DESIGNING A DIGITAL TRANSFORMATION SUPERVISORY FRAMEWORKFOR BANKS UNDER SREP: THE ARMENIAN CASE

Digitalization in finance introduces strategic and operational risks that traditional supervisory tools do not fully capture. This study proposes a structured framework for supervising banks’ digital transformation (DT) within the risk-based Supervisory Review and Evaluation Process (SREP), tailored to Armenia. Using a qualitative approach, the research reviews international DT-supervision practices, compares Armenian banking regulations with the European Central Bank’s (ECB) 2024 digitalization assessment criteria, and aligns its recommendations with the Central Bank of Armenia’s (CBA) strategic objectives. The analysis identifies three principal gaps: (i) the international SREP methodlogical guidelines lack an explicit focus on digitalization-driven strategic risk, limiting the rigor of banks’ DT assessments; (ii) current regulatory reporting in Armenia does not include key “digital maturity” metrics; and (iii) some of the existing regulatory requirements require additional supervisory clarification in light of digitalization. To address these shortcomings, the paper recommends embedding DT assessment into the SREP’s business model assessment, revising regulatory reporting form N20 to include simple and comparable DT indicators (e.g., share of digital customers, volume of online transactions, and IT expenditure), and introducing a formal qualitative assessment of banks’ DT based on the ECB’s assessment criteria. Implementing this framework will reinforce the CBA’s supportive role in fostering technological innovation, by underlining DT’s importance for business model sustainability, and by ensuring sound managerial practices around banks’ DT initiatives. The study concludes by outlining three future research directions that could further refine and adapt the proposed DT supervisory framework to specific country contexts.