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By your side
Financial Institutions Sentiment Survey
2018
This year’s industry view: results and analysis
Financial Institutions Sentiment Survey 2018
Contents
2
Executive summary 3
Results at a glance 4
UK economic and financial services sector sentiment 6
2018: the year ahead 8
The future of the UK and Europe 10
Regulatory environment 14
Facing the future of technology 16
Cyber risk vs. cyber security 18
OLIVER KNIGHT
Managing Director, Head of Investors and Asset Managers,
Lloyds Bank Commercial Banking
MAX DONELAN
Associate Director, Client Experience,
Lloyds Bank Commercial Banking
TOM EDWARDS
Associate Director,Financial Institutions,
Lloyds Bank Commercial Banking
Contributors
Financial Institutions Sentiment Survey 2018
Executive summary
Welcome to our annual Financial Institutions Sentiment Survey that explores the topics that will shape UK financial services throughout 2018. This year we canvassed the views of 107 senior executives across the broad spectrum of financial institutions that we serve, from asset managers and insurers to banks and private equity.
Amongst the headline results, executives are confident that the UK economy will remain resilient throughout 2018, with 48% expecting UK GDP growth to be similar to 2017. However, 70% of survey participants expect other developed nations that make up the G7 to experience stronger growth than the UK during 2018.
Many senior executives are worried about the effects of Brexit and this is causing significant uncertainty: 55% cite the effects of Brexit as a key concern for 2018, and a continuation from 2017 as the top risk for the year.
With negotiations between the UK and Europe entering phase two, there is some light at the end of the tunnel for UK financial services with political agreement to a transition period until December 2020. The EU has also proposed including appropriate market access after Brexit, based on existing regulatory equivalence arrangements. Last year, loss of market access due to Brexit was the biggest concern. It is no surprise that the subject still dominates UK financial services circles in 2018.
Despite the uncertainty, executives that we surveyed are still eyeing up growth opportunities versus defensive strategies. ‘Organic growth and expansion’ is once again identified as the top business priority (49%). This focus emphasises the capacity for expansion in current business models and markets.
While the post-financial crisis regulatory framework is now largely set, the industry still faces significant implementation challenges. Regulatory implementation was once again called out as a key risk in 2018: 58% of executives pointed to the volume of regulatory change as being their major concern.
That said, we have seen a softening of views on certain types of regulation. Last year, 42% of respondents told us that capital reform had gone too far. However, since the revelations that certain elements of completing Basel III capital rules were easing, views have softened, with 32% now believing capital reform has gone too far.
Technology continues to be a key focus for many financial institutions. Here at Lloyds Bank, we recently committed to investing £3bn in technology as part of our new three-year strategic plan. On an annual basis, this is as much as all FinTech companies invested in the UK last year.
Firms are continuing to invest and develop tech in-house (35%) and through partnerships (26%) versus acquisitions (9%). Cyber security continues to be a hot topic, with firms’ cyber security planning (87%) and spend (85%) up once again on 2017. This increased focus is working, with the vast majority (95%) confident that their firm could recover from a cyber-attack.
We will continue to collate views from across the broad spectrum of industry participants to provide timely insight. I hope you find this report useful. If you have any comments or questions please speak to your relationship manager.
