've made counseling available to those employees who require that kind of counseling. But we do have a mix of persons who work from home and those who work at the bank. So in terms of social distancing, we say that we wouldn't want to have more than 60% of the staff being present at the bank on any one day. So we have a system of rotation, right? And those who have the facilities to work from home need to prove that they have the facilities to work from home to allow for that to happen. Yeah.

Clive Briault:                   

Okay. Thanks very much for that. Quite a lot of questions coming in on SupTech, the use of technology, data, data analytics by supervisors. So I think the broad question there is, particularly as a result of your experiences over the last nine months, as a result of the sort of things you've been talking about by way of alternatives and substitutes for on-site supervision, how do you want SupTech to develop in your institution? How are you going to make that happen? And two specific points there from the questions which you might cover if you can please. The first is, does this mean that you're actually cutting back on the number of supervisory staff? Is SupTech actually a means of making staff savings at a supervisory authority?

And secondly, perhaps coming back again to the smaller institutions, does SupTech and the introduction of it impose an undue cost burden on the smaller institutions who have to find a way of providing all of the data and information you want in that very particular form. So I think a couple of sub-questions under the SupTech banner. So, Maureen, do you want to go first on this one please?

Maurene Simms:            

Okay. Sure.

Clive Briault:                   

Thank you.

Maurene Simms:            

How have we been using SupTech for example? We have not been using SupTech on the prudential side, the traditional prudential side very much. What we have used it on is on the AML/CFT side. So for example, recently we used SupTech to test the transaction screening systems at institutions. The results of that was pretty enlightening for us, but not only us, when we shared the information with the boards themselves, some of them were taken aback, some of them were surprised, some of them were not. And we did it in a thematic study. So we needed to right across the system and the results were mixed. And for a couple of institutions, really immediately took steps even before they provided us with their action plan.

Their action plan actually set out what that already started doing to fix their systems. So I see a tremendous benefit there from SupTech in helping us to test those systems, the kind of skills that we would not have had in-house, to be able to do that in a robust way. So that for me was good. For small institutions, if you are relatively small, then manual systems may suffice, but once you go beyond a certain scale, then it is incumbent that you have systems that are commensurate with your size to be able to manage that particular risk. For the smaller community type-based institutions, for example credit unions that are member-based, most of them employee-based, where the risk itself is small or low, then you can understand not putting in place those kinds of systems.

But for large, diverse institutions, their customer base span the region for example, there's no excuse for not having those kinds of systems. And from a regulator perspective, us being able to afford the kind of skills to be able to do it at the level of efficiency of a SupTech firm, for example, a data analytics firm, would not be worth building within the supervisor authority. That being said, you still need to have a kind of experts who can analyze the results from those systems and those reports that you get from your outsourcer. But, yes, the use of technology is here to stay. I don't see any other way of doing that. We're also, again, doing another study, this time on transaction testing, how you onboard your customers, the kind of risk assessments that you do, and to allow you to categorize them in the kind of buckets that will allow you to assess risk on an ongoing basis.

That's coming again. That for me as well is better done through the use of technology rather than you just doing transaction testing randomly. The kind of results that you would get from that I think would give you more information for you to be able to meet more focused and more target supervisory response to the institutions. So in terms of that, technology is here to stay, but it must be a blend of human resources coupled with that technology for it to work efficiently I would say. As to replacing supervisors, I would say no. What I do see changing though is the kind of skillsets that our examiners will need in the future, right? So the skill sets that we usually employ for, that will also need to evolve as technology itself evolves.

And as institutions and their channels of delivery, as those continuing to evolve, the kind of supervisors, the kind of skills that we employ will also need to evolve. That's what I would say to that.

Clive Briault:                   

Okay. Thanks very much Maurene. So technology is here to stay and skillsets need to evolve. Kuben, is that how it looks to you?

Kuben Naidoo:               

I agree with most of what Maurene has said. Let me talk a little bit about the staff savings or whether we can make the staff redundant. There's some tasks that the supervisors don't like. Right? And I'll mention two. Supervisors don't like having to put graphs together, so you automate that, right? And you get technology to do that for people. They don't like writing letters, long letters, but actually it's harder to automate that. So our focus has been, let's try and reduce the time burden that supervisors spent on things they don't like in the hope that they'll spend more time on looking at risks or looking at the data and looking at trends in the institution or in the sector, working smarter rather than harder. It does not require fewer people, certainly not in our case.

