Private banks strive to balance innovation with safety
In the fast-evolving landscape of wealth management, the intersection of technological innovation and regulatory oversight was highlighted at the recent PWM summit.
As advancements in artificial intelligence (AI) and digitalisation reshape the financial services sector, private banks find themselves at a critical juncture, balancing the imperative to drive product innovation with necessity to safeguard consumer interests.
“What I see from a regulatory perspective is a big push to innovation and the setup of a framework in which we, as a player, can really develop something different,” said Damiano Baj chief operating officer at EFG Private Bank, which has $156bn in assets under management.
Speaking at PWM’s Innovation in Wealth Management Summit 2024, Mr Baj said the push for innovation will allow private banks to “provide a new service” as well as “deliver the traditional one”.
The key regulatory “essential” change in the UK, for Mr Baj, has been the Consumer Duty. “It puts a specific focus on a regulatory perspective for us as a company to have this cultural shift, where we really look at the care of the customer and the customer outcomes,” he said.
The Consumer Duty, a significant regulatory change, came into force in July 2023. Its aim is to raise standards of firms’ duty to their clients, a development that financial professionals and regulatory experts should be aware of in order to navigate the evolving regulatory landscape.
Operational resilience was also highlighted by speakers at the innovation summit as a key regulatory standard, predating the Consumer Duty. “It [operational resilience] was demanding us as a financial institution to identify important business services, and the end-to-end to map our processes,” said Mr Baj.
He warned the audience to expect further “layers” of regulatory frameworks, the next of which will be the Digital Operational Resilience Act (DORA), which will prove essential when the a bank needs to “expand” its products and services.
Speaking on Consumer Duty, Abby Thomas, chief executive and chief ombudsman at the Financial Ombudsman Service, which settles complaints between consumers and businesses, said: “It should encourage the firm to think about: who is my target market? What do they want? What is their channel of choice? What signals are they sending me if they're calling you multiple times.”
The digital agenda can advance some of the Consumer Duty requirements in a “cost-effective” way, she added.
AI uncertainty
Delegates heard that policymakers worldwide are playing catch-up with the AI industry, which is proving a challenge to regulate.
In the EU, 27 states are currently wrangling about how to regulate AI, and pleasing all players has not been easy. In March, the member states proposed the AI Act, which is set to be implemented over the three years. Singapore and the US are also considering AI regulation.
When discussing the fine line between regulation and innovation, Helene Panzarino, director at the Centre for the Study of Financial Innovation, said: “There's that vortex where if you wait too long, then the regulation is catching up because something's already happened, the damage has been done somewhere.”
AI needs to be “monitored closely,” said Ms Panzarino. GenAI also poses a major challenge. “I'm not sure that we are training our people to understand what we're unleashing,” she said.
But AI is set to bring ample benefits to private banks, as Mr Baj pointed out. “We should consider AI not only in facing the final client but also in our opportunity to increase our operational leverage,” he said.
“This type of solution, in particular, when we talk about the possibility of automating administrative tasks and activities, is where there is a significant opportunity for us to streamline our operational capabilities inside.”
