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5 trends financial services organizations will face in 2022 — ready or not

With the holidays behind us, it’s time to give serious thought to what the new year might bring. Although no one can predict with certainty what lies ahead in 2022, here are 5 trends to notice as we begin the next trip around the sun. 

1. How’s your digital transformation coming along? (Hint: Tech can accelerate it.)

The phrase digital transformation has been buzzing in our ears for some time; you might be tired of hearing about it. But don’t turn off your attention: 2022 is the year for financial services to go all-in with digital. Digital transformation is all about effortless technology, and tech is ready to help streamline your experiences. That’s good news for banks and credit unions, nearly half of which entered 2021 without a digital transformation strategy in place.

So, if your organization is scrambling to keep up, you’re not alone. A recent survey found that 97% of organizations accelerated their transformation efforts in 2021 in response to the global pandemic. Future historians may well regard 2022 as the year businesses got their digital transformation act together or fell hopelessly behind.

Although people speak of digital transformation broadly and generically in reference to all industry verticals, different flavors of transformation apply to different industries. Financial services organizations, for example, must consider ways in which decentralized finance (DeFi) might influence their transformation plans. Consider massive multinational financial services provider ING’s recent announcement about its trial DeFi-based peer-to-peer lending protocol.

Many technology tools are available to help instigate and accelerate digital transformation. The most crucial component of successful transformation is the skill leaders use to manage the process of change. A recent study found that 4 out of 5 financial institutions are navigating a time of “confusion” around rapid digital transformation. A quote attributed to Charles Darwin describes companies most likely to survive and thrive in this environment: “It is not the strongest of the species that survives, nor the most intelligent; it is the one most adaptable to change.” 

2. ESG brings opportunities and speed bumps. (Hint: Tech can help with both.)

Financial services organizations in 2022 will likely need to focus more than ever on environmental, social, and governance (ESG) issues. That’s not a bad thing — if your organization is ready to meet the challenges and harness the opportunities that will accompany that enhanced focus. Stakeholders ranging from customers to CEOs are likely to be paying attention to your organization’s management of ESG issues in 2022. Government watchdogs will be more than a little interested, as well.

With 2021 being a bellwether year in ESG, there was an increased push for organizations to conduct operations in a socially responsible manner. We can expect that trend to intensify in 2022. Societal norms and standards are constantly changing and evolving — nothing new there. ESG standards are evolving, too, but the pressure to conform and adhere to them is likely to escalate to unprecedented levels.

Consider the extent to which just one aspect — climate change — can affect how financial institutions conduct lending and investment activities. As sustainability disclosure rules become more stringent, financial organizations will likely shift away from clients who do not follow sustainability objectives and policies. As a recent report concluded, these organizations need to start examining their exposures to high-carbon industries and begin developing financing solutions that help their clients transition to a low-carbon economy.

Likewise, the Magnitsky Act, which remains in effect through 2022, signifies and enables a stronger focus on human rights. The Act provides the executive branch of the U.S. government with unprecedented power to impose sanctions — including financial sanctions — on anyone, anywhere. Financial services institutions, of course, must comply with all sanctions that are imposed by the government.

All financial services organizations have lots of work to do in 2022 to make certain that they uphold the standards of ESG. The increased societal focus on ESG also brings with it many opportunities to generate goodwill with a public strongly conscious of environmental, social, and governance issues. Technology can help with both compliance and cultivating goodwill. 

3. Yep, you’re on a list. (Hint: Tech can help you avoid being naughty.)

In 2022, financial services companies will be on a list that’s checked more than twice — and not by a gentle old soul. In 2022, regulatory agencies will be watching financial services organizations more closely than ever.

The global COVID-19 pandemic bears some of the blame for the increased scrutiny, due to the accelerated transition from on-site services and operations to remote locations where transactions were conducted online, often by people in their home offices. In response, government regulators have expanded and modified regulations, making them more consistent with the realities of a post-pandemic world. The enhanced regulations are designed to protect both the consumers and the providers of financial services — but the providers bear the burden of ensuring compliance with the regulations.

A specific regulatory change to watch for in 2022 is the potential implementation of fair-lending rules that are less friendly toward banks. And the challenge of maintaining regulatory compliance across a distributed workforce will be a major focus for many financial services organizations. These organizations can use tech to gather data and produce metrics to meet the increased transparency and reporting requirements. Expect many more financial institutions to turn to cloud-based solutions and machine learning to help maintain compliance in the coming year.

4. FinCEN will demand much more of financial services institutions in 2022. (Hint: Tech can help you deliver.)

Government agencies have long expected financial institutions to assist in the multi-front battle against money laundering and the financing of terrorism. In 2022, the Financial Crimes Enforcement Network (FinCEN) will be asking financial services institutions for more help — and refusing that request is not an option. But don’t worry: Tech can make it easier to be a good citizen.

