The speed and scale of digital transformation within the financial services industry is contributing to the emergence of new non-financial risks, according to a new report published today. Sustainable Financial Services in the Digital Age, a joint report from UK Finance and Parker Fitzgerald, comes only days ahead of the introduction of General Data Privacy Regulation (GDPR) and highlights the need for firms to consider their exposure to risk and operational resilience in today’s digital age.
The report outlines how adopting new technologies, including artificial intelligence (AI) and machine learning, cloud computing and distributed ledger technology (DLT), will allow the financial services sector to develop new services and platforms to significantly reduce operational costs. Those organisations committed to full-scale transformation will be best placed to deliver the greatest benefits to customers and shareholders.
However, a failure to address emerging risks, as well as internal risk management processes, could lead to operational, as well as systemic, threats across the sector. At the core of sustainable digital finance is the management of operational risk and safeguarding of data particularly poignant given the advent of GDPR this week. For example, the growth of digital outsourcing via the cloud will allow companies to uncover new sources of efficiency, but this creates cyber vulnerabilities and emerging risks further ingrained within the business supply chain.
The report calls on the industry to collaborate with technology suppliers as well as domestic and cross-border regulators to create a risk framework that embraces the benefits of digital transformation with the following recommendations:
- Placing the safeguarding of data at the core of sustainable digital finance
- Closing the gap between incumbents’ digital aspirations and the reality of legacy IT estates
- Reviewing the integrity of fintech ‘component solutions’ being integrated into the supply chain