After the crash, how can we rebuild trust in our financial institutions?
The global financial crisis of 2008 laid bare vulnerabilities in the world’s monetary systems. Axel Lehmann, Chief Operating Officer of UBS Group and co-chair of the Global Future Council on Financial and Monetary Systems, sees a further need to rebuild trust, as financial institutions continue to adapt to a period of regulatory and technological change.
Can you explain why we need this Global Future Council. Why it is so important to discuss and try and shape the future of the world’s financial and monetary systems?
We want to look to the future of the financial and monetary systems from a mid- and longer-term perspective; we don’t want to take a short-term view. We also want to look at this from an interdisciplinary perspective, with people from the public and private sector, from academia, from different regions; a really diverse group of stakeholders so that we get as much perspective as possible.
We want to look to some of the underlying trends that will shape the global financial system over the next 10-20 years. That’s a platform that should be ideally positioned to allow free thinking. We can challenge each other, as we all have different perspectives, and that should create the innovative ideas and the structure of the work we are going to do.
The scale and complexity of the challenges facing the financial and monetary systems, as well as the opportunities enabled by breakthrough technologies, demand integrated thinking, interdisciplinary knowledge and a multi-stakeholder dialogue between thought leaders from business, government, civil society and academia.
What are the emerging themes in the field of financial and monetary systems?
There are a couple that are really obvious. One is definitely the continued and evolving regulatory framework. After the tidal wave of new regulatory requirements as a result of the financial crisis, the financial and monetary system is facing a new complex regulatory environment.
The second one is technology that is not only increasing access to the end user of financial services but is also partially democratizing financial services. Innovations including new forms of products and services can also help support stability in the system and help improve trust in the society.
You then have all the demographic shifts, they are hugely important to the financial system. These are some of the underlying forces that shape the future of the financial system. What are the major technologies driving change in financial services, and how are they changing them?
There’s a whole series of new technologies. Part of it is covered by what people normally refer to as "Fintech". Fintech investments have gone up five to 10 times over the last five years to enhance the customer experience and the customer interface; but also help potentially restructure the whole financial system. Also, technology can significantly change how we process financial data and how the whole financial system will be architected going forward.
Data is another important driver of change: access to and use of data can have a significant influence. Behavioural finance can be developed even further using appropriate technology. Technology will clearly enhance the value proposition of existing incumbent companies, but you can expect that new competitors will emerge in that landscape.
To what extent has regulation and governance kept pace with technological innovation? What more needs to be done?
Technological innovation goes hand in hand with governance and regulation. There are very few regulators that truly embrace innovation. So it’s a question of shift of mind-set. As Fintech creates new forms of competition, new forms of services, regulators need to think about how to regulate because ultimately you need a level playing field. So incumbent companies want to have the same approach to regulation as new entrants have.
Secondly, regulators will use Fintech, and people are starting to talk about "Reg-tech". So technology can help support regulatory and supervisory authorities in compiling and analysing data, streamlining the interface between the regulator, the supervisor and each individual bank. Regulators will use technology to further professionalise their activities in the face of change but regulators also need to embrace innovation.
This is complex and quickly evolving so a close co-operation between the industry and the various authorities and the various potential start-ups or Fintech companies is needed, to assess what is the right way when it comes to regulation and supervision and what will enable incremental value creation because ultimately it’s about value creation for the whole financial system.
What else is required to rebuild trust and stability into the financial system?
I see huge efforts in basically all financial services providers in terms of instilling a culture of performance, reliability, integrity and trust. So it’s a cultural shift within the sector that needs to be continuously nurtured.
On the other hand, I think it’s also important to make financial services better understood and more tangible. Ultimately financial services is a pre-requisite for the wealth of the nation and what has happened is that people on the street don’t really understand the services and the value that, for example, insurance, the banks and asset managers provide. So it’s about communication and it’s also about financial literacy. The industry has an interest to support initiatives that enhance financial literacy. These I think are prerequisites that we can regain the trust that we partially have lost as an industry. To what extent is there a need for a new blueprint for the global financial system?
I’m not sure if a really new blueprint is needed but of course new and fresh perspectives are necessary. Ten years from here a lot of things will have changed. The low or even negative interest rate environment that we have will completely change the landscape; client behaviour and technology is changing; the new regulatory environment; these are all driving forces that will change the financial system. So I’m not sure if a new blueprint is really needed but definitely new perspectives to further enhance the financial system.
Looking ahead to 2030, what do you hope will have been achieved in this field?
The role of the financial industry to support the economy, to allocate assets/capital and to assess and manage risks is essential for a thriving economic environment. We are now in a time of complete change from a global economic perspective. In the year 2030, financial systems will have evolved and matured further. The thrust for financial systems is to link strongly back to what some people might refer to as the real economy to bolster prosperity and wealth. I also believe that the client experience in financial services will have changed. We will have a new mix of hi-tech and high touch: the customers will be supported by technology but ultimately human interaction will play an important role.
SOURCE: World Economic Forum