Risks and resilience: a global perspective on banking challenges

The journey towards competitiveness and resilience in the banking industry is an ongoing one. It requires not only a keen awareness of the present challenges but also a forward-looking mindset that anticipates the challenges of tomorrow.
2 May, 2024

In the world of banking, staying ahead means continually adapting to a range of factors, from technological advancements to regulatory shifts and market dynamics. As banks strive to remain competitive and resilient, understanding the prevailing challenges and emerging risks becomes paramount. A recent study by Quantifi sheds light on the multifaceted landscape faced by banks, revealing a range of concerns across different regions and functional domains.

The journey towards competitiveness and resilience in the banking industry is an ongoing one. It requires not only a keen awareness of the present challenges but also a forward-looking mindset that anticipates the challenges of tomorrow. By embracing adaptability, innovation, and collaboration, banks can navigate the ever-changing currents of the banking landscape and emerge stronger and more resilient than ever before.

A patchwork of challenges

Across the UK, North America, Europe, and the Rest of the World (ROW), distinct challenges emerge, reflecting the unique regulatory, geopolitical, and market conditions of each region.

In the UK, Regulation, Compliance, and Reporting (RC&R) emerge as the foremost challenge. This sentiment is echoed in Europe, albeit with a broader spectrum of concerns, including non-financial risk and cyber risk. Meanwhile, North American banks face a convergence of challenges, with RC&R, Geopolitical Risk, and Counterparty Risk dominating discussions. Interestingly, ROW exhibits a blend of concerns similar to North America, with RC&R taking precedence, followed closely by Geopolitical Risk and Counterparty Risk.

A tale of two perspectives: risk vs. technology

Within banking institutions, perspectives diverge between risk and technology specialists, each group emphasising different priorities and challenges. While both recognise the importance of risk, compliance, and regulation, they diverge on other issues.

Technology specialists are focused on Environmental, Social, and Governance (ESG) factors within banking operations, reflecting the broader trend toward sustainability and ethical considerations in financial services. Risk specialists, however, maintain a focus on traditional risk challenges like interest rate risk and liquidity risk. The risk function realises the complexities involved in managing these risks, especially in volatile market conditions, as well the importance of robust risk management frameworks and stress testing procedures, to identify and mitigate potential threats to financial stability.

Despite these differing priorities, both risk and technology specialists recognise the interconnectedness of their roles in safeguarding the bank’s operations. They generally collaborate to implement comprehensive risk management systems that leverage technology to address a broad spectrum of risks, including cyber threats, regulatory compliance, and operational vulnerabilities. By combining their expertise, these specialists aim to enhance the resilience and sustainability of banking institutions in an increasingly complex and dynamic environment.

Emerging risks on the horizon

Looking ahead, the industry is bracing itself for a wave of challenges, from technological disruption to environmental and regulation. In North America, banks are gearing up to confront disruption driven by the availability and utilisation of data. This underscores the importance of data-driven innovation. Banks are increasingly recognising that leveraging data analytics, artificial intelligence, and machine learning not only enhance operational efficiency but also impact customer experiences and enable the development of innovative financial products and services.

Conversely, in other regions across the globe, banking institutions are prioritising different concerns reflective of their unique market dynamics and regulatory environments. Data integrity emerges as a paramount issue, with a heightened focus on ensuring the accuracy, reliability, and security of financial data amidst growing cyber threats and regulatory scrutiny. Moreover, the pressing challenge of climate change and transition risk looms large on the agenda, prompting banks to assess and mitigate the potential impact of environmental factors on their operations, investment portfolios, and risk profiles. This entails integrating environmental, social, and governance (ESG) considerations into risk management frameworks and investment strategies, as well as fostering sustainable business practices across the industry.

Furthermore, market consolidation emerges as a prominent theme in regions where the banking landscape is characterised by fragmentation and intense competition. Banks are grappling with the implications of mergers and acquisitions, as well as the emergence of new players and disruptive fintech start-ups, which are reshaping traditional business models and customer expectations.

By embracing data-driven innovation, enhancing data integrity, addressing climate-related risks, and adapting to market consolidation, banks can exploit emerging opportunities and mitigate emerging threats, ensuring their resilience and relevance in the years to come.

Fostering collaboration

In the face of mounting challenges, banks must embrace innovation and resilience as guiding principles for the road ahead. Adopting cutting-edge technologies like AI, ML, data science, as well as enhancing regulatory compliance frameworks, and fostering a culture of risk awareness are essential steps toward navigating the evolving banking landscape. Moreover, collaboration and knowledge sharing across regions and functional domains can foster a holistic approach to risk management and strategic decision-making.

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