Challenge Faced by Regulator and Supervisor Authority
Nowadays, most people are familiar with new technology development of electronic banking systems. Its not only provide the basic services like fund transfer and bill payments, but also doing the advance including provide the loan and card application. Electronic banking can define as the use of electronic delivery channels for banking products and services. Electronic banking services generally offered in two ways either traditional bank that is combine traditional and electronic delivery channels or virtual bank that operate entirely through electronic banking channel without having a branch network. It makes the business operational more efficient, faster and easier than before. In addition, it also gives the opportunity by allowing banks to expand their markets and services and also reduce the operational costs. This new opportunity give much benefits but it also give the advantages when rise a various risk that need to realized by the bank management and the regulatory and supervisor authorities. They have to face a challenge including the authorizations, cross-border e-banking activities, money laundering, consumer education and protection and risk management to ensure the effective supervision in their operation either in home or host country where they doing their business.
The first challenge of bank supervisor is in giving the license and authorization to the virtual or traditional bank. Before giving the license or authorization, regulator or supervisor need to identify in what conditions of virtual or traditional bank proper to require a license. Virtual bank need to meet the requirement or regulations made by the supervisor in the home country to associate the risks might rise in running the business through electronic banking. For example in Box 1, Appendix a, that provide example of guidance for the authorization presence in Hong Kong SAR. Locally incorporated virtual banks must have a physical presence in Hong Kong, through the conversion of an existing locally incorporated authorized institution, which is at least have 50 percent owned by a well established bank or other supervised financial institution. Meanwhile, an overseas incorporated virtual bank that want to establish in Hong Kong branch form, they must come from the country that have established regulatory framework for electronic banking. II.RISK MANAGEMENT
After establish the business through electronic banking there will raise several risk to the bank, especially virtual bank that fully doing business through electronic banking, the risk is high. Bank supervisor must ensure the risk management process is easy to access, control and monitor and manage their risk efficiently in electronic banking. There a several risk may occur in electronic banking comprise of operational risk, reputational risk, legal risk and other risk that might happen. Operational risk arises from the changing in supervisor procedure used to ensure bank manage their risk in area of security, confidentially, system reliability or integrity and outsourcing. Its also arise because of the misuse by customer and this risk will influence the other risks. Security practices is the most important area in operational risk that combine the software and hardware tools, administrative procedures and personal management function to maintaining the secure system. Reputational risk is the risk where bank fails to deliver secure, accurate and timely on a consistent basis. Usually virtual bank have higher risk compare to the traditional bank. If one e-Bank got problems it will affect the other services providers because customers will think business through e-Bank not safe and will loose confidence because of inefficient in supervisor management. In addition, legal risk also arises from electronic banking. Virtual bank especially expand their business in the new geographical area but they lack of...
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