We continuing to grow the number of people we employ slowly but steadily. We've not yet come across any technology so far that could make any of our people redundant. But SupTech is a journey. You could get the basics, data management is one of those basics, every piece of data on that database, who owns it, who owns the definition, whose responsibility is it for it to be accurate, if you don't get those things right, data analytics don't help. And I think we very much, on a journey from A to Z, we only at C or D in getting the data management right, in getting data ownership right, getting the taxonomy right, working with industry on data taxonomy, so that we can in the future use more advanced analytical tools. But we're not yet there.

Clive Briault:                   

Okay. Thanks for that. And I think still probably in some of the questions some nagging doubts perhaps about the extent to which what was previously done on site can easily be substituted for. So specific question about transaction monitoring, and perhaps more generally, if you want to take a walkthrough or take an overview of systems used by supervised firms, how easy is it to do that virtually rather than going on site and going through each of the steps and seeing how the system is dealing with it physically in the room? How can you do this without going on site? Is SupTech perhaps part of the answer for analyzing systems? Kuben, do you start on that one, please?

Kuben Naidoo:               

Look, if you absolutely have to visit an institution, you visit an institution. You take the necessary precautions, sort of wear face masks, keep one and a half, two meters away from people, make sure that there's good ventilation. If you absolutely have to visit institutions, you do it. We didn't do it in March, April, May, but we certainly have done it to a limited extent since then. It's not out of the question. If you absolutely have to do it, you do it. But I think the case for having to do it is decreasing. The more we are able to use technology and the more the institutions that we supervise can use technology, the less need for those visits. And yeah, I don't think there's a magic bullet about it. I think it's just trusting people in some cases, and where you absolutely have to, you go and physically visit.

Clive Briault:                   

Maurene?

Maurene Simms:            

Well, in terms of transaction monitoring, I would say that we're there already. If you just use your own personal life, if you use your credit card, within seconds, information comes back asking you if you did that particular transaction, that is data analytics. AI somewhere is monitoring your transaction, you're linking that card or whatever device you're using with that number, with a particular transaction, and feeding back. And actually, that is what systems do, it records each transaction a customer does. And that is ongoing monitoring over time, being able to look at trends in that customer's action, and detecting when an unusual trend or activity is happening, then you go and do your analysis to find out whether or not this unusual transaction is suspicious or not or whether or not you need to make a report.

That is how these systems work, being able to view all your customers, whatever they're doing, being able to do it on a real-time basis. Now, of course, if you were doing that manually, the amount of persons that you would have need to employ to do that would put you out of business pretty soon. So the use of technology is already there, is how then the regulator or the supervisor, how does the supervisor exploit that particular technology that you're using to monitor your transactions and to come back to see whether or not it is a reliable system, it is an efficient system, and the reports being produced are efficacious. That's the use of technology and how technology can help us.

Traditionally, you would go in and you would sample, and you would choose samples of transactions, customers, and you would go through one by one and look to see how they monitored that customer's transactions over time and whether or not they were reporting in the way they ought to have reported. I find that some of that can be very tedious and technology would really help the examiner there because then they can focus, as Kuben said, on looking at how the risk is managed and whether or not there are changes that would need to be made in the risk management system to make the system as a whole at that licensee more robust. Thank you.

Clive Briault:                   

Okay. Thank you. And then perhaps just one also be quick question relating to SupTech is, have either of you made any use of any blockchain type developments in your SupTech introduction? Maurene, any use of anything to do with blockchain?

Maurene Simms:            

Not yet, but the central bank right now, we are looking to introduce a central bank digital currency. I'm not sure the technology that they'll be using in that development, but in terms of digital currencies, I know that blockchain is usually the preferred mechanism to do that. But we're just in the very initial stages. We're exploring the various partners who would allow this to happen. But by this time next year if I were asked that question, I maybe would have been better able to answer. But in terms of the technology that we've been using, we have been using third-party technology. Whether or not their technology is sitting on blockchain, I wouldn't be able to answer that.

Clive Briault:                   

Okay. Kuben?

Kuben Naidoo:               

Same here. We've experimented with it in other parts of the central bank, but not yet in the prudential authority. There is one case use that we working on. Our law says that the register of institutions that we supervise has to be jointly held by ourselves, the market conduct regulator, and the treasury. (silence) or lines of business that they licensed for. The law says it has to be simultaneously out at three institutions, it sounds perfect for a blockchain. And so we were experimenting, trying to build the database on the blockchain, but we're not yet there.

Clive Briault:                   

Okay. Thanks for that. One different question, which I think takes us back to the sorts of things you were doing when you moved away from on-site supervision at the beginning of the COVID-19 pandemic. A question about the use of legal experts. I'm not quite sure what the question means, but to my mind, I suppose it could be one of two things, which is, number one, did you take any legal advice, specifically in the context of having to adjust to COVID-19? And I suppose the second interpretation of the question would be, once you started working differently, did you find that you made more or less use of legal experts? Which I suppose might mean was your general counsel included or excluded from invitations for various types of Zoom meetings? Maureen, anything on the use of legal experts?

