The top three major concerns for banks are successfully delivering a digitally driven business, navigating regulatory change and building operational resilience, according to a report.

Yet, despite boardroom anxiety about potential disruption to business in the face of current economic and political volatility, there is recognition that investment is necessary to remain robust and competitive.

A similar proportion (31 per cent) suggests the scale and complexity of their bank present the biggest hurdle to delivering operational resilience, while 24 per cent view regulatory change as their biggest challenge in the next three years.

However, the report also revealed that banking executives are responding positively to the disruption faced in 2020. Almost half cited improvements to homeworking, one in five focused on enhancements to existing services and distribution channels and 10 per cent have offered new services to customers.

“Keeping pace with the regulatory reform agenda is a top priority for many of the world’s banks, but if they are to succeed the challenge will be moving away from ‘policing’ activity to ‘spotting’ emerging risks,” Herbert Smith Freehills partner and co-chair of the global banks sector group Tony Damian said.

“The banking sector has enjoyed a reputation for being amongst the first to adopt new technology, but the current climate seems to be reducing the appetite for risk and innovation. Yet, whether the sector is focused on how to advance legacy systems or meet evolving regulatory demands, the real fear should be around how inaction might result in a greater number of obstacles blocking the path to success.”

The survey revealed the top three concerns in Australia for the next three years are around regulatory change (24 per cent), digital transformation (22 per cent) and operational resilience. 

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With increased regulatory change, compliance has risen as a critical function within financial institutions across the globe, according to the report.

“The impact of complex regulation, increasing data monitoring and reporting requirements, and more powerful regulators across jurisdictions, has been keenly felt. Strategic (and resilient) teams will adapt their methods in line with these changes, and the new forces shaping the compliance agenda,” the report analysed.

“Effective compliance teams, of course, must be adept at scanning the horizon to distil and explain change as well as predicting future trends. Signposting early where existing systems and processes may need to evolve is critical.”

The report, which comprised analysis of the approach taken by global banks on issues as diverse as governance, LIBOR transition, technology and syndicated lending, also reveals that, although the focus of external stakeholders on corporate accountability and financial resilience is front of mind for global banking executives, many banks are not conducting risk assessments around their environmental, social and governance (ESG) lending and investing opportunities. Just 14 per cent do so for retail lending and 25 per cent for mergers and acquisitions.

The review stated it is clear that the disruption caused by an increased focus on ESG offers banks the opportunity to evolve their business practices, develop novel lending products and incorporate ESG considerations into their investment activities to meet customer and regulatory expectations. However, it noted questions remain regarding who takes responsibility for this – with the data revealing that just 14 percent of boards and 21 percent of senior leadership teams are accountable for ESG decisions.

“Understanding the scope and application of the range of new legislation and regulations, benchmarks and various disclosure and transparency requirements, gives banks a competitive advantage. ESG therefore offers a significant opportunity for banks to lead a fundamental shift in the finance industry and the wider economy”, Mr Damian said.