Globally, banks are struggling to adapt to change

It’s no secret that the financial landscape is in constant evolution. There are many shifting considerations to keep an eye on in modern banking. According to a recent study by Herbert Smith Freehills, the four major ones are:

1. Cultural adaptation: With workplace tensions emerging and growing, the report considers how staff and businesses may change their habits amid shifting societal expectations.
2. UI or AI: As digital tools continue to evolve; the report explores the role of the changing user interface and asks what banks are doing to meet rising demands for bespoke and personalised banking experiences.
3. Legal function transformation: With an upturn in changes to organisational structures in the banking sector, how legal teams can ensure organisational complexity meets operational simplicity is explored in detail.
4. An eye on ESG: Hard lessons and tips are shared to help banks mitigate against the risk of greenwashing claims.

Each of these themes is culminating in increased stress for our financial industry, said Simon Clarke, Herbert Smith Freehills’ partner and global co-chair of the firm’s banks sector group.

“The entwined worlds of complex geopolitics and evolving regulatory demands present other big issues which are dominating bank agendas. While the onslaught of macro regulation in the wake of the global financial crisis has now slowed, the financial services industry faces more targeted regulation as policymakers operate in a more fragmented global environment and strive to keep pace with the rapid rate of change,” said Clarke.

“With regulated banking a safer but less profitable and less global trade than its earlier incarnations, questions remain about the extent to which regulators are pursuing goals like competition, stability and growth which can easily come into conflict with one another.”

As with every industry, tech is playing a major role in the shake-up. According to the study, 90 per cent of responding banks believe cyber risks have increased over the last year. Meanwhile, 46 per cent said digital and emerging technology was by far the most important topic of bank’s agendas.

Peter Jones, partner and global co-chair of the firm’s banks sector group said: “Technology is increasingly central to banks’ service propositions – both as a sword of competitive advantage and shield of enhanced operational and cyber resilience.

“Customers have high and constantly rising expectations for personalised services and slick digital tools. The deployment of GenAI in other sectors continues to gather pace and its benefits are becoming more apparent, with banks adapting their businesses to harness these benefits.

“But offering broader and more personalised services also requires banks to collect and use more customer data in a broader range of circumstances, which presents challenges from a privacy and information security perspective. This makes banks a key target for cyber attacks, with the value of customer data and analytics continuing to increase.”

Responses addressing the impact evolving tech has on our banking sector have been witnessed in a recent ASIC statement. The government body is urging financial services and credit licensees to ensure their governance practices keep pace with their accelerating adoption of AI. ASIC is monitoring how these organisations use AI and its potential to impact consumers.

“Our review shows AI use by the licensees has to date focused predominantly on supporting human decisions and improving efficiencies. However, the volume of AI use is accelerating rapidly, with around 60 per cent of licensees intending to ramp up AI usage, which could change the way AI impacts consumers,” said ASIC chair Joe Longo.

“It is clear that work needs to be done – and quickly – to ensure governance is adequate for the potential surge in consumer-facing AI. When it comes to balancing innovation with the responsible, safe and ethical use of AI, there is the potential for a governance gap – one that risks widening if AI adoption outpaces governance in response to competitive pressures.

“Without appropriate governance, we risk seeing misinformation, unintended discrimination or bias, manipulation of consumer sentiment and data security and privacy failures, all of which has the potential to cause consumer harm and damage to market confidence.”

Unfortunately, for many companies, issues that arise can result in costs being pushed onto consumers. Banking is no exception.

Hannah Cassidy, partner and global co-chair of the Herbert Smith Freehills’ banks sector group said: “Social expectations on banking demand delicate balancing. Regulated lenders are still being held to expanding yet unpredictable standards of their respective social licences. Banks are, of course, aware that regulatory risk, with its financial and reputational consequences, should be top-of-mind in the coming years. Yet it is only by bolstering internal controls, enhancing data management, and staying informed about legal and regulatory developments that banks can safeguard against greenwashing and build a credible ESG profile.”

Related: 9 themes impacting the global economy

Jack Campbell is the editor of Broker Daily. After graduating from the University of Wollongong in 2022, Jack began his journalistic career working on Broker Daily’s sister brand, HR Leader. In August 2023 he was made the news editor and worked alongside some talented journalists writing articles and recording podcasts.

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