ROBINA BARKER BENNETT
Managing Director, Head of Financial Institutions, Lloyds Bank Commercial Banking
Although there is still broad agreement that the UK’s economy will hold steady; firms are concerned that economic growth will be slower than in other advanced nations and that the UK will fall to the back of the G7 pack
3back to contents
Results at a glance
Financial Institutions Sentiment Survey 2018
UK economic and financial services sector sentiment
56%
4
2018: the year ahead
Firms enter 2018 with a focus on growth opportunities
The effects of Brexit continue to be the number one risk to UK operations
70% of executives believe that UK economic growth in 2018 will be
weaker than G7 peers
70%
48% of respondents believe that UK economic growth will remain broadly stable compared to 2017
UK economic growth for 2018
2018 priorities
UK growth compared to G7
Firms’ performance Top risks for 2018
64% expect revenue growth for 2018, an increase of 3% on last year
69% expect assets under management to increase in 2018
64% 69% 49%
31%
39% 49%
Organic growth
Aquiring new clients
Focusing on new clients
Effects of Brexit
Economic uncertainty
Regulatory implementation
31%
55%
31%
56% 56% 48%
36%49%
31%31%
35%
49%
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88% expect the UK to remain the most prominent financial
services hub in Europe post Brexit
26% of respondents are considering shifting some
operations from the UK, compared to 19% in 2017
due to Brexit
The majority of firms are either developing tech in-house
or partnering with FinTechs compared to acquisition
95% of respondents are confident that their organisation can recover from a cyber-attack
87% of executives have increased firm’s cyber security
planning over 12 months
Financial Institutions Sentiment Survey 2018
Technology
Regulatory environment
The future of the UK and Europe
Of the 26% that said yes, 57% expect to consider moving less than 10% of
UK operations
Frankfurt, Dublin and Luxembourg have been identified as part of respondents’ Brexit contingency plans
88%
5
Cyber
86% to move up to 30% of
operations 57% to
move up to 10% of
operations
26%
35%
Capital reforms and the conduct agenda are the biggest regulatory
challenges for 2018
believe that new capital regulatory requirements have gone too far
cite volume of regulation as a key challenge
58% 32%
26%
2018
19%
2017
DublinFrankfurt Luxembourg
Tech investment centred on improving customer satisfaction (49%); reducing operating costs
(49%); and improving cyber security (46%)
49%
49%
46%
49%
49% Develop partnerships and joint ventures
Develop internally
87%
95%
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Given the unusually high economic and political uncertainty last year – not least due to Brexit and the new US presidency – the UK economy remained relatively resilient in 2017. The pace of economic growth picked up in the fourth quarter, with final year estimates in the range of 1.6% to 1.8%. This represents a mild slowdown from the 1.8% recorded in 2016 despite fears of a more dramatic slowdown in the run up to Brexit.
Looking further afield, the global recovery picked up pace in the second half of 2017, driven by faster growth in developed economies, which is set to continue into 2018. The Euro area saw broad-based acceleration of growth, while in the US, expansive growth is continuing, albeit slower than economists’ predictions. Unemployment continued to decline globally, with UK unemployment falling to a 43-year low and the EU’s unemployment rate reaching its lowest level in nine years.
Looking specifically at G7 developed nations – the UK was one of the fastest growing advanced economies in 2016 but dropped down the G7 rankings in 2017 and is expected to remain towards the back of the pack this year, along with Japan and Italy. The IMF1 consensus view now suggests that UK GDP growth in 2018 will slow to 1.5%. The UK’s OBR2 also forecast growth of 1.5% for 2018 in the Chancellor’s Spring statement in March 2018, revised up from 1.4%.
Firms surveyed this year are broadly in agreement with economists’ predictions and remain positive that the UK economy will continue to be resilient, avoiding a nose dive in the run up to the UK leaving the EU.
UK economic and financial services sector sentiment
Figure 1.
Real GDP growth change for G7 economies
Real
GDP
gro
wth
(A
nnua
l per
cent
chan
ge)
Figure 2.
How do you expect UK economic growth during 2018 to change relative to 2017?
0%
48%
29%
22%
1%
Significantly worsen
Worsen
Broadly unchanged
Improve
Significantly improve
1 International Monetary Fund 2 Office for Budget Responsibility
Source: International Monetary Fund
Financial Institutions Sentiment Survey 2018
6
UK CanadaFrance Italy Japan GermanyUS
2016 2017 2018 forecast
1.8 1.81.6
1.20.9 0.7
2.2 2.12.3
3.0
2.0
1.0
1.81.91.71.5 1.5 1.5 1.5
1.11.5
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48% of respondents believe the UK will grow at broadly the same pace as 2017, with the balance of views expecting a worsening in UK economic growth. 2017 economic growth beat expectations, with views on 2018 showing the economy will remain resilient.
When asked how the UK economy would fare in comparison to G7 peers, the outlook is less positive: 70% expect G7 economies to see stronger growth than the UK in 2018. This represents a significant shift in sentiment over the past three years.
