Change is the only constant — Banks facing increasing pressure to adapt, report finds

The firm’s eighth annual Global Bank Review, called 'Adaption: Change is the only constant'  draws upon insights from Herbert Smith Freehills' global network of legal experts to discuss the issues affecting the banking sector across multiple jurisdictions.

Highlighting topics which currently attract a mix of anticipation and wariness for the banking sector, the report challenges banking executives to consider how they can address the potentially conflicting priorities of customers, investors and regulators. Key areas examined in the Global Bank Review 2024 include:

• Cultural Adaptation: with workplace tensions emerging and growing, the report considers how staff and businesses may change their habits amid shifting societal expectations.
• UI or AI: as digital tools continue to evolve, the report explores the role of the changing user interface and asks what banks are doing to meet rising demands for bespoke and personalised banking experiences.
• Legal function transformation: with an upturn in changes to organisational structures in the banking sector, how legal teams can ensure organisational complexity meets operational simplicity is explored in detail.
• An eye on ESG: hard lessons and tips are shared to help banks mitigate against the risk of greenwashing claims.

Simon Clarke, partner and London-based global co-chair of the firm's banks sector group explains: “The entwined worlds of complex geopolitics and evolving regulatory demands present other big issues which are dominating bank agendas. While the onslaught of macro regulation in the wake of the global financial crisis has now slowed, the financial services industry faces more targeted regulation as policymakers operate in a more fragmented global environment and strive to keep pace with the rapid rate of change. 

“With regulated banking a safer but less profitable and less global trade than its earlier incarnations, questions remain about the extent to which regulators are pursuing goals like competition, stability and growth which can easily come into conflict with one another”.

With banks having long been reliant on third-party vendors for tech solutions which minimise operating costs and enhance customer experiences, the report considers the long-term impact of continually changing tech procurement and data regulations. 

“Technology is increasingly central to banks' service propositions – both as a sword of competitive advantage and shield of enhanced operational and cyber resilience,” explains Peter Jones, partner and Sydney-based global co-chair of the firm's banks sector group. 

Jones continues: “Customers have high and constantly rising expectations for personalised services and slick digital tools. The deployment of GenAI in other sectors continues to gather pace and its benefits are becoming more apparent, with banks adapting their businesses to harness these benefits. 

“But offering broader and more personalised services also requires banks to collect and use more customer data in a broader range of circumstances, which presents challenges from a privacy and information security perspective. This makes banks a key target for cyber-attacks, with the value of customer data and analytics continuing to increase”.

The report notes that banks are also facing a rapidly evolving landscape of ESG litigation, with increasing regulatory attention and a growing number of legal actions related to greenwashing. 

Hannah Cassidy, partner and Hong Kong-based global co-chair of the firm's banks sector group concludes: “Social expectations on banking demand delicate balancing. Regulated lenders are still being held to expanding yet unpredictable standards of their respective social licences. Banks are, of course, aware that regulatory risk, with its financial and reputational consequences, should be top-of-mind in the coming years.  Yet it is only by bolstering internal controls, enhancing data management, and staying informed about legal and regulatory developments that banks can safeguard against greenwashing and build a credible ESG profile."