4 takeaways from the 2021 Financial Services Conference

4 takeaways from the 2021 Financial Services Conference

The 2021 Financial Services Conference covered a range of issues for businesses in this space. Here are four important topics for the year ahead.

During the Crowe 2021 Financial Services Conference, our specialists discussed the latest trends and biggest challenges facing financial services companies in the areas of environmental, social, and governance (ESG) issues; digital transformation; cybersecurity; and M&A.

With ongoing volatility and transformation continuing to affect financial institutions in these areas, consider these four takeaways from our financial services conference as you start to make business planning and investment decisions for this year and beyond.

1. Financial regulators are looking more closely at climate risks.

ESG issues are an increasing area of focus within the banking and financial services sector. Regulatory bodies are starting to take a closer look at these issues, particularly in the environmental arena.

In late 2020, the Federal Reserve Board (Fed) joined the Network of Central Banks and Supervisors for Greening the Financial System (NGFS). And in 2021, the Fed created two new committees to evaluate various kinds of climate-related risks: the Supervision Climate Committee and the Financial Stability Climate Committee.

Here are a few other key developments from the past year:

  • The Office of the Comptroller of the Currency appointed a climate change risk officer.
  • The Financial Stability Board released three reports on potential climate-related risks to the industry’s future performance.
  • The U.S. Department of the Treasury's Financial Stability Oversight Council issued a report on climate-related financial risks.
  • The Federal Deposit Insurance Corp. announced its intention to join the NGFS.

While environmental actions and disclosures are still almost entirely voluntary and market-driven at this point for U.S. banks and financial services companies, all of this suggests that regulators could focus much more on these kinds of issues in the future.

If you’re looking to get ahead of the curve in this area, here are three to-dos:

Talk to your stakeholders about what matters. Currently, no real authority exists on environmental issues within banking and financial services. Stakeholders can be a great place to start when developing a disclosure framework.

Define what’s material for your organization. Whether it’s mitigating environmental impact or formulating disclosures, you should be realistic about what’s most important and achievable for your organization. What’s material to, say, an energy company is much different from what’s material to a bank – or even a public bank versus a nonpublic one.

Look overseas for inspiration. European companies in particular have high environmental standards and robust requirements. U.S. companies can find more ideas on what to do based on what their European peers are required to do.

2. Digital transformation can be an effective response to disruptions of traditional banking business models.

A confluence of organic market forces is currently eroding long-standing business models and methodologies in banking:

Ease of service. Because of online, digital technology, consumers and small businesses are getting accustomed to maximum speed and minimal effort. Users apply for deposit or loan accounts, or they request or add services to existing accounts, for instance, from virtually anywhere in a matter of seconds or minutes (the industry is referring to this as being “self-service,” but self-service places a whole new set of requirements on a business).

Changing comfort levels. Users can differ substantially in their preferred technology platforms for their banking needs. For example, some customers tend to be comfortable with a mobile, app-based experience, while others generally do more of their banking on a desktop or laptop computer. Customers are just starting to fully understand the capabilities of their newfound self-service portals, which is establishing a set of expectations for service.

Experiential expectations. Many customers today expect services that are prompt, personalized, and accessible in multiple ways. They also respond positively to rewards programs – similar to what they might find with airlines, hotels, and retailers. But adding programs that are inconvenient or complex to use can detract from your reputation.

Digital transformation initiatives can help banks keep up with these trends. Here are four practices of successful digital transformation efforts:

  • Recognize that technology investments can’t be restrictive.
  • Find ways to integrate and synthesize information and ideas from all areas of the business – quickly and with ease.
  • View disruption through the lens of customers rather than internal processes and platforms.
  • Become iterative, not event-based, in exploring and implementing new technologies.
3. Human error and ignorance are the primary facilitators of successful cyberattacks.

According to the “Verizon 2021 Data Breach Investigations Report,” social engineering attacks were the single largest source of breaches, accounting for roughly one-third of incidents.

These types of attacks take advantage of employees’ lack of awareness or attention to detail in order to mislead them into providing credentials that could allow an unauthorized third party access into the organizations’ systems. A successful breach could allow bad actors to do any number of things: conduct a ransomware attack, destroy files, or extract consumers’ private banking information to sell anonymously on the dark web.

What’s more, the pandemic-fueled shift to virtual work environments has increased the risks of vulnerabilities – which attackers have been all too happy to exploit.

Here are five key areas of focus to improve your protection against – and mitigation of – cyberthreats of all kinds, along with key questions to ask in each:

Incident response plan. Are you testing your team’s awareness of and preparedness to respond to major cyber incidents? Are you assessing your response capabilities and taking actions to improve?

Social engineering training and testing. Are you training your workforce on social engineering schemes and assessing their knowledge through testing? Are you tracking the results of those tests and requiring additional training for those who “fail”?

Backup controls. If your organization is subjected to a ransomware attack, can you recover from a backup? How soon, and to what extent? How often are you running disaster recovery testing efforts? Are you sure your backups are complete and would be segmented from the impacts of a ransomware attack?

Vulnerability scanning and logging. Are your efforts to track vulnerability frequent enough, and are they rigorously reviewed? Also, are internal and external penetration testing layered into the process on a periodic basis?

Vendor risk management. How does your organization assess cyber risks in relation to your vendors? What mitigating controls do you have in place? How do you monitor vendor compliance and responsiveness?

4. The usual factors are driving current M&A activities – with one notable exception. 

Mergers and acquisitions within the banking and financial services sector rose steadily from their March 2020 lows as the pandemic progressed, and much of that activity was driven by typical reasons:

  • Geographic growth or consolidation
  • New product and business lines
  • Compressed margins and growth opportunities
  • Regulatory expenses and pressures
  • Succession planning

But another important trend drove M&A activities in the industry: fintechs and other areas of nontraditional growth. And perhaps that shouldn’t be surprising – the global fintech market is expected to exceed $300 billion in 2023. Big and not-so-big players alike were (and are) looking for advantageous ways to get into this growing space.

In an area that’s seen thousands of startups emerge in just the past couple of years, the big challenge can be figuring out where to start. Here are a few things to consider as you explore M&A options:

Pricing. Are you paying the right price for an acquisition? And what are you really getting for your money? Talent? Technology? Something else? What is the value proposition?

Operations. What gaps will an acquisition address? Does it increase organizational resiliency, efficiency, or flexibility?

Specialization. Fintech is a big space – what exactly do you want to invest in? Asset management? Digital lending? Mobile wallets? Payment processing?

Accounting advisory services
Tailored to the unique needs of your business

Get even more insights

Access resources from the Crowe 2021 Financial Services Conference.

We can help you figure out how to move forward confidently 

Work with banking and financial services specialists who understand your unique challenges. Contact us to discuss how we can help your organization navigate transformation successfully.
Laura Snyder