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FINANCIAL SERVICES – KEY TRENDS FOR 2022

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By Jason Aird, Partner, Airwalk Reply

 

For financial service organisations, the COVID-19 pandemic has led to a company-wide shift in traditional business procedures with increased consumer pressures for digital enablement and the requirement to mobilise workforces remotely. Post-pandemic, whilst regulatory attention will transition back to the core mission of consumer protection, with reducing focus on the pandemic, the change in customer expectations is predicted to remain permanently. Financial service organisations must therefore adapt accordingly and consider modern ways of working as a vital business strategy.

Regulatory re-focus

In the upcoming year, with easing attitudes towards pandemic-related policy in the UK, it is forecast that consumer protection and the strengthening of financial services will re-emerge as the key focus for regulators. Operational resilience will take a front seat, existing as a vital component in this re-focus of regulation. Incentivised by the upcoming operational resilience deadline in March, the industry will experience an increase in testing and reporting of risk as companies make a final drive to establish their positions. Therefore, firms can expect to see the initial moves towards enforcement and remediations actions from the regulators where others fall short.

Financial crime will have key importance with escalating necessity to consolidate existing vulnerabilities such as Authorised Push Payment (AAP) within the financial ecosystem. Cooperation between financial institutions to share and analyse data will be crucial to mitigate these weaknesses and it is therefore likely that conversations around loosening restrictions around data sharing will take place.

Utilising innovation for customer-centricity

Consumers will increasingly be moved to the forefront of business strategy with banks focusing on providing “banking my way” as customers dedicate preference to providers offering flexibility. Open banking yielding to open finance will be a major factor in this area with increased influence of older generations, who have been required to adopt technology whilst navigating the restrictions and lockdowns of the pandemic. As a result, banks will continue to offer key services through their digital banking platforms, limiting the need for in-person activities and branch visits. Consequently, automated consumer experience technology, such as chatbots, will experience further growth in their implementation and importance.

The ongoing effort to modernise the central payments systems (New Payments Architecture) will continue in 2022. However, it is expected that the ambiguity surrounding the best route to modernisation will remain despite increasing participation and clarity from regulators around their expectations. Modernisation and standardisation will also stretch across the critical components of the currently fragmented global digital regulatory landscape, for example with the DORA legislation leading the way.

Competitive pressures

The growing technological pressure of digital-only fintech and challenger banks will need to be addressed by the established traditional banks. As more of these companies are awarded banking licenses, incumbent financial service providers must counter their legacy technology constraints to keep pace and protect market share, this inevitably will demand an increased focus on innovation and the customer. To support the shifting demands and behaviours of consumers, traditional institutions will bring their modernisation agenda and cloud adoption to the forefront of strategy with intensified investment, combatting the ability of new entrants to gain significant market share.

Heightened environmental attention

The growing obligation for companies to respond to external environmental pressures will ensure that eco-friendly products and services are made increasingly available for customers. Financial service providers, and their wider supply chains, will face more probing inspection into their environmental footprint. This will lead to an organisational requirement to better understand and manage supply chains to ensure environmental alignment with regulations and consumer demands.

In summary

In 2022, consumers will play a more vital role in product and service innovation with developments increasingly dictated by the demands of the market. In the short and medium term organisations with modern technology and ways of working will be placed in an advantageous position to capitalise upon the evolving customer behaviours. Secondly, traditional banks will increase investment into modernisation to narrow the gap between themselves and fintechs. Finally, financial service regulation will continue to make progress to converge upon regulatory harmonisation and resilience. 2022 will be an important and opportunistic year for banking and it is the responsibility of those in the financial service sector to recognise the trends and deploy plans to effectively embrace them.

 

Airwalk Reply

Airwalk Reply is the Reply group company specialised in the design and delivery of cloud-based services and solutions, driving technology-led transformational change in complex, regulated industries such as Financial Services, Government and the Public Sector. We bring a unique combination of deep technical subject matter expertise across technology strategy, architecture, service design, engineering and security, alongside business domain expertise and a heavyweight delivery capability.

