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Politics, regulation and FinTech: what’s taking the America's financial world by storm?

2017 saw the massive upheavals of the political status quo across Europe and the U.S.A begin to play out, and just under half-way through 2018 this does not look set to change. 

For the U.S. financial sector, the 2016 political shifts have led to increasing uncertainty over regulation and operations. With a new Federal Reserve chairman, a laissez-faire head of the Consumer Financial Protection Bureau (CFPB), and a potential “trade war” with China, there is little certainty about what will happen next, and what ripple effect this will have in the American banking industry and for the wider world.

As is usual in a period of such high uncertainty, banks, insurers, and asset managers turn to industry thought leaders to provide guidance and insight into what the future holds for their businesses. Last year, RiskMinds Americas helped lead the discussion state-side; and again, this year’s agenda will turn the spotlight on business-critical topics and expert lead debates.

 So, what are they key trends continuing to drive the conversation in 2018?

Navigating (de)regulation in the Trump era

It is over a year since Donald Trump vowed to “do a big number” on Dodd-Frank, the 2010 law designed to rein in the excesses of Wall Street, and while it remains, bankers seem amenable to the shift in tone from the Republican administration. A question on many minds when Trump took office was, What changes will come up on the regulatory horizon?” and by and large, there has been little in the way of legislative changes. At the CFPB, director Mick Mulvaney has signaled that the department will not act as a financial watchdog as it was originally intended.

Banks are mainly feeling the effects of the new administration through other legislative successes. Tax reform passed late last year reduced rates for corporations and individuals, with a permanent cut the corporate tax rate from 35 percent to 21 percent, bringing it closer to that of countries like Canada, which has a 15 percent corporate tax rate, or Ireland, which has a 12.5 percent rate. Ad banks have already seen the effects of the tax bill. Many incurred large, one-time charges in the fourth quarter of 2017 due to new treatment of tax-deferred assets, but, if the first quarter results of banks like JPMorgan Chase and Goldman Sachs are any indication—with effective tax rates even lower than the statutory one—then banks should be major long-term beneficiaries of the bill.

These developments have given banks some breathing room, and as day-to-day supervision has also slackened, many may be taking advantage of this period of relative calm to strengthen their resiliency and refocus their strategy for this new era.

Managing risk as everything turns digital

Technology is changing the way businesses operate, and the risks they face daily. From cyber-threats to FinTech investments, CROs have a lot of plates to balance when it comes to embracing technology and remaining relevant to their clientele.

It does seem though, that banks in the U.S. are embracing, rather than running from digital innovation. Since 2012, the top 10 US banks by total assets have participated in 81 deals for FinTech startups, totalling nearly $4.1B in disclosed funding. Just look at Goldman Sachs, which recently acquired lending app Clarity Money, adding 1 million customers to its consumer lending business. And, while it may run in the face of popular belief, Blockchain is not the goose laying the golden egg – the market’s largest segment is Digital Payments with a total transaction value of $976,051m in 2018.

How banks continue to navigate their digital transformations and collaborate with FinTechs to offer the new products their customers want, all while protecting their most critical asset – customer data – will be a top priority for risk managers and boards alike this year.

Human risk: culture and  data

If any lesson is reiterated time and again to risk managers, it’s that even with the best of intentions, your human capital, or lack thereof, can prove to be your greatest risk. It is no wonder, then, that there has been a spike in interest from CROs in the topics of risk culture and conduct risk management.

BlackRock CEO, Larry Fink, set the tone for the year, with his annual letter to CEOs highlighting the growing focus on environmental, social, and governance (ESG) issues. Companies such as Uber and Facebook are key examples for those looking to understand how reputational risk is tied up with the behaviour and example set by leaders of the company, with ramifications that go beyond state, or even country, borders when things go wrong. Changing culture from the top is critical to ensuring staff at all levels follow the beat of the same drum.

Cyber-attacks through untrained, or unbothered, staff are also front of mind for many. A simple click of a malicious link could bring disaster down upon banks, all the more nightmare-inducing as there is no technological fix for human carelessness. Training, war gaming, red teams, new technology, and bigger IT teams are all tricks of the trade to try and stay one step ahead, but with this new era banks need to be thinking even beyond the traditional CISO role. Do banks need to go one step further and put a new CRO in place – a Cyber Risk Officer?

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