Focusing on UK financial services, we see a slight improvement on 2017. Over half (55%) of senior executives remain confident that the outlook for UK financial services will remain broadly unchanged and, while 27% expect growth to worsen in the sector, this is less than last year’s response.
Whilst expectation for growth in the sector is largely unchanged, interestingly optimism on the outlook for UK financial services has suffered – with 39% of respondents less optimistic for the future of UK financial services.
The lack of optimism coincides with Brexit continuing to preoccupy the country, where negotiations move into a second phase focusing on a new trading agreement after Britain leaves the bloc.
However, with revelations in March 2018 of an agreed 21-month transition period until December 2020 and the EU promising appropriate market access for UK financial services, a positive shift in optimism would be expected for the sector.
Financial Institutions Sentiment Survey data 2017 and 2016
Financial Institutions Sentiment Survey 2018
7
Figure 4.
What is your expectation for growth in the UK financial services sector compared to last year?
Figure 5.
Over the past 12 months, has your outlook for the UK financial services sector changed?
42%
39%
18%
0%
Significantly less optimistic
Less optimistic
Stayed the same
More optimistic
Significantly more optimistic
1%
Significantly worsen
Broadly unchanged
Improve
Significantly improve
Worsen
28%
17%
55%
33%
23%70%
43%26%
4%
Figure 3.
How do you expect UK economic growth to compare with other G7 countries?
2016 2017 2018
Weaker than G7
In line
Stronger than G7
2017 2018
27%
55%
30%
50%
2%
0%
18%
0%
18%
0%
70% expect UK growth to be weaker than G7 peers, a significant shift in sentiment over the past three years
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Financial Institutions Sentiment Survey 2018
2018: the year ahead
Despite the uncertainty, executives enter 2018 with growth in mind. It is apparent from the survey that there is a clear focus on growth strategies over defensive strategies and a sign that the sector is open for business.
Organic growth was the top business priority for the second year running with over 48% of respondents eyeing growth
in core business models and markets. M&A in the industry remains low, with the asset management and insurance sectors showing the highest potential M&A activity in 2018, albeit its priority moved down the pecking order compared to last year. Acquiring new clients (36%) again featured prominently and remained the second most significant priority as with last year’s survey.
A new priority for 31% of respondents is to focus on key existing clients. Many financial institutions have seen value in prioritising clients on the back of cost pressures impacting the industry and newly implemented regulations impacting returns for many client and customer segments. The same story continues from last year with the predominant focus remaining on organic growth within core markets and increased focus on clients.
Figure 6.
What are your firm’s top three strategic priorities?
Most significant
2nd most significant
3rd most significant
Organic growth
8
11% 12% 12%Acquiring new clients
13% 8% 9%Focusing on key clients
7% 16% 5%Expanding within core markets
2% 7% 6%
4% 4% 5%
2% 1% 6%
4% 10% 7%
3% 7% 11%
7% 9% 8%
4% 10% 8%
Introducing new products and services
Reducing fixed costs
Distributing earnings
Responding to regulation
Reducing operating costs
Improving core processes
1% 3% 5%
4% 1% 3%
2% 3% 2%
3% 0% 1%
0% 0% 3%
Increasing technology spend
Expanding into new markets
Mergers / acquisitions
Strengthening balance sheet
Investing in skills
Investing in sustainability
33% 7% 8%
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Most significant
2nd most significant
3rd most significant
Revenues
Figure 7.
Considering the performance of your UK operations, what do you expect to happen to the following areas in 2018?
Figure 8.
What are the top three considerations that pose the most significant risks to your UK operations in the next 12 months?
