BY Fraser Tennant
Regulatory compliance is the biggest single factor affecting the adoption of new technologies across the financial services (FS) sector, leaving firms vulnerable to cyber attacks and other risks, according to a new report by CMS.
In its ‘Technology Transformation’ survey of 85 senior counsel and risk managers across the FS sector, CMS found that risk managers remain engaged with digitalisation, citing the top drivers for adoption to be a response to regulatory requirements (40 percent), M&A (38 percent), customer demands (31 percent) and the adoption of transformational new technologies such as artificial intelligence (AI) (31 percent).
“The FS sector is at a crossroads, with traditional firms often having a vast number of legacy systems in place which are particularly difficult to replace or upgrade,” said Alexander von Bossel, a partner at CMS. “With technology becoming increasingly complex, technical failures, vulnerability to cyber attacks and the risk that these systems do not meet customer needs grow proportionally.”
The study also shows that the expected future risks are different to those FS firms face today. The FS sector is currently most concerned with risks related to compliance and regulation (73 percent), IT performance (62 performance) and cyber breaches and data security (51 percent).
The risks that FS firms expect to see in the future, however, include AI (56 percent), smart contracts (53 percent) and cloud migration (53 percent) – new technologies that are generally less well understood.
However, when it comes to addressing these risks, respondents cited internal resistance to change (54 percent), lack of in-house skills or expertise (52 percent) and lack of budgetary sign-off (49 percent) as the primary obstacles to minimising technology-related risks.
“FS firms may have no choice but to face the challenge of upgrading, but in addressing it, they will also reap the wider benefits of new technologies,” added Angela Greenough, a partner at CMS.
Ultimately, CMS finds that FS firms are at a real tipping point, with large incumbents eying smaller firms and FinTechs for their IP and skills to remain competitive, while considering upgrades to legacy systems.
Mr Von Bossel concluded: “Every sector faces emerging threats, but for FS firms, greater risks may lie in inaction rather than action.”
Report: Technology Transformation