1. Cyber-crime – Facing the ‘New Wave’ of criminal
It is now exceptional to read about a bank robbery where criminals have entered into a bank branch and physically taken money out of the building. The introduction of more effective security systems, such as bullet proof windows and barriers and closed-circuit television, means that only the foolhardy would risk trying to steal from a branch.
Unfortunately, that does not mean that the banking sector is safe. On the contrary, the banking sector is facing a more serious threat where the perpetrators do not even need to physically enter the branch. The IT systems of the banks are now the focus of determined criminals who can transfer millions of pounds (or indeed any currency) within seconds to different accounts and move money across jurisdictions and borders with a few strokes of a keyboard. The full extent of the threat of cyber-crime is only emerging and is almost certainly going to hit the headlines in 2015. With IT systems of the larger banks under scrutiny for failures and inadequate controls, it is open to question whether the level of security and infrastructure will be sufficiently robust to withstand the challenge of cyber-crime.
2. Effecting cultural change
Tracey McDermott, head of enforcement at the Financial Conduct Authority, put it most succinctly: “The cultural change we are looking for is perhaps analogous to the shift in attitudes to drink-driving between my parents’ generation and my own. For my parents and their peers, reluctance to have a drink and get behind the wheel was mainly because they were scared of being caught… For my generation, however, drinking and driving was presented as a moral issue. We were made to think about whether it was right or wrong by forcing us to focus on the impact it could have on others’ lives.”
Whilst every chief executive of every bank has spoken of their desire to put customers first and change the culture within their organization, no one has explained how they intend to do this in practical terms. Will next year be the one where that change begins? It has to be if the banking sector is going to regain the trust of the public and their customers. My prediction is that technology will be the driver for this cultural change – with every sale and every trade checked for the misdemeanours of the recent past.
3. More stress testing
One of the conclusions reached after the banking crisis of 2008 is the notion that banks need to have greater capital reserves to avoid being too big to fail. As a consequence banks have undergone stress tests and required to hold ever greater amounts of capital. This avoids dealing with the more thorny issue of the inter-relationships within the global banking community and how one bank can be intrinsically linked to a host of others. The weakest link may yet still be capable of threatening the stability of the world’s banks. However, for the time being the major banks will need to comply with the current and future requirements of capital reserves.
The full knock on effect of these requirements will come to light in 2015 particularly if the predicted growth rates for the major economies of the world slow further.
4. Dealing with heightened regulatory scrutiny
With 2014 seeing record fines for LIBOR and FX rigging, the banking community would like to think it has seen the last of the scandals. Unfortunately, the one thing we can safely predict is that there will be more regulatory investigations and issues to surface in the next year as regulators across the globe continue to scrutinise the current and past behaviour of banks. It is likely that 2015 will see a number of individuals facing prosecutions for their part in the major scandals of 2014.
Banks will have to continue to invest heavily in compliance and risk monitoring to ensure that they can deal with this increasing regulatory scrutiny.
5. Facing another economic downturn?
As China faces more unrest in Hong Kong while its economy has been slowing down coupled with Russia’s own economic woes, the outlook does not look promising. The Western economies are struggling to meet predicted growth rates and instability in the Middle East continues cause concern. Nor is it clear how long the historically low interest rates and fiscal engineering across the globe can be maintained.
How will the banks fare with a new downturn in the global economy? Stress testing and capital requirements will complicate matters, as banks have to step up and play their part in helping individuals and companies. We can only hope that they are able and willing to do so.