Financial Institutions Sentiment Survey 2018
9
CostsAsset under
management (AUM)
28% 12% 15%
15% 11% 9%
16% 6% 3%
11% 10% 9%
6% 11% 8%
6% 5% 8%
4% 8% 6%
1% 7% 5%
1% 6% 3%
1% 1% 4%
1% 3%
1% 3%
4% 2%
1% 4%
1% 4%
1% 2%
3% 4% 3%
6% 10% 8%
Level of business investment in the UK
UK headcount
Cost of capitalReturn on equity
(RoE)
Increase
Stay broadly the same
Decrease
Looking at expected performance for UK operations across various metrics, we hear an optimistic tone: 64% of senior executives expect firm revenues to increase in 2018, up 3% from last year’s response, and 44% expect returns on equity to rise. In addition to the optimistic view on revenues, interestingly, 69% expect assets under management to increase.
Respondents broadly agreed that costs would remain constant. Just under half (45%) expect costs to remain flat, with the majority (58%) suggesting headcount will remain constant but over a third (37%) expect costs to rise.
Despite the agreement in December 2017 between the UK and EU to proceed to trade talks, executives’ concerns on Brexit have remained – 55% of respondents picked the effects of Brexit as the clear top risk for 2018, with many moving parts still in play. Once again, economic uncertainty and market volatility featured highly as with 2017, the latter perhaps unsurprisingly after the early equity and debt sell-offs in January.
Interestingly, the effects of regulation have returned to the fore, including both the threat of new regulation but, ahead of that, the burden of implementing existing reforms. The post-crisis regulatory framework is now largely set, with the final piece to the Basel III puzzle communicated in December 2017. However, there still remains a significant regulatory implementation challenge ahead in MiFID II, GDPR and many more.
Risks that see a clear drop in significance from 2017 include geopolitical uncertainty, cited by 39% of firms in 2017 down to 19% this year and increased market competition from 22% to 13%. Weaker demand for products and services is creeping up the list of potential threats, up by 10%.
As we heard last year, despite a complex trading environment, firms are optimistic about their own performance with a continued focus on organic growth strategies. The UK financial services sector has not been forced to retreat from growth.
64%
69%
37%
44%
24%
21%
18%
22%
22%
45%
35%
54%
76%
58%
14%
9%
18%
21%
22%
3%
24%
Effects of Brexit
Economic uncertainty
Regulatory implementation
Market volatility
Threat of new regulation
Weaker demand for products and services
Geopolitical uncertaintyCyber threats
Increased market competition
Significant asset repriceAccess to skilled workforce
Rate of technological change
Risk of higher inflation
Emerging risks (as yet unidentified and undefined risks)
Cost of financeSterling appreciation
Pension deficit
Sterling depreciation
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The future of the UK and Europe
Following an 11th hour deal on the UK’s withdrawal from the EU in December 2017, the European Commission authorised Michel Barnier’s task-force to initiate negotiations on the future trading relationship between the UK and EU. January arrived with anticipated optimism for many businesses. However, despite this, our respondents’ sentiment towards Brexit is no more optimistic: 62% of firms surveyed state that their attitude to Brexit over the past 12 months has remained the same with net 14% of firms less optimistic than 12 months ago.
This is a reflection of the number of Brexit-related financial services issues that the UK continues to face, foremost of which is maintaining access to the single market, which is a major source of concern for many executives. Respondents told us that loss of passporting and cross-border access was their biggest concern (48%), followed by lack of regulatory equivalence (25%) to access the single market.
This trajectory is exacerbated when firms were asked about the outlook for UK financial services. The optimism has overwhelmingly shifted with 39% of respondents less optimistic on the outlook of UK financial services. The balance of views is net 22% less optimistic for 2018.
However, with revelations in March 2018 of an agreed 21-month transition period until December 2020 and the EU promising appropriate market access for UK financial services, a positive shift in optimism would be expected from the sector.
Significantly more optimistic
Significantly more optimistic
Financial Institutions Sentiment Survey 2018
10
Figure 9.
Over the past 12 months, how has your firm’s attitude to Brexit shifted?
Figure 10.
Over the past 12 months, has your outlook for the UK financial services sector changed?
62%
42%
25%
39%
11%
18%
1%
1%
1%
0%
Significantly less optimistic
Significantly less optimistic
Less optimistic
Less optimistic
Stay the same
Stay the same
More optimistic
More optimistic
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Confidence that the UK will remain a prominent European financial hub, however, is high with 88% of respondents expecting the UK to remain the most prominent European financial hub post-Brexit.
