Much has been written about the digital future of finance and banking over the past few years, particularly as it relates to the disruptive technologies gaining traction and their potential impact on the actual business of finance.
But what impacts can these disruptive and transformative technological changes have on culture and conduct, both within an individual financial firm and the industry more broadly? Does technological change present an opportunity — or an impediment — in building the trustworthiness of the financial sector?
Technology advancements within a firm tend to remove friction, accelerate processes, displace human labor and unbundle core functions. As firms strive to stay competitive given this rapid rate of change, we are seeing a rise of technologists in banking, with some banks aspiring to emulate tech firms. This shift in the underlying composition of a firm has the potential to lead to a culture clash with traditional banking models. Firms will need to carefully balance the drive for innovation with prudent risk taking.
As business models, workforce and the culture of financial services evolve through technological change, how do these changes impact the public’s trust in banks? Consumers will continue to need trustworthy providers of financial services. New uses of technology may help mitigate conduct risk. They may also provide fresh opportunities for mischief. Steering a firm toward the former, and away from the latter, will be of the first order.
Supervisors, too, need to be attentive to technological change and its impact on consumers and the stability of the financial system. An array of cheaper and more suitable products are likely to become available for consumers. Regulatory technology may substantially reduce human error and misconduct, but may not address all of the risks posed by these new offerings (i.e., will RegTech keep pace with FinTech). And, with greater electronic connectivity — and less actual in-person connection — the basic human ties that foster self-restraint and greater trust may be lost.
Finally, to navigate this fast-changing and complex environment successfully, strong leadership will be critical. Technology often results in greater complexity and a realm of deep vertical expertise that only highly skilled technologists can understand. This will present new challenges to corporate governance and the traditional responsibilities of directors. Specialized technology expertise in senior leadership positions, and on boards, will become increasingly important over time, but boards should not delegate oversight responsibility to one or a handful of “expertized” members. The public purposes of banks must remain an indispensable part of the decision process when making leadership choices. Technology is, after all, a means to an end, not the end in itself.
Tom Glocer is the former CEO of Reuters.5 - Readers Like This Post