Professional Documents
Culture Documents
Top Financial Services Issues of 2018
Top Financial Services Issues of 2018
com/fsi
December 2017
PwC Financial Services
Introduction............................................................................ 1
Digital
Strategy
Cybersecurity ...................................................................................... 19
Regulatory easing................................................................................ 21
RegTech.............................................................................................. 23
Tax planning .......................................................................................25
Acknowledgements ............................................................... 33
Plug and play. Many firms now find they “It’s not just a technology issue.
can replace entire functions with fully digital Financial institutions will need
cores that supply standard offerings such as to grapple with big changes to
checking accounts or insurance policies in their operating models as they
ways that weren’t possible a few years ago.
transform their businesses.”
This can be more efficient than patching
legacy infrastructure. Explore the options. – Scott Evoy
You might be surprised at how much “buy” US Financial Services Advisory
is now edging out “build.” Digital Leader
RPA 2.0. After gaining maturity in What’s next in AI? The term AI is used to
operations and finance, areas such as risk, describe anything from automating simple
compliance, and human resources are next tasks to handling complex thinking
on the list of RPA opportunities. Our 2017 assignments.15 In 2018, firms will likely
RPA survey found that 30% of respondents move toward more advanced “augmented
are at least on the way to enterprise intelligence,” with tools that help humans
adoption.11 But the path hasn’t always been make decisions and learn from the
smooth. Some firms uncovered risk, control, interactions. Firms can also look to AI as a
and people issues they hadn’t expected. way to customize product design and
develop predictive analytics to improve
Follow the money. AI companies outcomes such as reduced accident rates.16
received more funding in 2017 than ever
before, and for good reason.12 In our 2017 How do you govern a machine? As we
Digital IQ Survey, about half (52%) of those enter 2018, financial institutions face some
in the financial services industry said they’re tricky questions. What controls should we
currently making “substantial investments” apply to AI systems that decide and act in
in AI, and 66% said they expect to be making nanoseconds? How much authority should
substantial investments in three years.13 AI have? How do we make sure machines
Almost three out of four (72%) business uphold their fiduciary duty? What about
decision makers believe that AI will be the regulators? What if things don’t go as
business advantage of the future.14 planned? Look for more emphasis on, and
discussions about, these issues in 2018.
“The reality is that Figure 6: Financial services CEOs are focusing on global risks to growth.
many of the
uncertainties that
existed around
Brexit a year ago
are still here. In
fact, they’re
probably more
abundant now.”
– Bill Lewis
Global Financial
Services Risk and
Regulatory Co-Leader
Redefining deals. Among wealth The serial acquirer. Could 2018 be the
management firms, deal activity hit a record year of the roll-up? We’ve seen a number of
level in 2017, while asset management deal financial firms in the marketplace doing
flow remained slow.30 Not all deals followed multiple deals, particularly in the asset and
the same playbook. Private equity firms and wealth management space. Many of these
asset managers made a number of visible will likely be minority investments, both
minority investments as they looked to from firms looking for ways to keep their
balance risk and return. Some firms options open and from firms prohibited
poached entire groups of portfolio managers from making outright acquisitions.
from rivals.
Swipe left. Firms hoping to be acquired The new corporate M&A environment:
Uncertain, unfazed and uncharted
have multiple options these days as liquidity
flows toward the most attractive With fewer big splashes, dealmakers turn
opportunities in asset management, the middle market spigot
insurance, and banking. Sellers may think New Deal Frontier
about outright acquisitions or IPOs. But they
should think seriously about suitors from a
range of sources, including private equity, “Regulators are finally
sovereign wealth funds, and family offices. comfortable with banks starting
One step ahead. Buyers are thinking to talk to each other about
about who they’ll compete against two years transactions. There’s a need for
from now—and if they’re not, they should. streamlining. So in the middle
Firms are looking to add technology, hire market especially—including
people with specific skills, and drastically regional banks—there’s got to be
change business models. In this setting,
more consolidation.”
make sure that your long-term strategy is
crystal clear. Also, update your due-diligence – Greg Peterson
steps. If you want a specific RegTech US Financial Services Deals Leader
capability, for example, look beyond the
numbers. Make sure the company you’re
targeting aligns with your business strategy
and organizational culture, and that it would
contribute your bottom line.
