European Central Bank Report on Bank Digitalization Assessment Criteria

The European Central Bank has published a report defining bank digitalization assessment criteria and collection of sound practices. Understanding bank digitalisation and the management of related risks is a key priority of the ECB and the criteria are intended to assess how banks shape, steer and implement their digitalisation strategies, focusing closely on risk identification and mitigation. The criteria and sound practices are grouped into three areas: (i) business model; (ii) governance; and (iii) risk management.

The report also outlines the sound practices the ECB has observed in the digital context. The ECB found that banks demonstrating sound practices assess both the opportunities and risks related to their digital strategy, based on a granular assessment of their business environment. The most advanced digital strategies are those embedded in business or IT strategies, translated into digital initiatives driven by business use cases and technological developments which are then consistently evaluated for efficacy during the execution phase. While most banks have adopted digital solutions to transform their back and front office operations, many have not defined sufficiently granular KPIs, including those assessing the impact of their digital strategies on profit and loss. This means they cannot determine the effectiveness of their strategies and whether they have met their objectives. The ECB states that it will expand the focus of its supervisory work to include reviewing the use of specific technologies more broadly, including the deployment of artificial intelligence and related business use cases.

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