Maurene Simms:            

That is one thing that has not changed for my [crosstalk 00:53:55] many, many moons ago. We always had a legal expert sitting in our supervisor meetings. We have legal experts that are assigned to supervision. We call them supervisors with legal degrees. But we never meet, for example, with a board or senior management or an external meeting without having legal counsel at that meeting. And that continues to be the same in terms of how we operate in this new normal. We always have that just as a routine part of our supervisor processes, legal advice as a routine. Yeah.

Clive Briault:                   

Okay. If a question was asked by a lawyer I'm sure she or he would be very pleased with that answer. Kuben?

Kuben Naidoo:               

My personal philosophy is, if you need your lawyer in the room for a discussion, then your trust basis is low to start off with. So, no, I mean, we certainly don't take lawyers or legal experts on most prudential meetings. We've got a legal team inside the prudential authority, fairly small, four or five people, that provide us with support ranging from policy and legislative drafting down to contracting and general legal support. The Reserve Bank itself has a fairly biggish legal support team of about 10, 12 people and then we've got a team of companies that we have a retainer with for external legal advice and opinion. Sometimes we work in quite litigious processes and you have to lawyer up. But I think in general, I wouldn't say we take our lawyers everywhere.

Clive Briault:                   

Okay. Thank you very much. I have a question which I think relates back to a point you were making, Maurene, about the introduction of SupTech and the implications of this for the skills and expertise of your supervisors. So perhaps start with you on this question, Maurene. What are you actually doing to raise those skills or recruit them? What does that training development recruitment look like in practice? Any quick hints you can give people as to how to make sure that works effectively?

Maurene Simms:            

Early days yet, and so that's why we're relying on third parties. But at the same time, we're looking for persons who have degrees in data analytics or data engineering, data engineers, those kind of persons, and then we're also looking for knowledge transfer as we use those third-party firms, the transfer of knowledge in building our team. So is identifying young supervisors or onboarding young supervisors with a particular training in data analysis, data engineering, and then training them to be supervisors and then getting knowledge transfer from the firms with whom we engage.

Clive Briault:                   

Okay. Thank you. Kuben? Same question.

Kuben Naidoo:               

Human resource development capacity building is an ongoing process, incredibly important. I like the fact that we have multidisciplinary teams, so in the prudential authority we hire everybody from engineers to lawyers, accountants, actually is legal experts. And I think if somebody is smart enough, interested in the area, and has taken the time to understand the foundational aspects, we'll hire them, actually what degree they have is less important. Of course, we do have to specifically build certain pipelines. We supervise insurance companies, so on the actuarial side, building the pipeline is a long process. We trying to get data analysts and data scientists, they're not easy to come by. It's a bit of a chicken and egg. If you have a team of four or five good data scientists and all the bells and whistles and toys, then it's easy to attract people, but if you don't have all of that, then it's hard to attract people. So how do you get there? We're not yet there.

So I think we are battling on the data analysts side. But part of that solution is to produce your own, right? I mean, to take people who are supervisors, who have an affinity for maths or for data, and to give them the toys to play with. So we invested in SAP a while ago, and some of the analysts have excelled in it. They're not what you would call a data scientist, but they can do almost any testing of a bank's model, a bank's credit model, they can use SAP to test those assumptions, et cetera.

Clive Briault:                   

Okay. Well, thank you very much for that. We started on time. I think it's only right and proper typically this Zoom age where we finish on time as well. So our hour is up. But let me say thank you first of all to our panelists, Kuben and Maurene, for your extremely interesting and informative answers to a very wide range of questions. Kuben fortunately told me at the outset that he regarded himself as a generalist and happy to answer almost anything. I think you've both proved that you're generous and more than happy and indeed competent to answer almost anything. So thank you very much for that and also thank you very much to all of the participants for listening in today and in particular to those of you who asked questions. I think we managed to answer almost every single one of the questions you put up. So thank you very much for those questions, I hope the answers were useful to you. So thank you very much for today's seminar. Thank you.

Maurene Simms:            

Thank you.

Kuben Naidoo:               

Thanks, Clive, thanks, Maurene. Cheers, everyone.

Maurene Simms:            

Thank you, Clive, thanks, Kuben, thanks to the Toronto Center for putting this on and thanks for you participants, and your questions. Have a great, great weekend.

Clive Briault:                   

Oh, well. No work or meetings. Okay. Thanks, everyone.