Financial futures: Disruption in global financial services

Financial services organisations across the globe are facing unprecedented levels of change and uncertainty. Politically, many countries are experiencing changes in government, contributing to rising trends of "deglobalisation" and being increasingly protective of their national boundaries and institutions. Challenging global macroeconomic conditions have presented headwinds for the business volumes, asset quality and financing conditions for financial institutions, and interest rates and cost of living challenges have yet to calm.

Social, technological, regulatory and environmental considerations now dominate the agendas of financial institutions who are having to engage with a multitude of issues, including the implications of Big Data, how digital banking continues to upend business models, how best to embrace AI while also dealing with the complexities of adopting such technologies, and how to harness the huge opportunities (business and more widely) provided by sustainable finance while managing the threats of greenwashing and environmental litigation which have reached the top of risk dashboards.

In the present moment, these themes are major disruptors to the status quo. Amid this landscape, DLA Piper commissioned a global survey of c.800 major decision-makers in financial services organisations across the EMEA and APAC regions and North America to explore the impact this change is having on the sector.

Key findings from across the global sector include:

• The financial services sector, generally, has an optimistic outlook for the next 1-2 years. Around 80% of organisations globally are optimistic, including 1 in 10 who are very optimistic.
• Among organisation types, banks are most optimistic globally (88%).

• Overall, more than 80% of financial services organisations believe that it’s “the new normal” for ESG concerns to be a core driver of the industry.
• Around half of FS firms want to be seen as leaders in the ESG space.
• But firms are also overwhelmed by the ESG demands, with more than half of respondents describing the ESG agenda as one of their biggest challenges over the next two years (an increase of 24% in comparison to the past two years).
• Firms are worrying most about reputational risk as a result of ineffective ESG positioning, the challenges related to creating sustainable products, regulatory complexity and the integration of ESG throughout the business.

• Respondents across the global sector believe that digitalisation (more than 70%) and AI (86%) will have a transformative effect on financial services over the next two years.
• Digitalisation and the implementation of new technology more widely is seen as a key opportunity and reason for optimism, but managing cybersecurity/data protection risks is seen as an important challenge.
• More than half of the sector is concerned about the risks to their business presented by AI and a significant number (14%) report that it’s the most critical issue faced by their organisation.
• Most (75%) believe that regulators are struggling to keep up with the rapid pace of evolution of AI in the financial services sector and there’s widespread concern that greater use of AI will widen inequalities.

• For those more pessimistic about the sector, the impact of excessive regulation is a key concern (89%). More broadly, few believe that regulatory levels are generally positioned appropriately.
• Many aspire to be leaders in managing regulatory compliance and recognise its importance in fostering innovation, especially in Western Europe and the APAC region.
• Half of respondents state that the greatest impact on their business over the past two years has been managing risks related to cybersecurity and financial crime, and over half (57%) expect this issue to affect them in the immediate future.
• Most feel that regulation is stifling innovation in financial services (73%).