It is well understood why financial services in the UK has flourished over the years. In our Financial Institutions Sentiment Survey 2016 respondents told us that the UK has the appropriate skills, market and financial infrastructure firmly in place. The British regulatory and legal framework is referenced numerous times by senior executives when asked why they thought that the UK would hold on to its position, with the current framework stable and often gold-plated compared to other jurisdictions.
Respondents were equally certain that ultimately a deal will be struck with the EU, and that appropriate financial services needs would be addressed in the deal.
Senior executives that responded to the survey suggested that due to the sheer size of the UK financial services industry, there is no credible peer that could replace the UK. The only viable option would be a collection of financial centres as opposed to one dominant hub.
There has been much speculation that financial institutions will depart the UK post-Brexit over fear of a loss of financial services access to the single market. Financial institutions have been hedging
Financial Institutions Sentiment Survey 2018
11
Firms’ efforts remain focused on tactical and operational changes needed to continue to serve clients, rather than wholesale strategic changes
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against the worst case outcome on market access. In last year’s survey we found that just under a fifth (18%) surveyed had plans in place to shift activities away from the UK to other countries, with many respondents having not formalised their plans yet.
Since then, we have seen an 8% increase in the number of firms considering moving, or who have moved operations to other countries, and a similar reduction in the number who said they were undecided on this. This indicates that those who are not considering moving are not changing their minds, but those that were undecided seem to lean towards a decision to move some of their operations.
Respondents’ efforts continue to focus on tactical and operational changes needed to serve clients, rather than wholesale strategic changes. Of those 26% of executives moving operations from the UK, 57% are to move less than 10% of operations, with a further 29% to move between 11% to 30%. This trend of moving a small proportion of operations out of the UK remains from 2017.
When respondents were asked which cities they were considering, a range of financial hubs across Europe were indicated.
Frankfurt leads the way with 43%, whilst 36% of executives select Dublin. 32%, predominantly financial sponsors and non-EU banks, select Luxembourg. This perhaps reflects the fact that Luxembourg already acts as the international private banking hub for many banking groups. Banks also say that Luxembourg’s highly-developed funds industry is a major draw, with potential benefits in having close proximity to funds in which their clients want to invest.
Of those firms that have moved or are considering moving some of their operations, the majority only selected one location under consideration, indicating that many organisations already have a very clear idea as to the preferred new home for their migrated operations.
Financial Institutions Sentiment Survey 2018
12
What proportion of your operations is to be moved?
Prop
ortio
n to
be
mov
ed
Figure 12.
Are you considering moving, or have you already moved, some of the operations that you currently undertake in the UK to other jurisdictions, as a result of the UK’s decision to leave the EU?
2017
2018
Yes
18%
26%
No
54% 54%
Undecided
20%
28%
Figure 11.
88%
0%
1% - 10%
11% - 30%
31% - 50%
50% +
57%
29%
14%
Frankfurt
Dublin
Luxembourg
Amsterdam
Zurich
Berlin
Brussels
Geneva
Madrid
Paris
Stockholm88% expect the UK to remainthe most prominent financial
services hub in Europepost Brexit
back to contents
Financial Institutions Sentiment Survey 2018
13
Figure 13.
Which cities are you considering moving to?
4%
4%
4%
4%
4%
4%
7%
43%
36%
21%
32%
Note respondents could select multiple cities
43%
36%
32%
21%
7%
4%
4%
4%
4%
4%
4%
Frankfurt
Dublin
Luxembourg
Amsterdam
Zurich
Berlin
Brussels
Geneva
Madrid
Paris
Stockholm
back to contents
Financial Institutions Sentiment Survey 2018
Regulatory environment
2017 was a pivotal year for financial regulation, with many reforms either finalised or nearing completion for implementation in 2018. The Basel Committee on Banking Supervision (BCBS) finalised the much anticipated Basel III reforms, which focused on restoring credibility in RWA calculations and the comparability of banks’ capital ratios. As well as the capital agenda, banks and investment firms in Europe were gearing up for the roll out of MiFID II – designed to offer greater protection for investors and inject more transparency into all asset classes, from equities to fixed income, exchange traded funds and FX – that launched on the 3rd January 2018. Over the pond, Donald Trump signed an Executive Order in February 2017 for his administration to review financial services regulation. In particular Dodd-Frank, with Donald Trump quoted as saying he will “do a big number” on financial services regulation.