Figure 7: Overall quarterly deal volume has held steady but will likely grow in 2018.
Figure 9: Automation tools pose new risks for cybersecurity in financial services.
“Trump has been able to remake the financial services agencies and in
2018 he’ll have the ability to almost completely remake the Fed’s Board
of Governors.”
– Michael Alix
US Financial Services Advisory Risk Leader
Figure 10: Financial firms are turning to RegTech to tackle compliance and risk.
Freeze! As 2017 wore on, the corporate tax Managing costs. Current tax reform
departments in most US financial efforts have highlighted the pressures facing
institutions ground to a halt because of the tax functions across the industry. In 2018,
uncertainty in Washington. That said, we’ll see firms looking at how to reduce costs
typical year-end activities did continue: and complexity, address talent gaps, move
looking for opportunities to accelerate teams from reporting to higher-value
deductions into 2017 and defer taxable strategic work, and more.
income into 2018. Some firms, for example,
focused on “low-hanging fruit” such as
writing off bad debts and losses on
real estate.
Figure 11: US corporations face higher statutory tax rates than global competitors.
John Stadtler
john.w.stadtler@pwc.com
(617) 530-7600
https://www.linkedin.com/in/johnstadtler/
Manoj Kashyap
manoj.k.kashyap@pwc.com
(415) 498-7460
https://www.linkedin.com/in/manoj-kashyap-69070695/
Dean Nicolacakis
dean.nicolacakis@pwc.com
(415) 498-7075
https://www.linkedin.com/in/dean-nicolacakis-801255/
Anand Rao
anand.s.rao@pwc.com
(617) 530-4691
https://www.linkedin.com/in/anandsrao/
Scott Busse
scott.busse@pwc.com
(312) 298-3597
https://www.linkedin.com/in/scottbusse/
Kevin Kroen
kevin.kroen@pwc.com
(646) 471-0238
https://www.linkedin.com/in/kevin-kroen-a5ab223/
Steve Davies
steve.t.davies@pwc.com
+44 (0)131 260 4129
https://www.linkedin.com/in/stevetdavies/
Marie Carr
marie.carr@pwc.com
(312) 298-6823
https://www.linkedin.com/in/mariecarr/
Bill Lewis
bill.lewis@pwc.com
(703) 918-1433
https://www.linkedin.com/in/williamjlewis1/
John Stadtler
john.w.stadtler@pwc.com
(617) 530-7600
https://www.linkedin.com/in/johnstadtler/
Stefanie Coleman
coleman.stefanie@pwc.com
(646) 313-3924
https://www.linkedin.com/in/stefanie-coleman-85299bb/
Sean Joyce
sean.joyce@pwc.com
(703) 918-3528
https://www.linkedin.com/in/seanjoycepwc/
Suzanne Hall
suzanne.hall@pwc.com
(703) 610-7449
https://www.linkedin.com/in/suzannehall/
Adam Gilbert
adam.gilbert@pwc.com
(646) 471-5806
https://www.linkedin.com/in/adam-gilbert-53b90212/
Adam Gilbert
adam.gilbert@pwc.com
(646) 471-5806
https://www.linkedin.com/in/adam-gilbert-53b90212/
About PwC’s Financial PwC’s Financial Services Institute (FSI) collaborates with our network of
Services Institute industry professionals in banking and capital markets, insurance, and
asset management. We provide insights on topics like Brexit, artificial
intelligence (AI), FinTech, robotic process automation (RPA),
blockchain, risk and regulation, competition, and other important
issues.
Adekemi Oyalabu
John Abrahams Research Analyst
Director
Estifanos Tsegaye
Greg Filce Research Analyst
Senior Manager
Jim Tyson
Senior Manager
© 2017 PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC
network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information
purposes only, and should not be used as a substitute for consultation with professional advisors.