The financial services sector has acted as a buffer for many companies and people impacted by what has now been more than 18 months of COVID restrictions.
COVID itself has not had a detrimental effect on the sector, however it’s an issue that’s being watched closely in this ultra-low interest rate environment. More of concern is the regulatory reform agenda. Comprising of multiple streams, many delivered concurrently, the pace of change in the financial services sector will require preparation to meet new and expanded obligations, as well as a strong trend towards transparency and public reporting to the marketplace and consumers. It’s a changeable environment; dynamic and far more innovative than it was even 24 months ago. We are the go to partners for financial services institutions looking to get ahead of change.
Top trends in Financial Services
Issues impacting businesses in Financial Services
Regulatory reform is the largest challenge for the banking sector
Post Royal Commission, years’ worth of regulatory reform was introduced – reform that was largely put on ice when COVID first hit and our economy took a dip. Coming into 2021 the economy appears to have stabilised and regulatory reform is not only back on the agenda, it is being rolled out at pace and concurrently. This means that financial institutions are implementing numerous changes all at once, while also still performing their important role as a financial buffer in the wake of continual lockdowns and a volatile COVID landscape. We cover these trends and more in our annual ADI Conference.
Open Data and Consumer Data Right (CDR) is in force
CDR in Australia is intended to create market competition and drive new product innovation for consumers. At the core of the CDR and the open banking program is a more robust, secure and private way for entities to share data about consumers and their accounts. Entities wishing to gain access to consumer data under the CDR will need to become an Accredited Data Recipient (ADR). This process of accreditation ensures only entities that have appropriate processes and controls in place to protect consumer data are given access.
The landscape for fintechs is about to become more fertile
Fintech’s – which range from digital only banks to any technology used to streamline, digitise or disrupt traditional financial services – are emerging in response to the rapid rise of Australians demanding 24/7 access to their finances. Here in Australia there are a number of inquiries including a Senate Fintech inquiry by the 'Committee on Australia as a Technology and Financial Centre' and the RBA’s investigation into a Central Bank digital currency. Both has the potential to further (and completely) disrupt the financial services sector – and hopefully provide the platform for new entrants and competition in the fintech space.
Private Health Insurance
Cost pressures mount for Private Health Insurers
The latest Intergenerational Report from the Australian Government breaks out health funding across Federal (contributing 41%), State and local governments (27%), and private contributions (32%). PHIs are doing a lot of the heavy lifting, however it is well documented that health spending is generally growing faster than the rest of the economy due to demographic shifts, advances in technology and rising incomes. There is a distinct trend in both individuals abandoning their private health insurance as 'too expensive', and more expensive claims from Australians needing support.
Transparency and performance key for superannuation
After a rocky 12 months, the reform agenda is back on the table with notable changes impacting both superannuation funds and employers – like the increases in the Superannuation Guarantee – and from the end of this year superannuation funds will automatically follow employees throughout their careers. This last one will be achieved through the extension of how Tax File Numbers are used, and while seemingly a small change, it is revolutionary in terms of how superannuation funds source new members.
Asset Managers will be swept up as part of the regulatory reform agenda
Increasing regulation, margin compression and investor demands for returns and transparency in a challenging global environment have brought new challenges to the asset management sector. Changes to superannuation in particular will flow downstream to asset managers as transparency and performance are tested on an annual basis.
Fraud, AML/CTF and cyber security on the Board agenda
Financial institutions are an important node linking funds to individuals, corporations and governments. The Big 4 banks in Australia alone have total assets of between AU$3.8t – intangibly moving between accounts and jurisdictions. The sector is well aware of the target on their back – but when misappropriation, fraud and cyber crime is becoming more sophisticated and could easily come from within the organisation as it could outside, having an independent advisor to review system and investigate suspected breaches is an important safety net for your Board and stakeholders. We cover this and more in our Corporate Governance Report.
Financial institutions are continuing their journey meeting the requirements of APRA Prudential Standard CPS234 Information Security, with leading practice going beyond compliance. Learn more about CPS 234.
Other financial services solutions
Consolidation a key trend in the financial services sector
The fastest way to bring new skills and abilities into your organisation is to acquire it. This is particularly true for the big banks, where acquiring skills or tech can often be faster than trying to build capability in-house. Smaller financial institutions and Mutual Banks, on the other hand, have a long history of excellent customer experience and benefits, and are looking at consolidation as a way of ensuring they can continue to work for the benefit of members within a more stringent regulatory environment.
Tackling the war for talent on two fronts
Employee share schemes have been a popular method of attracting and retaining talent for the fintech and neobank space. Design a scheme to link not only to performance, but IP, and you can help incentivise people to stay, and protect your intellectual property at the same time. It’s important to match the kind of scheme you adopt with your business aspirations and the people outcomes you’re looking to achieve. But the challenge is finding the right people in the first place – and whether from a domestic or international talent pool, COVID-19 has made it even harder to attract and retain the right people for the role. With borders closed and all international jurisdictions recruiting top talent, it is imperative to rethink your global mobility approach to turn the tap back on.
We cut through the complexity of compliance
The financial services sector is no stranger to compliance, however with regulatory change impacting every part of the sector, and the government cracking down on issues like tax governance and risk management. It pays to always be on the front foot with your systems and processes. Whether it’s tax, audit or risk, we can cut through the compliance and complexity.
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A laser focus of servicing clients | Teachers Mutual Bank
Founded in 1966, Teachers Mutual Bank Limited is one of the largest mutual banks in Australia, with over 198,000 members and assets of over $7 billion. Listen to Steve James, CEO of Teachers Mutual Bank, talk about contributing factors to their significant growth and approach to responding to changes in the market.
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