Episode 72: Financial Services challenges and trends
Mar 13, 2025
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In this insightful discussion, Paul Garbutt, Rob Benson, and David Morrey from Grant Thornton delve into the future of financial services leading up to 2025. They explore the evolving regulatory landscape and the impact of technology and innovation, particularly in AI and insurtech. The trio also addresses the challenges faced by the insurance sector amidst geopolitical tensions and climate risks. Furthermore, they analyze the implications of rising interest rates and the importance of effective governance in navigating macroeconomic uncertainties.
Financial services firms must balance innovation while managing regulatory compliance as evolving policies and leadership uncertainty challenge their growth.
Legacy regulatory issues in the insurance sector necessitate prioritizing customer trust and regulatory compliance to foster better outcomes and drive growth.
Macroeconomic factors and M&A activity are reshaping financial institutions' strategies, emphasizing the need for agile risk management and operational integration post-merger.
Deep dives
Navigating Regulatory Change and Growth
The discussion highlights the challenging balance financial services firms must strike between pursuing innovation and managing regulatory compliance. Regulatory bodies are increasingly prioritizing growth in the UK financial sector, which complicates firms' ability to address past conduct issues while fostering innovation. With significant leadership changes expected in regulatory organizations, there is uncertainty about the direction policies will take. Firms are encouraged to actively engage with regulators to express their concerns and perspectives, particularly in areas such as motor finance, where collaboration could shape future regulations.
Legacy Issues and Consumer Trust
Legacy regulatory issues pose significant challenges for the insurance sector, affecting both growth and customer trust. Insurers must navigate consumer reactions to unresolved legacy issues, as many consumers may not fully understand historical conduct problems. It is essential for firms to prioritize regulatory compliance before pushing forward with innovative products and services. By focusing on delivering good outcomes for customers, the insurance sector can enhance trust and potentially drive growth through improved customer experiences.
The Role of Technology and AI
The integration of technology and artificial intelligence (AI) is transforming the financial services landscape, although the industry remains cautious in its adoption. Insurtech developments are enabling more efficient data use, particularly for underwriting and customer engagement processes. Companies are looking to leverage data intelligently to optimize their operations while remaining conscious of potential cybersecurity and data privacy issues. The successful incorporation of AI will rely heavily on data quality and governance to ensure that the insights derived contribute positively to decision-making.
Macroeconomic Trends and Strategic Decisions
Current macroeconomic factors, including fluctuating interest rates and geopolitical uncertainties, heavily influence strategic planning for financial institutions. As higher interest rates provide new opportunities, banks are focusing on technology upgrades to improve profitability. Firms are increasingly adopting agile risk management strategies to anticipate and respond to unexpected market events. The ongoing volatility requires a shift toward a more proactive governance approach, ensuring that institutions are well-prepared for potential challenges and can seize emerging opportunities.
Consolidation and M&A Activity in Financial Services
The financial services industry remains dynamic, with considerable mergers and acquisitions activity shaping the landscape, particularly in asset and wealth management. Institutions are leveraging acquisitions to build capabilities while also facing challenges in effective integration post-merger. There is a growing trend where insurers are considering IPOs as a viable route to fund technological advancements amid market pressures. Successfully navigating consolidation will depend on robust due diligence practices and focusing on achieving operational synergies to avoid the pitfalls of merely creating larger entities without value.
The financial services industry will continue to evolve throughout 2025. It’s important to look beyond individual compliance requirements and consider the broader themes driving these policy shifts — from government initiatives and socio-political factors to reactive responses to emerging consumer issues.
In this episode, Head of Financial Services, Alex Ellerton, is joined by Paul Garbutt (Partner, Head of Banking and Capital Markets), Rob Benson (Partner, Head of Insurance), and David Morrey (Partner, Head of Investment Management) to explore the key trends and challenges impacting financial services and its various sectors.
The conversation covers:
Regulatory environment
Technology and innovation
Macroeconomics and market trends
M&A and consolidation
And more
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