While the economy is at its strongest in years, new federal regulations post recession of 2008 have given financial industry CEOs much to ponder.
Five critical issues are set to dominate financial services in 2016. Here are the words and trends confronting today’s financial industry.
1. Dodd Frank influence
Dodd-Frank demands that financial service professionals make significant changes to the way they conduct business.
Tighter regulations will continue to affect how companies monitor, respond to and communicate concerns. Increased oversight means that employees have greater accountability and stricter consequences. There are more stringent background checks in hiring and a greater emphasis on a candidate’s ethical track record as well as performance.
There is a huge cost in meeting new regulation, but perhaps a bigger one in getting it wrong. The pace of regulatory change calls for agility. Business models must be adapted in order to survive.
2. Increased compliance efforts
Dodd Frank comprises a massive 400 pages of regulations that business leaders must understand and put into practice. Implementation and compliance efforts will continue into 2016 with the enactment of the Volcker Rule, a component of Dodd Frank that became law for large banks in July 2015 and will impact smaller ones in 2016.
To achieve regulatory compliance, banks require a talented workforce with specialized expertise. In demand are: financial analysts, forensic researchers, data scientists, client services specialists, cloud engineers, regulatory analysts and loan processors.
3. Risky business
As a consequence of Dodd Frank, banks are now subject to increased scrutiny from regulators on risk management operations and practices; cost pressure on risk infrastructure, risk functions and risk processing, higher expectations from the board, top management and the business to improve risk management effectiveness and demonstrate value add to the business.
Changing the balance of power in the C-Suite
Across the banking industry, companies have board risk and auditing committees to insure greater oversight of business practices. Eighty-one percent of CROs report either to the CEO or jointly to the CEO and risk committee, an acknowledgement of the new role of the chief risk management officer.
4. Changing technology
The development of new technologies is challenging existing methods of distribution, data management and customer service. Millennials, who now make up the largest labor force in the U.S., are skeptical about the value of traditional banking – a particularly challenging development.
According to a recent study by Viacom Media, 73% would rather handle their financial services needs with Google, Amazon, Apple, PayPal or Square than from their own nationwide bank.
Innovators like Google Wallet, Square in the United States are presenting a new competitive challenge in the industry.
Technology is changing every day and firms are forced to reinvent themselves every few years to be successful in this landscape.
5. Security checkpoint
Cyber threats continue to worsen each year with no end in sight.
Banks are beefing up fraud departments as cyber attacks have become more commonplace. They are instituting policies and procedures for investigating and reporting suspicious activities such as identity fraud, money laundering and even terrorism to insure they are not unwittingly enabling the financing of dangerous criminals.
Every relationship, every connection outside and inside your organization has the potential to cripple your business if not properly vetted and continually re-evaluated. The stakes are simply too high not to.
“With compliance spending at an all-time high, many frustrated financial services firms have declared that this is the year that the growth in this spend must stop,” said David Kletter, Executive Vice President at Booz Allen and leader of the firm’s financial services business.
“The mindset in 2016 will be increasingly about efficiency, instead of continuing to throw more money and labor at the problem.”
In this special report (PDF), Deloitte examines how various disruptive trends we are seeing today in areas such as artificial intelligence and machine learning, blockchain technology, collaborative ecosystems, cryptocurrencies, demographics, and customer experience are coming together to influence the future of banking.