The Current Account: The Latest Headlines From Across The Banking Sector - July

2022-08-16 |  Ben Dineen

Headlines from the banking sector this month

In this edition of The Current Account, we focus on the implications of political uncertainty on the sector and the government’s latest efforts to regulate AI.

Political uncertainty impacting the sector

  • The resignation of Boris Johnson in early July has created uncertainty for financial services institutions and brought new risks for the market and the economy.
  • Responding to the news, Starling bank chief Anne Boden warned of the risks created by political volatility, making it harder for businesses and individuals to make well-informed financial decisions. This comes during the highest period of inflation seen since the 1970s.
  • The biggest base rate increase in 27 years was agreed in early August to tackle this, with projections of 13% inflation by the end of the year.
  • Increases in interest rates will have huge implications for businesses and individuals with higher risk borrowing and ramped-up mortgage costs. Banks are already seeing improved financial performance as a result, as seen by Lloyd's results for the first half of 2022.
  • For customers, this creates broader concerns about meeting loan and mortgage repayments commitments during a cost-of-living crisis.
  • Consequently, some retail banks have implemented support measures for customers. NatWest has launched a package of support for customers, colleagues and communities, which includes £4 million in new hardship funding for partner organisations which supports those who are in financial distress.

PEN Point Of View:

Political volatility brings risks that financial service providers must consider and balance when making decisions. 

Following a period of historically low rates, the ongoing Bank of England interest rate hikes bring obvious benefits to lenders. However, consideration needs to be given to customers, and how these interest hikes will affect them. 

Lenders have a duty to support consumers and gain an opportunity to share some of these benefits with them by passing on savings rates. The current political climate offers scope for financial providers to plan for potential risks while building trust with their customers.

Regulating Artificial Intelligence

  • In the latest step towards its ambition of becoming an ‘AI superpower’, the UK has unveiled its new AI rulebook. The rulebook includes six principles which clarify how businesses can develop and use AI systems while building public trust in the technology.
  • They are intended to overcome inconsistencies found in current laws and tackle ‘proportionate and adaptable regulation’. While this creates some uncertainty on how these rules can be adopted on a case-by-case basis, they certainly provide organisations with flexibility and space to develop their AI capabilities.
  • Those who provide financial services are at the forefront of AI technology; banks are projected to save $447 billion through the development and implementation of AI by 2023. The new rules offer an opportunity for banks to enhance the agility and resilience of their AI infrastructure, ensuring they are better equipped to offer a personalised customer experience.
  • Following the pandemic, AI technology has played a vital part in building trust between banks and customers. For example, Lloyd’s banking group have used AI to support the efficiency of their overrun customer service systems.
  • The regulation of AI is paramount as the industry grows, and consumer concerns about safety and security will continue to become a key focus point.

PEN Point Of View:

Flexible yet ethical regulation is necessary for a growing, thriving AI industry. This will allow organisations to grow, especially those just beginning to adopt this technology. 

AI is especially pertinent in transforming back-office capabilities, such as cyber security and risk modelling, as well as supporting crisis management, as seen during the pandemic. As the UK’s AI industry relies on consumer trust, those at the forefront in Financial Services must centre their AI development around enhancing the customer experience.

And in case you missed it…

  • Santander pledged the latest in a series of private sector efforts to mitigate the cost of living for employees. The bank supported 60% of its workforce, with pay rises from the 1st of August.
  • The FCA is using technology to improve decision-making. It’s investing heavily in innovative tech such as fraud prevention software and shifting core systems to the cloud.
  • UK regulators have put forward supervision measures for critical third parties under the proposed Financial Services and Markets Bill. The measures are intended to strengthen operational resilience in the UK.

We’d love to hear your thoughts on this month's edition, connect with us and share on LinkedIn, and we look forward to continuing the series.

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