Business

The Evolution and Challenges of Crypto Regulation

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CRACKING THE CRYPTO CODE

Cryptocurrency regulations are evolving quickly around the globe with authorities responding to developing risks professed by criminals exploiting the latest payment methods to mask and launder the profits from their crimes.

According to William Je Founder & CEO, Hamilton Investment Management Ltd, this has warranted the introduction of a more stringent level of due diligence by additional bodies to introduce preventative measures.

William Je Founder & CEO, Hamilton Investment Management Ltd explains: “The past ten years has seen several structural changes in Know Your Customer (KYC) and anti-money laundering (AML) regulations in both Europe and across the world. High-profile money laundering cases and the penetration of illegal monies into global markets have caught the attention of regulators.

“As regulators improve their understanding of these criminal practices, AML requirements have also been improved. However, these improvements have been a reactive process.”

To address the challenges of the blockchain ecosystem, the European Union has started to introduce financial regulations that further bolster the regulatory system in order to improve licensing models. Many member states are regulating crypto assets individually, and Germany is leading the way in being the first to regulate.

Je continues: “These national driven regulations clearly point to a future pathway for crypto companies, outlining the requirements for obtaining and maintaining a financial license from the regulator.

“Compliance, however, is to my mind essential as it not only boosts investor confidence but adds a necessary layer of protection to investors.”

As crypto evolves, so have regulatory bodies’ efforts to monitor, address and enforce restrictions. The most prominent is the Financial Action Task Force (FATF), which details guidance and determines best practices in anti-money-laundering practices and combating the financing of terrorism.

FATF Recommendations number 16, better known as the ‘travel rule’, which requires businesses to collect and store the personal data of the originators and the beneficiaries in blockchain transactions, is the most notable.

Je concludes: “What does this mean? In theory, access to this data will enable authorities to have better oversight and enforcement of crypto market regulations. In other words, they’ll know exactly who is doing exactly what.

As we have always argued – transparency is key. We need to regulate crypto as an asset class with efficacy, which necessitates legislation that is applicable specifically to digital assets and does not hinder the market.

The criminal financial trade which arguably encompasses money laundering, illegal weapons sales, human trafficking, is also international. Thus, cracking down on it is, out of necessity, an international effort.

The decentralised nature of blockchain, which runs contrary to the central-server standard we know and use nearly everywhere, presents a formidable challenge here. Rules and regulations for traditional financial institutions are being implemented wholescale into the crypto sector. We believe that this is arguably wrong footed as it ignores the innovation and uniqueness this asset class and its underlying technology entails.

Traditional forms of regulation from the fiat world do not reciprocally apply to every aspect of crypto nor to the fundamental nature of blockchain technology. However well-intentioned they may be, because these imposed regulations are built on an old system, they must be adapted and modified.”

 

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Business

How bug bounty programs can help financial institutions be more secure

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Rodolphe Harand, Managing Director at YesWeHack

 

Financial services have been one of the most heavily targeted industries by cybercriminals for several years. One alarming stat from the Boston Consulting Group found these firms to be 300x as likely as other companies to be targeted by cyberattacks.

Furthermore, the pandemic has led to a significant increase in the number of cyberattacks targeting financial institutions (FIs), with around 74% experiencing a spike in threats linked to COVID-19.

With FIs holding some of the largest collections of sensitive and private data, it’s clear they will remain an attractive target for malicious actors, especially as any data stolen can be used for fraudulent activities. This leads to the reputational damage of the financial entity that was compromised and has a knock-on effect in terms of monetary and reputational damage to affected customers.

For CISOs at FIs, the conundrum faced is how do you protect intellectual and customer data, and ensure accountability and transparency for clients and stakeholders, at a time when the pandemic has created budget constraints. Research from BAE Systems found that last year alone, IT security, cybercrime as well as fraud and risk departments had their budgets cut by a third.

