With the new year well and truly here, it’s appropriate that we look to see what lies ahead in the coming months. This year, for 2024, leaders from Baker McKenzie’s financial institutions group discuss what’s on the radar for financial institutions.
Fintech and Digital Transformation
As a top line, all agree that the sector will continue to face challenges from new technology, climate change and ever-increasing scrutiny of their operations. This is all against a background of economic and geopolitical risk. To take the first of these themes, financial technology (or fintech) and digitalization, they discuss developments in the regulation of cloud providers, as well as progress toward launching central bank digital currencies and their likely impact on banks. Finally, they look at the payments sector, referencing the growing importance of data monetization in the search for more revenue.
Arguably, financial institutions are at the heart of sustainability to a greater extent than carbon-dependent industries, because the financial system — remembering the pivotal role of capital — is seen as a catalyst for change across the whole economy. On environmental, social and governance (ESG) matters, our partners discuss the potential for greater cohesion of regulation internationally. Differing regulatory requirements are one of various obstacles to offering products and services that align with the Paris Agreement’s goal of net zero by 2050. Transition finance is another topic that our experts believe will become center stage in sustainable finance. Reflecting our clients’ concerns, they conclude with a discussion on potential liabilities from ESG, whether from greenwashing, litigation or regulatory enforcement action.
In terms of regulatory scrutiny of financial institutions, the focus is on cyber-risk and its counterpart cyber-resilience, a consequence of the move toward greater interconnectedness in the financial ecosystem. While technology brings opportunities to financial services, it also brings new risks. Two other topical subjects concerned with regulatory scrutiny are, first, sanctions — reflecting the rise in geopolitical risk in recent years — and, second, growing expectations around diversity and equality standards in leading financial centers. If not approached with care, diversity and equality can trip up even the most well-intended organizations.
Besides these megatrends, our financial institutions leaders also spotlight two subsectors, financial sponsors (including asset managers) and investment banks. Their remarks touch on the increasing scrutiny to which private capital is subject against an uncertain economic backdrop, and the impact of the OECD’s tax reform proposals. As for investment banks, there is the potential impact of AI regulation, plus transactional challenges and competition from private capital.
We hope that you find what’s on the radar for financial institutions of interest. Our partners would be happy to discuss any of these issues and risks further with you.