As the threat of recession looms over the UK economy, many organisations are facing the challenge of how to remain profitable at a time where austerity is striking many of their key customers and revenue streams.
With UK GDP growth averaging between 2.8% - 3.8%, lower than previously predicted, Financial Services organisations, particularly Banks are set to suffer. Price hikes for products and energy are hitting consumers at the same time as an increasing wage deficit. Households are now looking for ways to reduce their outgoings.
Online banks and financial organisations, aligning with changes in client behaviour, are providing more options for accessing and spending money, increasing competition for market share. Organisations across the financial services and insurance sector are having to adapt to the cashless and paperless mentality and digitise their services to remain relevant.
This behaviour change offers an opportunity for financial organisations to offset some of the financial risk of today’s economy, by closing physical premises, reducing paper costs and reducing servicing contracts for the maintenance and upkeep of legacy interfaces. However, these are short-term revenue boosters and additional efficiencies will have to be found.
Banking, Financial Services and Insurance organisations must play their part in global efforts to address climate change, halt biodiversity loss and to respond to other social and environmental challenges. In 2021, the UK committed to reduce its greenhouse gas emissions to net zero by 2050. As part of this promise, the government has a target to cut emissions by 78% by 2035. To achieve these goals an immediate, rapid and large-scale reduction in greenhouse gas emissions is needed. A transition that cannot take place without a significant shift of investment into sustainable projects and green technology. The financial system is therefore critical to achieving net zero and protecting the UK’s natural environment.
With many financial products now being marketed as supporting climate or environmental objectives, the risk of ‘greenwashing’ has heightened, with consumers calling for a definition of what economic activities count as environmental sustainability. The lack of clear definition makes it difficult for companies, investors and consumers to clearly understand the environmental impact of their decisions. The risk this poses is limiting the flow of capital into sustainable investments and could slow the UK’s progress to tackling climate change. To address this, the government is implementing the UK Green Taxonomy. This will clearly set out the criteria which specific economic activities must meet to be considered environmentally sustainable and therefore 'Taxonomy-aligned'.
This requirement to provide Environmental, Social and Governance (ESG) data by Banking, Financial Services and Insurance companies for their products and services will cause them to increasingly rely on providers of ESG-related services, including ratings, data and verification. The associated expense of these providers will increase pressures on financial services organisations profitability.
The benefits of hybrid working becoming the ‘norm’ across the Banking, Financial Service and Insurance sector, are countered by the increased risk this is exposing organisations and their sensitive client information to. Many traditional organisations suffer from legacy infrastructure and technical debt, which is challenging their ability to address security vulnerabilities without significant investment and transformation. To secure their IP and proprietary data, as well as protect against significant breach fines organisations must invest in advanced cyber security solutions to ensure operational resilience.
As financial organisations begin to invest more into deploying technological innovations for digitisation and hybrid working, this change in threat landscape will drive regulators to expand the perimeter of current regulations to ensure new types of product, service or firm do not slip through the regulatory net. As new regulations emerge in line with technological innovations, financial services organisations will have to continually adapt to an evolving and fragmented regulatory framework.
In an attempt to adapt, many organisations have ended up with a labyrinth of compliance processes, leading to higher cost and poorer customer experience. But the emerging field of Regulatory Technology (RegTech), a subset of FinTech, allows providers to streamline their regulatory compliance solutions and rapidly assure transparent compliance to customers and authorities alike. RegTech promises to provide enterprise oversight, map the regulatory regime into business operations, and ensure an institution is meeting compliance obligations, whether its policies are distributed across jurisdictions and lines of business, and whether compliance processes are being executed effectively.
The government’s 2022 National Cyber Strategy sets out how the UK will solidify its position as a force in the cyber space. The strategy calls on all parts of society to play their part in building a cyber resilient economy. This includes the prioritisation of cyber security across sectors including the financial sector and highlights the need for capability building and more diversity in the workforce. The survey has led to the development and operationalisation of the Financial Sector Cyber Collaboration Centre (FSCCC) who work closely with the National Cyber Security Centre (NCSC) to identify and discuss vulnerabilities and strategies in the face of potentially serious, systemic cyber incidents. The FSCCC is formed by senior leaders from financial organisations across the country and is a true collaboration developed to identify, investigate and coordinate the response to incidents that have potential consequences for the financial sector, to better protect organisations and UK citizens.
The way organisations are working has changed dramatically following the global pandemic, companies that have been historically office based are being forced to adapt if they wish to remain profitable. Though a growing ideal over the last decade, flexible working was still very much a new construct until the pandemic pushed organisations to adopt flexible or hybrid working practices. Adopting a modern workplace has allowed employees to work with more freedom, from any location and still receive the same collaborative and supported experience they previously had in the office environment.
Although trying to accelerate their business transformation to a modern workplace, many financial services organisations are struggling to reach their full digital potential. This is because they are having to balance the need to digitally transform with new innovations whilst supporting their legacy IT environments and continuing to serve their clients throughout.
The pandemic has served to emphasise the need for these organisations to transform quickly. Continually adapting to maintain operations, while re-evaluating their organisation, can help them build a sustainable, if very different, business long-term. To remain competitive the finance and insurance sector need to become increasingly digitised. Embracing remote and hybrid working including changes to working locations, will allow access to new talent pools, new skills and increased automation.
The key to a successful modern workplace is in employee satisfaction. As financial organisations become increasingly digital, employees have more choice on who they work for and when they work. To secure and keep the best skills and candidates, organisations need to offer a seamless IT experience, which encourages collaboration, is supported 24/7 and available from any location.