Question

Define the role of technology in ensuring work in the financial services industry meets legislated requirements.

Answer 1

The role of technology in ensuring work in the financial services industry meets legislated requirements:

All lawyers with financial sector (FS) clients need to focus on how technology is revolutionising the financial industry and truly reflect that in theirpractices. Understanding both the regulatory drivers and the regulatory reponse to this revolution is also key.

Nowadays financial services businesses really need a law firm that truly understands the interrelationship between technology, regulation and the FS, and can provide integrated expertise in all these areas.

Technology’s impact on business models

Technology is revolutionising the way that the financial industry operates. Rapidly accelerating technological advances are creating entirely new business propositions, such as crowd-funding, peer-to-peer lending, digital currencies, mobile banking, online investment and new payment systems

Technology has created a massive increase in the availability and use of data and social media, shaping customer expectations and the ability of financial institutions to use consumer data to price, target and market their products and services.

FS businesses are adopting new technologies to compete. Client demand for online access is causing a shift towards more direct and immediate interaction with financial products and services. Technological changes increasingly allow consumers to manage their own savings and investments and firms need to demonstrate how they add value.Lawyers need to help firms navigate between serving client demand and mitigating risk.

Regulatory drivers for innovation

Regulators need to grapple with how to respond to the impact of technological advances on the financial sector. For the moment, at least, the UK FCA is embracing the technology revolution. Martin Wheatley, the FCA’s Chief Executive, has announced that the FCA is considering “sweeping change” with a major consultation into how the FCA can encourage innovation in the financial services market. It raises the possibility for new online business models where the firm might not have to comply with full regulatory safeguards.This could have major implications all round and is an area where lawyers need to keep a close eye on developments.

Technology’s impact on regulatory compliance

Firms are increasingly relying on technology in adapting to regulatory reforms. The bar is much higher than it was and demonstrating regulatory compliance is challenging.This trend is increasingly pronounced as firms across the globe work out how to meet the challenges of the Dodd-Frank Wall Street Reform and Consumer Protection Act in the US and the European Market Infrastructure Regulation (EMIR), which focus on the trading of derivatives and the clearing of trades, and incoming MIFIR/MIFID II reforms of the framework for the investment sector in the EU. While some existing businesses and new challengers are already well along the path to executing business plans that capitalise on technological advances and current and incoming regulatory changes, others are grappling with how best to position themselves and allocate resources in the most efficient way. This is an area where lawyers offering combined technology and regulatory foresight can really help.

Risks as well as benefits

Although technology undoubtedly brings benefits, high-profile technical failures in the financial sector in recent years are alarming, with adverse implications on market integrity, consumer outcomes and firms’ reputations.Another major issue is that despite the publicity which cybersecurity has garnered, the risk has still not been countered effectively. Another area of regulatory focus is the increasing interconnectedness of regulated and non-regulated activities (for example, firms outside the regulatory perimeter providing technological solutions or platforms for services that are regulated).

Lawyers offering integrated technology and financial regulatory expertise will be those best-placed to help businesses minimise exposure to potential regulatory, financial and reputational issues while capitalising on the benefits that technology brings.