2023: Financial services compliance gets tighter the year recession brings business risk

This year, businesses face many challenges that force their leaders to make tough decisions for the year ahead as the impact of the economic downturn continues. Given the World Bank’s prediction of just 1.7% global growth in 2023, there will be increased risk, particularly for heavily regulated industries. 

As we have seen in the last few years, remaining agile is paramount for any business. Financial services and insurance (FSI) organisations are no exception. They’re currently facing a battle on two fronts: protecting the bottom line in a turbulent economy, while being held more accountable on their environmental, social, and governance (ESG) practices. 

At a time when customer expectations are as high as ever, traditional banks and insurers must consider how best to innovate and grow in the face of adversity. Given the number and success of many fintech companies these days, FSI organisations must leap forward to stay relevant and ahead of the curve. Thankfully, constraints offer ample opportunity for innovation with technology playing a pivotal role.

There are three main areas that the sector should look to for the year ahead to enable business agility and remain competitive.

Innovation essential for adapting to increasing regulations

With recessionary economies, business leaders from financial services and insurance organisations should expect increased scrutiny on process controls and higher regulatory enforcement from governments and regulatory agencies. We are seeing issues around transparency and reliability related to digital currencies and open banking. The impacts of this will be even more profound when it comes to reporting around ESG. Climate change is now a priority issue for all stakeholders, with recent news from the World Economic Forum sighting that the failure of climate mitigation is the number one long-term global risk facing the planet today. And with the public sector and investors requiring more accountability in this area, we can expect the importance of ESG reporting to increase over the next three years.

The good news is that there is innovative technology at hand to help. To stay compliant and competitive, organisations could deploy solutions to monitor and report ESG activities with a process automation platform and  data fabric. This technology helps companies manage their data easily in one place, regardless of where data resides. Having a virtual data layer can help unify data across systems and quickly build enterprise applications. Integrated data leads to better insights, enabling organisations to simplify and accelerate all their critical processes, making compliance monitoring and reporting easier and faster.

However, in spite of this, 81% of European IT leaders in FS and 73% in the insurance sector said in a recent survey that they are concerned that the transition from the pandemic to economic downturn will see businesses freeze IT budgets and headcounts. This can lead to mounting IT backlogs, impacting enterprise digitisation projects to stall modernisation efforts. With that, FSI organisations must ensure they are protecting and strengthening their ability to adapt rapidly to change by using technology to gain a competitive edge.

IT must do more with less

As a result of being under pressure to cut costs, organisations’ ability to drive business agility could be short-lived. Eight in ten (81%) of developers and software engineers across Europe in the FS industry say their organisation is already shifting focus away from innovation projects towards cost-cutting initiatives. So, could this present a Catch 22 situation, where the troubled economy requires ambitious innovation, yet tight budgets prevent companies from carrying out that innovation?

Not necessarily. What remains important during uncertain times is that FS firms streamline their IT stack to focus on time-to-value, maximise return on investment, and stay competitive in an increasingly recessionary global economy. Process automation on a low-code platform is one solution organisations have used to design, orchestrate, and optimise critical processes. By leveraging the right technology, business leaders can increase productivity, and boost profits and savings, thus putting them in a better position to navigate the challenges ahead.

Skills gap may remain a challenge

Additionally, we mustn’t look exclusively at budget shortfalls in 2023. We also have to navigate a world where organisations may not have sufficient budgets to grow their IT team and recruit technical skilled workers to keep up with increased business and regulatory requirements. 

It requires a multi-pronged approach to address these issues. Firstly, FSI organisations need to make better use of innovate solutions, without heavy lifting from coders that have exclusively and painstakingly written applications in the past. Low-code development is helpful here. It allows FSI organisations to build powerful business applications efficiently and quickly, significantly reducing the need to write code. And given it is likely to be critical in the future of business innovation, low-code development provides a lucrative career path for individuals with no coding background.

That brings us to the alternative way to address the technology skills issue in 2023 and beyond. Not only can we take advantage of low-code to develop applications faster, which is vital in the battle to be agile in the financial services industry, we can also train more people to createthese solutions. For example, business analysts without years of technology experience would be able to create a simple app with mobile forms and automation features, then collaborate with more technical engineers to ensure enterprise-readiness with security, compliance, and data integrity.

Exploring opportunities to upskill and reskill existing talent will be particularly important for organisations during the downturn when budgets do not allow new hires. Low-code platforms powered by process automation lead in this approach, empowering a broader set of users to participate in digital innovation.

While the past two years have made it clear that all businesses must continue innovating to navigate times of uncertainty and economic flux, this stands particularly true for FSI organisations facing an increasingly complex regulatory landscape. That is why the demand for automation and low-code development – which makes it so much faster to build, modify, and execute enterprise applications – continues to surge as organisations scramble for solutions to help them remain nimble. In times of economic uncertainty, it is only those with digital agility that will be able to compete and stay relevant in today’s marketplace, throughout 2023 and beyond.