Structural changes have been accelerated by the pandemic as financial institutions face new tests of their resilience
In early February, if you had told the head of trading at an investment bank or asset manager that most of their employees could, within weeks, be trading remotely with full regulatory approval then you may have had your sanity questioned. But here we are, several months later, and the shift to remote working has been swiftly and successfully delivered as financial institutions learn to adapt – at pace – to the pandemic constrictions imposed on normal life.
The pace of change is unlikely to slacken either as financial institutions start to think about how their business models need to be repurposed for a completely different environment from that left behind before the pandemic.
Aon’s recently published decision making framework – Decision Making In Complex & Volatile Times: Keys to Managing COVID-19 – describes three distinct timeframes to an organisation’s response to a crisis: react and respond; recover; and reshape. After the upheaval of the initial react and respond as businesses sought simply to keep the metaphorical lights on, most have moved through the recover stage (which relates to stabilising the business and looking at shifting to new operating models), and on to the reshape phase which acknowledges the world will not be the same as it was before COVID-19, with a need for leaders “to rebuild their vision, strategy and priorities for the future.” As part of that drive to reshape, two themes already stand out: accelerate and resilience.
A CEO of a major Asian bank recently said he had seen the scale of digital adoption over the last six weeks in line with what they had expected to see over the next three years. The acceleration of digitalisation has been astonishing whether it’s the quantum of employees working from home or the ability of customers to engage digitally. This will have long-term ramifications on banking and investment management and it is highly unlikely that we will go back to where we were at the start of this year.
If you are the head of HR, Strategy, or Risk at a bank, you are now faced with a whole series of scenarios that weren’t at the top of the list at the beginning of 2020. What has the pandemic done to your conduct risk for example? The perception was that a trader or a salesperson had to work in a controlled and ringfenced trading floor which only allowed access to authorised persons. But, with these employees working from home, the challenge now is how to manage compliance and ensure the same levels of conduct risk and do so in the space of weeks rather than years.
There are also new HR issues around employee wellbeing, as well as technology issues in ensuring that employees have robust access to secure systems that might now rely on domestic wi-fi arrangements.
How is a bank going to be resilient now they have tens of millions of customers on their app? And on the credit side, by mid-May, the UK government had lent £15 billion via banks and other financial institutions through its various coronavirus loan schemes. Are their balance sheets resilient to the extension of credit to so many customers not just through loans but also in other measures such as mortgage holidays, and fee free overdrafts?
What about the ability to respond to a global recession? For investment managers who pride themselves on spotting the troubled regions or industries and creating strategies to benefit their investors, what do you do when every region and every industry is affected? Remote working makes it harder to huddle and create new strategies.
There are suddenly a whole new range of issues and problems that leadership will have to get their heads around quickly because as the immediate effects of the pandemic recede in many countries, decisions will need to be made that could shape the future of organisations for a generation.
Reshape for a different future
Not every change will be permanent of course. People are social animals and like to meet face-to-face and we will revert to that in some form but make no mistake, the pandemic will change the way we work. Employees will demand to do more work remotely and new questions will be asked around previously accepted orthodoxies: if call centres can successfully work from home, why force employees into expensive buildings? Why close local bank branches when the first floor of those buildings could become regional centres for investment bankers no longer so willing to make the arduous (and potentially dangerous) commute into London? Now is the time to consider what would have been unthinkable at the beginning of the year and begin to reshape financial institutions for the challenges ahead.
For more help and advice on how to respond to the COVID-19 crisis, download Aon’s Decision Making In Complex & Volatile Times: Keys to Managing COVID-19 – a comprehensive framework to help organisations make the right decisions at the right time.
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