Policymakers were also busy finalising rules relating to the accounting standard IFRS9 that replaced IAS39 in January 2018. Though not a regulation, banks are now required to capture potential future losses earlier thus impacting CET1 ratios across the board. The EBA3 suggest that IFRS9 will impact CET1 by an average of 59 bps and up to 75 bps for 79% of banks in the its latest surveyi.
While the post-crisis regulatory frameworks are now largely set, the industry is still grappling with significant implementation challenges. As such, it is not surprising that the impact of regulatory implementation has been called out as a top risk for financial institutions again this year, overtaking the threat of new regulation.
We saw that 31% of respondents identified regulatory implementation as one of their most significant risks in 2018.
The proportion that mentioned the threat of new regulation dropped from 43% in 2017 to 24% this year, highlighting the shift in focus.
Executives clearly pulled out that their firms had been impacted the most by the volume of regulatory implementation, with the majority (58%) of responses citing volume as the major impact. This dwarfed the number that were more concerned with the mechanics of achieving compliance (such as availability of experts or ability to understand the regulations).
Reflecting on the appropriateness of regulation, the majority believe that the industry has got it broadly right across the key pillars of reform. Respondents’
opinions have softened on certain elements of the regulatory framework, particularly on capital and structural reform. Last year, 42% of respondents believed capital regulation had gone too far compared to 32% in this year’s survey.
We saw this with the softening of certain elements of the Basel III package which was announced in December 2017.
Looking to 2018, firms expect the greatest impacts to come from capital requirements (32%), conduct agenda (24%) and structural and resolution reform (23%). When compared with 2017, executives’ worries on structural and resolution reform have increased by 6%.
14
Figure 14.
What type of regulatory activity has impacted your firm the most in the past 12 months?
Volume of regulatory implementation
Complying with new regulation
Understanding new domestic regulation
Complying with existing regulation
Understanding other jurisdictional regulation
Hiring regulatory experts
Lack of international alignment
58%
7%
6%
20%
3%
3%
3%
i EBA provides its views on the implementation of IFRS9 and its impact on banks across the EU
3European Banking Authority
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Figure 15.
Thinking about post-financial crisis regulatory reform, do you perceive the following to have gone too far or not far enough?
Financial Institutions Sentiment Survey 2018
15
Capital requirements
Liquidity requirements
Structural and resolution reform
Conduct agenda
Stress testing
Competition agenda (including measures to increase
transparency)
Capital requirements
Conduct agenda
Structural and resolution reform
Competition agenda (including measures to increase transparency)
Liquidity requirements
Stress testing
Figure 16.
Which area of regulatory reform has impacted your firm the most?
7%
65%
70%
66%
74%
77%
67%
32%
27%
31%
22%
20%
24%
3%
3%
3%
4%
3%
9%
Remaining % indicates ‘other’
2018
2017
32%
10%
1%
23%
17%
16%
30%
24%
23%
10%
3%
Not far enough Broadly the same Too far
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Financial Institutions Sentiment Survey 2018
Facing the future of technology
It is no surprise that technology continues to be a focus for financial institutions in 2018 with firms set to invest more in technology in the coming years. In comparison to last year’s survey, many technology investment strategies have remained in place for 2018.
The top three investment strategies for 2018 are a continuation of trends seen in 2017, with improving customer satisfaction for the second year running being the primary driver for investment in technology, cited by 49% of respondents in 2018. This supports the earlier findings regarding strategic priorities that showed a focus on clients is of increasing importance in the financial services industry.
Figure 17.
Thinking about your 2018 technology investment strategy, what are your firm’s top 3 objectives?
