Opinion Pieces2020 hindsight and the outlook for financial services 2021

2020 hindsight and the outlook for financial services 2021

By Christopher Brennan, partner, and Zeena Saleh, associate, White & Case LLP

Very few could have predicted the unprecedented challenges faced by the global population in 2020.

At the start of this year, some thought there would be an increase in regulatory enforcement, more focus on financial crime cases and increasing emphasis on conduct and culture, to name a few. These forecasts were somewhat overshadowed by the pandemic.

With the spotlight firmly turned to handling the pandemic, certain (and somewhat accelerated) changes in the financial services sector may give us some insight into what to expect for this market in 2021.


Digital transformation of business was fast-tracked, with firms arguably achieving more this year in terms of digital advancement than relatively recent preceding years. With a workforce firmly planted in their home offices or on their dining room tables, firms were forced to quickly adapt to remain operationally resilient and in a position to provide necessary services to their customers, leaving no person left out in the cold.

An increased reliance on digital mediums comes with obvious risks and challenges, including the following:

  • Cybersecurity has been a focus for the Financial Conduct Authority (FCA) and therefore firms for some time. However, we would expect firms to increase their investment in this area to make sure they fully understand their data landscape and are able to put in place systems to protect against the new and evolving risks to the data they hold and new systems they work within. The FCA has shown that it is not shy of taking enforcement action against firms that have inadequate systems and controls in this area, particularly where it impacts their operational resilience.
  • Digitisation has helped with firms cost savings initiatives but care must be taken that this does not lead to regulatory gaps causing enforcement risk for the future.
  • Protecting less sophisticated digital users of financial services and more vulnerable customers against the risk they might face in a more digitalised world, for example fraud, will become ever more important.
  • The ability to monitor the risk of poor employment practices enabled by working from home was also be a key challenge, which we can feasibly see leading to exposure to future enforcement action.

Business with a social purpose

The pandemic brought to the fore the importance of transitioning from a culture of “business for profit” to “business with purpose”. We saw financial services firms being part of the solution for handling the related social and economic situation, clawing back some of the goodwill lost following the 2008 financial crisis.

This theme of firms being part of the solution (rather than the problem) is likely to continue into 2021, with a particular focus on Environmental, Social and Governance (ESG) issues.

Pressure from shareholder activism, the threat of litigation and the push for reform from government and regulators mean that ESG is not simply a reputational issue for firms but one that will impact and shape their businesses for the future. In particular, improvements in climate-related disclosures and the requirement to consider material climate-related risks and opportunities will hold firms to account in respect of their climate-related exposures and likely transform the sector from brown to green in terms of the products and services available.

From a social perspective, and particularly following the murder of George Floyd and the Black Lives Matter movement, we have seen examples of firms taking active steps to try to improve diversity and inclusion in the sector. This is expected to continue and considered a necessary step to improving the culture of firms themselves and the market at large.

Regulatory enforcement

The government and regulators took a number of rapid interventions to protect consumers, firms and markets against the fall-out from the pandemic. However, care must be taken over the next year to ensure that the benefits from such initiatives are not overshadowed by poor behaviours from firms when markets return to (the new) normal.

The FCA has actively stated that they remain vigilant to potential misconduct arising out of the pandemic, whether that be market abuse, a willingness to capitalise on investors’ concerns or defaulting on the promises made to consumers.

While consumer protection is not a new issue and has been at the forefront of the FCA’s agenda since time immemorial, the steps it takes over the next year will have been transformed by the impact of the pandemic. Firms will be expected to take care in future dealings with consumers who, for example, had to take the benefit of implemented breaks in their credit products. Significant recent fines for failures to adequately deal with borrowers who fell into arrears or experienced financial difficulty demonstrate the lengths the FCA is willing to go to in this area.

While the FCA has taken limited action against wholesale misconduct in recent years, we have seen some recent action in this area. Next year, it’s possible to imagine further action taken where, for example, firms have put insufficient systems and controls in place to mitigate against the risk their employees were involved in such misconduct while working from home.

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