Conforming to government-mandated sanctions places burdens upon financial services institutions — and if the early months of the Biden administration give us any clues, that burden will intensify in 2022. Within the first few months of the administration, new sanctions were imposed on Myanmar and Russia, and existing sanctions against China and Iran were maintained.

The current administration will also be implementing and enforcing the Anti-Money Laundering Act of 2020 (AML), along with the Corporate Transparency Act of 2019. Changes resulting from these pieces of legislation that might affect financial institutions in 2022 include:

  • New requirements for reporting beneficial ownership information
  • Expanded powers for the U.S. Justice and Treasury Departments to subpoena data records from banks
  • Enhanced support of whistleblowers reporting money-laundering activities

Lowering the threshold amount that triggers a required report of international fund transfers is also under consideration for 2022. The current $3,000 threshold might be lowered to $250. And in November 2021, the Department of Justice made a “no more Mr. Nice Guy” proclamation regarding white-collar crime enforcement. Companies were warned “to actively review their compliance programs to ensure they adequately monitor for and remediate misconduct — or else it’s going to cost them down the line.”

In case all of the above isn’t enough to worry about, you can add this to your list of 2022 concerns: AML-related regulatory requirements may increasingly be driven by ESG issues. As that occurs, expect the scope of AML regulatory scrutiny to expand significantly for financial institutions.

And yes, tech CAN help with everything that FinCEN and other government agencies may demand of your financial services institution. 

5. Tech isn’t the answer to everything. (Hint: Tech won’t help you with these issues in 2022 — and never will.)

Just when you thought technology was going to be the answer to everything — we’re going to ask you to think again.

It’s safe to say that most of us have become deeply dependent on technology, and that’s certainly true of financial services organizations. Nearly every day, we’re bombarded with hype about the future impact of tech, particularly in machine learning and artificial intelligence (AI). (In case you haven’t reached your hype quota for the day, here’s one for you: A company appointed a computer algorithm to its board of directors several years ago. Yes, really!) But humans are uniquely, well, human. And machines never will be. Among the many human qualities at work in business and personal relationships that the computer algorithms of AI and machine learning can’t replicate are these:

  • Emotional intelligence
  • Creativity
  • The ability to form human relationships
  • Empathy
  • Intuition-inspired problem-solving

So, the good news is that humans will never become entirely redundant. The bad news is that it’s becoming increasingly difficult to distinguish between endeavors where tech can and cannot help. As that frontier is explored and the boundary between what tech can and cannot do is further refined, some pain may be involved — and massive real-estate company Zillow recently experienced some of that pain.

Zillow implemented its iBuying business unit to use automated algorithm-based decisions for buying and flipping homes. The idea was that AI and machine learning could do the job better than humans, making fast, accurate decisions in the blink of an eye. But in fact, as Zillow learned, many intangible variables arising from human emotional responses influence the forecasting of real-estate prices in any given market. The iBuying algorithms just couldn’t master those variables. The painful result was the loss of hundreds of thousands of dollars, the layoff of thousands of employees, the shuttering of Zillow’s home-buying business, and a one-day 25% plummet in Zillow’s stock price. Ouch.

What’s the takeaway lesson from Zillow’s painful exploration of the boundaries of technological capability? Maybe we should tap the brakes on expectations for tech. Where are all those self-driving vehicles we were supposed to be riding around in by now? Be careful what you ask of tech in 2022 because asking too much or asking too little of tech can bring you pain, either way.

And one bonus trend for 2022… (Hint: This one is all about tech.

The next year will continue a trend that will only intensify in future years: the intergenerational passing of wealth. As the baby-boomer generation cedes demographic clout and wealth to millennials and Generation Z, financial services organizations will need to make some changes in the way they conduct business — and those changes are all about technology.

The lives of younger generations are more entwined with technology than any previous generations. From an early age, they have become accustomed to technology-based or technology-assisted relationships. And that’s how they want to do business. A recent survey found that 75% of millennials will readily discard their current financial services organization in favor of one that offers a better mobile app. And more than half of Gen Zers prefer to open new banking accounts with a mobile or desktop app — no human interaction required.

The message is clear: Financial services organizations will need to up their tech game to effectively attract and retain younger customers in 2022 and beyond.

The most accurate predictions start out as best guesses

Ultimately, the trends we’ve predicted here are only guesses. All predictions, after all, emerge from a certain amount of guesswork. Even those predictions that history eventually proves to be right on the money started as educated guesses. Although we believe that our guesses/predictions will be accurate, only time will tell.

It seems reasonable to think that 2022 will be an improvement upon the recent pandemic past. Here’s hoping that it trends better. 

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