Banking fintech Avoka has provided its outlook for the financial sector, in anticipation of the release of the financial services royal commission’s final report.
Reflecting on the potential impacts of Commissioner Kenneth Hayne’s inquiry on the sector, Avoka’s sales director for Australia and New Zealand, Nick Edwards, said he expects lenders to introduce additional compliance measures both internally and as a result of regulatory action.
“There’ll undoubtedly be an additional compliance burden in financial services – certainly for the short term – delivered internally and via regulators,” Mr Edwards said.
“The royal commission’s interim report has called out the banks’ systems for managing compliance, stating it is dealt with ‘piecemeal rather than comprehensively’.
“Overlay this with a move to open banking and the new privacy and security protocols and a likely increase in the power and resources of regulators – and banks will have a thin line to walk.”
Mr Edwards said that such measures may be necessary to rebuild trust in the sector but added that additional compliance burdens would “climax at the point that customers start sharing their personal information with an institution”.
Avoka’s head of client advisory, Chris Wooldridge, added that with additional regulatory measures expected to influence lending decisions, larger financial institutions would need to consider how to remain complaint without “negatively impacting the customer experience”.
However, Mr Woodbridge warned against “knee-jerk” regulatory responses to public scrutiny.
“We should also consider the long-term effects of the increasingly stringent banking regulations [and] how they are changing the way financial institutions of all shapes and sizes do business,” he said.
“Whilst solving immediate problems, are further knee-jerk style changes – in response to public ire and increased tightening of the reins – going to deliver unintended consequences? Like big banks losing talented staff who move on to an industry with a more lightly regulated landscape.”
Financial product distribution changes expected
Avoka sales director Nick Edwards said he is expecting the royal commission to alter product distribution methods, which would favour “direct sales”.
“Two additional themes will likely emerge; firstly, the sales culture and sales incentives in aligned and third-party distribution will either be removed or more tightly regulated to better support customer outcomes as opposed to product sales; and secondly, there’ll continue to be a higher proportion of ‘direct’ sales,” Mr Edwards added.
“That is where individuals do their own research, make their choices and transact directly with an institution – probably via digital means.
“The concept of digital transformation is not new. This current environment will only increase its importance to the short, medium and long-term success of institutions.”
[Related: Regulators to focus on misconduct in 2019]