Risk Conference: New Financial Focus
Over the past few decades we have seen more changes in ways of communication, lifestyles and doing business than ever before. Especially the rapid globalization and increased digitalization of the world is bound to change our lives. Firms all over the world have to adjust their business plans, even jobs like farmers and doctors face the benefits and drawbacks of technological innovation. One can only imagine how firms in the financial world, which will feel the rapid digitalization even more, have to adjust their way of doing business in order to stay on top. People are able to find more ways to things themselves and have become less dependent on the traditional firms. Differentiation seems to be the key to survive, and staying behind is not an option. But what is the impact on the financial sector? More specifically, which threats and opportunities do firms face, and how will firms adjust their business plans to stay future proof?
Even jobs like farming are changing at a fast pace.
As already mentioned, even jobs like farming are changing at a fast pace. This also holds for the jobs within accountancy, where one gains lots of opportunities to improve their practices. The major trend seems to be cloud accounting here. Currently, we cannot imagine a society without cloud services, and the use of it is growing rapidly. The reason for that is that it offers high flexibility, is cost-efficient and easily accessible. Clients and accountants can access data at all time, which makes real-time accounting possible. This also increases the need to understand the potential (financial) risks and related legal aspects. While companies are implementing cloud services for their operational and financial processes, auditors are facing the question of how to audit “the cloud”. The availability of this huge pile of data also raises questions on how to deal with the availability, who has access and for which purposes this will be used. Yet accountancy firms have to embrace the new technology, but they have to figure out how to utilize this new technology. This raises the question who will benefit most. Are these the first mover accountants, the accounting firms who prefer a second mover strategy, or will new fintech firms take the lead here?
Next to the clients of accountancy firms who will have better insights into their accounting work, also clients at banks have access to more data and information than ever before. Naturally, the bank has always been a central pillar of the economy. However, society has found new ways to finance themselves. Nowadays, individuals are supporting each other in the form of P2P lending for example and other institutes with a large liquidity reserve, such as pension funds, get involved with consumer loans. This all touches upon a bank’s traditional activities. So, how can banks stay ahead in this changing landscape, while keeping an eye on the future? Maybe choosing the attack is the best defense, as we also observe that banks are redefining their service palette, offering a wider range of services to their clients such as insurances next to the traditional lending activities. Yet we have also seen that offering such a broad service might not be the way to go, resulting in the split of ING bank and Nationale Nederlanden a few years ago. Next to this, banks must oblige to new rules, like Basel IV, which is only the beginning of the changing landscape the bank faces.
Society has found new ways to finance themselves.
Another change would be that banks are changing their investment strategies. ABN-AMRO declared they would stop investing in the tobacco industry last year, employees of ING cannot drive polluting cars anymore and ASR is highly promoting their overall responsible investment strategy. This change is being seen in all industries, even big polluters in the oil-industry have started worrying about their reputation, whereas a few decades ago no one batted an eye. The strategy of many firms to differentiate themselves is ‘going green’. In a completely rational world, the sole task of a company is to maximize profits. Yet, one could wonder to which degree a firm bears the additional
task of taking up a socially responsible role. On the other hand, firms that have invested a lot in renewables do need the support of politics. Since president Trump of the United States would like to abolish all the regulations set in place in order to reach the 2020 goals, there is uncertainty about the value of the green investments. At the end of the day, a firm can be as responsible as society would like, yet the market determines which investments keep the firm competitive.
If a firm does not act upon the best strategy, the market will be harsh, and the firm goes bankrupt or will be taken over. In this low-interest environment with a lot of firms with large liquidity reserves after the crisis, the last option seems appealing. The start of 2018 has reached the highest value of M&A transactions since 2000, with the total sum reaching more than €152 billion. However, are all these deals value-adding? Do shareholders benefit from these takeovers or has the philosophy changed to ‘eat or be eaten’? We observe a larger involvement of shareholders in policy decisions of firms, which at least shows that the decisions are not undisputed. The government has acknowledged the large amounts of takeovers, and with the amount of (attempts at) hostile takeovers, former minister Henk Kamp tried to implement new regulations with a cooling down period after a failed takeover. Can we expect this trend to continue, or are we just in a period in which the malfunctioning of boards is being punished, where we will reach a more quiet period in the soon future? Of course, the answers to these questions are only guesses, but what we can conclude is that we are facing a lot of changes in the financial landscape, and it is certain that firms have to change their ways of doing business. This is survival of the fittest for sure.
Are you interested in these topics related to a 'New Financial Focus'? Sign up for the Risk Conference: speeches of high kaliber speakers on groundbreaking topics, challenging workshops, business lunches & dinners, and a thrilling afterparty! You can sign up until the 16th of February and the conference takes place on the 21st of February. More information about the theme, speakers, and program can be found here.