2023 WILL NOT BE THE YEAR OF CHAOS

Robust scenario analysis, near real-time monitoring, and general organisational agility will rule the day as essential requirements of business this year.

2023 will not be the year of chaos. In fact, 2023 will mark the return of some degree of predictability. The economic impacts of this once-in-alifetime pandemic were to be expected: pentup demand, tight labour markets and supply chain struggles. These factors in combination were bound to stoke inflation, prompting rate increases as an obvious policy response.

Anticipate increased delinquencies in retail and commercial portfolios and high market volatility as the world continues to navigate the fallout. Robust scenario analysis, near real-time monitoring, and general organisational agility will rule the day.

Ai And Money Laundering

Criminals and tax evaders have emerged as among the cryptocurrency boom’s greatest innovators, leaving a big gap in the effectiveness of suspicious activity reports. As global conflicts continue to fuel substantially increased sanctions against bad actors, financial intelligence units will rethink how they operate, from legal authority to IT systems that support their missions.

Singapore, Germany, Canada are likely forerunners to spark the first wave of modernisations that spurs broader anti-money laundering innovation focused on AI and realtime capabilities.

Rise Of Cloud

As changing relationships across risk factors expose the limits and weaknesses of legacy risk management systems, financial institutions will turn to APIs and other tools to patch or replace weak links as they are found. Cloud computing and speed-to-market of targeted solutions will grow significantly more important as institutions first seek to plug the leaks in the dam before tackling large-scale replacement of legacy systems.

Crime Drives Crypto

While recent events will certainly drive increased regulatory scrutiny, cryptocurrency is not dead. Crooks will continue to use crypto to mask their nefarious activities and launder their ill-gotten gains. In turn, law enforcement and regulators will better hone their ability to understand the movement and exchange of illicit funds, improving the industry’s ability to triangulate human trafficking, drug dealing, money laundering and other criminal activities with speed and precision.

Scenario Creation

Swirling uncertainty around climate change, geopolitical instability, energy crises and other factors will inspire a scenario management and analysis renaissance. Far from being a static output, scenario will become a dynamic output of dedicated risk models. Topics like scenario creation, scenario perturbation, risk analysis associated with a given scenario and reverse-engineering of a scenario will be able to answer questions left unanswered by traditional approaches.

Customer Acquisition

The ability to make decisions across the entire customer lifecycle will become a significant differentiator in the race to gain and retain customers. Think holistic decisions across risk, fraud, and marketing, all on a single architecture, creating an exclusive customer experience that can set one apart from the competition. Increasing fraud losses and a drive towards automation will motivate centralised governance over disparate solutions and consolidation of decisioning capabilities at onboarding and throughout the customer journey.

Premium On Climate Change

As financial risks from climate change are better

Key Takeaways

l Criminals and tax evaders have emerged as among the cryptocurrency boom’s greatest innovator.

l Cloud computing and speed-to-market of targeted solutions will grow significantly more important.

l Swirling uncertainty around climate change, geopolitical instability, energy crises will inspire a scenario management renaissance.

l Ability to make decisions across the entire customer lifecycle will become a significant differentiator in the race to gain and retain customers.

l As financial risks from climate change are understood, banks will begin pricing it into mortgages and commercial loans.

understood, banks will begin pricing it into mortgages and commercial loans. Prepare to pay higher prices if you live in active hurricane, flood and fire zones.

Market Shake Out

Rising interest rates and the strengthening of the US dollar signal trouble in the face of historically high sovereign debt and ongoing geopolitical instability. 2023 could see a string of sovereign defaults, while liquidity challenges in treasury markets have the potential to spark flash crashes, exacerbating market fragility. These factors combined will force an economic reckoning, particularly among so-called zombie firms - companies that do not turn enough profit to cover their debts, as borrowing becomes more expensive and less abundant. Companies that lack strong balance sheets and ability to generate cashflows will be at high risk of default, while those that survive are apt to prioritise the quality of earnings and cashflow sustainability over their growth rates.

Esg And Banks

Amid ongoing economic turbulence, one might expect financial institutions to pull back on environmental, social and governance, ESG initiatives – but signs point to most banks staying the course or doubling down. Financial services leaders recognise the opportunity to shore up longterm resilience, even as they weather the coming storm. With ESG as a north star, banks could emerge from this recession more fiscally resolute, and those that lead in the ESG revolution will no doubt reap the added reward of having furthered customer trust and loyalty in the process.

A recent survey of 500 banking executives revealed that three-quarters, 76% believe financial services has an obligation to address societal issues, and yet 64% of executives think banking lags behind other sectors in advancing ESG goals.

Globalisation Retreat

Amid ongoing supply chain contraction and mounting political and social pressures, we will see a massive retreat from the globalisation that has driven the world for the last 30 years. As business ecosystems shift to operating more regionally, global financial services firms will adjust their strategies and operations rapidly and pragmatically.

This could present new opportunities for geographically aligned fintechs and insurtechs to integrate with traditional industry players, boosting agility and innovation for all. As the business climate grows less hospitable, such partnerships would represent a valuable lifeline for tech upstarts. Those who go it alone will struggle to survive. n

Additional inputs from Stu Bradley, Senior Vice President Fraud and Security Intelligence; Stas Melnikov, Head of Risk Portfolio; Alex Kwiatkowski, Director of Global Financial Services; Martin Zorn, Managing Director, Risk Research and Quantitative Solutions; Dan Barta, Principal Enterprise Fraud and Financial Crimes Consultant; Naeem Siddiqi, Senior Advisor for Risk Research and Quantitative Solutions; Shaun Barry, Global Director, Fraud and Security Intelligence; Norman Black, Director, EMEA Insurance Solutions; Christian Macaro, Principal Risk Solutions Advisor; all at SAS.