Below we look at how bug bounty programs can help to address these pressing issues.

 

Protecting valuable data

Protecting customer and intellectual data has always been a top priority for FIs. However, as opportunistic cybercriminals have a lot to gain by stealing this valuable data, there is a constant evolution of threats, which means FIs must stay on their toes. By deploying a bug bounty program, FIs can work with ethical hackers that have a wealth of experience and unique skills when it comes to identifying security weaknesses within a FI’s defence, thus helping to implement effective security measures to help prevent data breaches.

Building trust among various stakeholders such as customers, suppliers and investors is critical for achieving business goals. By deploying a bug bounty program, FIs send out a message that they care about protecting the security of the data of those they work with – which in turn can have a cascading effect resulting in better business performance.

 

Improving accountability  

For FIs to win customers and keep them happy, amidst the growing threat of neo banks and customer-centric fintech organisations, speed of innovation is crucial. As such, many FIs have adopted an agile approach to build, test, and release software faster to bring online and mobile banking solutions to market quicker. However, this can create frictions between development and security teams. Security mandates are deemed to be unnecessarily intrusive and a cause of delayed application development and deployment.

Yet, with DevOps teams needing to build and deploy applications faster than ever before, an epidemic of insecure applications has emerged. According to Osterman Research, 81% of developers admit to knowingly releasing vulnerable applications, while research from WhiteSource found 73% of developers are forced to cut corners and sacrifice security over speed.

With developers often not having the time, tools, skills, or motivation to write impeccably secure code, there is an evident need to provide developers with more support when it comes to building applications securely Fortunately, bug bounty programs can provide a “fact-based” financial implication of inherent security flaws within the process. This makes it possible to hold development teams and service providers accountable for creating or delivering insecure products, thus addressing inherent security gaps within the business units and helping to drive continuous improvement.

Moreover, security awareness and education of developments teams can be improved significantly for those developers that are directly involved with the management of vulnerability reports for their bug bounty programs. This is because, the mere fact of exchanging information with ethical hackers, or assimilating the thinking of a potential hacker and having proof of concepts of vulnerability exploitation on their application components, naturally accelerates consideration of security early in the development stage and provides ongoing learning.

 

Get more return on your investment

According to Gartner, 30% of CISOs effectiveness will be directly measured on their ability to create value for the business. When security budgets are challenged, CISOs need to demonstrate business value through initiatives designed to enhance efficiency whilst stretching the dollar.

This is where bug bounties can help tremendously. Compared to conventional penetration testing, bug bounty offers a fast, complete, and measurable return on your security investment, with businesses only paying out for successful discovery of vulnerabilities. Equally, businesses get access to hundreds of ethical hackers that can test their programs, each with their own unique skillsets as opposed to only one skilled researcher testing the network. This results-driven model ensures you pay for the vulnerabilities that pose a threat to your organisation and not for the time or effort it took to find them.

Bug bounty programs also deliver rapid vulnerability discovery across multiple attack surfaces. With this approach, organisations receive prioritised vulnerabilities and real-time remediation advice throughout the process to accelerate the discovery of, and solution to vulnerabilities.

Another appeal of bug bounties is that due to the continuous nature of testing, more vulnerabilities are found over time as opposed to pen-testing. This is key to financial institutions that require agility to keep up with the continuous roll-out and updates of applications.

 

The cornerstone to a successful security programme

The risk posed to financial institutions by cyber threats will only continue, as evidenced by the number of data breaches seen in recent times. The COVID-19 pandemic has only exacerbated these risks, especially with almost all FIs having needed to shift to a remote working environment – which has only widened the attack landscape.

For FIs, a bug bounty program should be considered a fundamental cornerstone of any security strategy, with it being a modern-day cybersecurity solution that is well-equipped to tackle the immediate security challenges they face. In doing so, FIs will not only prove to customers and stakeholders their commitment to data protection and security but this will also be help them to avoid the monetary damages that could be imposed by regulators if a breach was to take place.

 

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