Improving customer satisfaction
Top objective
2nd objective
3rd objective
13% 8% 11%
8% 10% 11%
2% 10% 9%
1% 2%
2% 7% 6%
4% 4%
3% 2%
14% 15% 20%
17% 22% 9%
14% 17% 15%
4% 12% 18% 26% 3% 11%
16
Reducing operating costs
Improving cyber security
Revenue growth
Enhancing existing offering
Improving regulatory compliance
Reducing fixed costs
Competing with peers
Entering new markets
Improving conduct
Competing with new entrants
Revenue growth was called out as the most significant area of technology investment for 2018, 6% higher than last year. Over the past 12 months, there has been a shift in how financial institutions approach the challenge presented by FinTech: 35% of executives surveyed were developing FinTech internally, which is 10% down on last year.
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Financial Institutions Sentiment Survey 2018
Figure 19.
Between now and 2025, what level of technological change do you anticipate?
Technological change will continue to be manageable, but the speed of technological change will increase between now and 2025
There will be significant technological disruption and it will be very challenging to manage
Technological change will be manageable, and this change will be slower than the rate of change since 2010 to now
Technological change will be manageable, and will be at the same speed as 2010 to now
17
69%
Figure 18.
What is your firm’s approach to meeting the challenge presented by FinTech?
Develop internally
Develop partnerships and joint ventures
Under review
Nothing
Acquisition and capital injection
Outsource
35%
26%
15%
15%
9%
0%
2%
18%
11%
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Financial Institutions Sentiment Survey 2018
18
Cyber risk vs. cyber security
Whilst technological enhancements have led to positive changes in how financial institutions operate, the pace and magnitude of change has created new risks: 46% of respondents called out that their firm’s technology investment strategy for 2018 is to improve cyber security.
The survey identifies that the risks of cyber-attack are now an established issue for financial services: 86% of respondents reported an increase or a significant increase in their concerns about cyber risk in the past 12 months. 87% increased planning, and 85% increased spend. Firms’ increase in
concern, planning and spend for cyber risk is translating to confidence and preparedness to withstand and recover from a cyber-attack: 75% of senior executives surveyed were fairly confident of withstanding a cyber-attack, with 20% very confident.
For those 20% of respondents that say they are very confident that they are suitably prepared to enable their company to recover from a cyber-attack, 93% are well prepared in terms of cashflow and liquidity impact analysis compared with 57% in the overall survey: 71% are well prepared in terms of contingency planning
with banking providers, compared with 39% in the overall survey population.
Protecting and countering cyber- attacks, whilst remaining up to date with evolving technology, continues to be a complex challenge for business leaders. As cyber threats evolve, it is essential that financial institutions continue to develop mitigation approaches and share learnings across the sector. There needs to be joint responsibility working with key partners and governing bodies to ensure we learn, adapt and ultimately reduce cyber-attacks across the industry.
Figure 20.
How has a) your concern, b) your planning and c) your spend in relation to the risks of cyber, changed over the past 12 months?
Concern
Planning
Spend
80%
60%
40%
20%
0%Significantly
increasedSignificantly decreased
Increased Stayed the same Decreased
23%
14% 14%
63%
73%71%
13% 12% 13%
1% 1% 0%0% 1%0%
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Figure 21.
Are you confident that your finance and treasury functions are suitably prepared to enable your company to recover from a cyber-attack?
Not prepared – unsure we’ve done anything Somewhat prepared – we’ve done something, but more to do Well-prepared
Financial Institutions Sentiment Survey 2018
19
Scenario planning to size potential financial exposure
Cashflow and liquidity impact analysis
Contingency planning with banking providers (e.g. payments)
Contingency funding and capital raising
Cyber insurance
Figure 22.
Please can you give us a sense of what preparations your organisation has made to recover from an attack?
1%
5%
7%
9%
10%
54%
38%
54%
41%
38%
45%
57%
39%
50%
52%
Very confident
Fairly confident
Not very confident
Not confident at all
20%
75%
5%
0%
Of the 20% very confident to withstand a cyber-attack, 93% are well prepared in terms of cashflow and liquidity impact assessment
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March 2018
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