How to deal with disruptors in the financial services industry

AI, and in particular machine learning (ML) technologies, has many use cases in the financial services industry. From fraud detection and prevention to claims processing, algorithmic trading, customer service, code generation and cybersecurity, AI improves efficiency, accuracy, and risk management. However, it also raises concerns around interpretability, data quality, and ethical considerations. Furthermore, the EU AI Act will have significant implications for the current AI strategies, AI systems, and their implementation.

While the EU AI Act does not apply directly to Switzerland, we expect it to have an impact on local legislation going forward (as the GDPR did). FS companies using AI will need to define clear AI strategies, implement robust governance frameworks, and possibly redesign some of their AI systems to comply with regulations.

Discover our AI services:

AI with PwC

Blockchain technology is transforming the financial services market by offering companies a secure, transparent, and efficient alternative to traditional systems. It enables access to digital assets in the form of well-known cryptocurrencies or tokenised real-world assets. New services are emerging, such as secure custody for digital assets and staking, where clients can earn rewards by holding and “staking” their assets to support blockchain network operations. For FS companies, blockchain promises enhanced security through its immutability, traceability via public ledger, and new revenue streams by enabling these and potentially other services for institutional and retail clients. However, there are many uncertainties – including the evolving regulatory landscape, integration challenges, and operational risks.

Establish a clear compliance strategy, integrate blockchain gradually into existing systems, and conduct a thorough risk assessment prior to deployment. Implement robust cybersecurity protocols and internal controls to mitigate risks associated with digital asset custody and staking.

Cloud solutions have been transforming the FS industry in recent years, often offering a more cost-effective alternative to traditional on-premises IT infrastructure, while also being scalable and flexible. They allow organisations to access advanced computing resources, storage, and analytical capabilities as needed. But many of the challenges of cloud computing are usually overlooked – including data security concerns, regulatory compliance, and the risk of vendor lock-in. Additionally, cloud usage can increase operational costs if FinOps principles are not properly applied.

Strengthen security controls, evaluate vendor contracts carefully, and ensure compliance through continuous monitoring.

Cybersecurity has emerged as a critical concern in the financial services industry, as increasingly sophisticated cyber threats pose significant risks to institutions and their clients. In response, regulatory bodies worldwide have introduced stringent guidelines to strengthen cyber resilience. In Switzerland, the Swiss Financial Market Supervisory Authority (FINMA) has adopted a risk-based approach to cyber regulation. FINMA Circular 2023/1, in effect since 1 January 2024, outlines specific requirements for governance, risk strategy, and reporting related to cyber risks. On 7 June 2024, FINMA published Supervisory Notice 03/2024, providing further guidance on managing cyber risks. In addition, new Cyber Risk Audit Points, introduced on 2 February 2024, must now be considered during regulatory audits. While the circular and the audit points apply specifically to banks, insurers should take note of the risk-based approach and evaluate the relevance of FINMA’s requirements for their own operations.

Develop a robust cybersecurity strategy, invest in threat detection and prevention, and conduct regular audits to identify vulnerabilities – taking into account FINMA requirements.

Digital transformation has become an important force in reshaping the financial services landscape, offering institutions the potential to bring their operations and customer experiences to a more mature level. While digitalisation promises improved efficiency, enhanced innovation capabilities, and streamlined compliance processes, it also presents significant challenges and risks. The implementation of digital technologies often requires substantial investment in both infrastructure and human capital, which can strain resources and impact short-term profitability. Moreover, many established financial institutions struggle with the constraints of legacy systems, which can impede the seamless integration of new digital solutions and slow down the transformation process. Despite these hurdles, the benefits of digital transformation – such as increased operational agility, improved data analytics for risk management, and enhanced customer engagement through personalised services – are advantages financial institutions seek to embrace. 

Align transformation initiatives with business strategy, invest in workforce upskilling, and adopt an agile approach to technology integration.

Sustainability considerations are critical in the financial services sector, driven by investor demand, regulatory pressure, and societal expectations. While robust ESG practices enhance reputation and attract investment, financial institutions face significant challenges in implementation. These include regulatory uncertainty, data quality issues, and the risk of greenwashing accusations. Moreover, climate change poses direct risks to financial assets, with reinsurers facing increased exposure to extreme weather events and banks potentially seeing higher default rates on loans in climate-vulnerable areas. The introduction of the EU’s OMNIBUS regulation and the uncertainty surrounding Swiss regulations further complicate the landscape, requiring insurers to integrate sustainability risks into their governance, risk management, and disclosure practices. Despite these hurdles, the potential benefits of strong sustainability practices – including improved risk management and long-term value creation – are compelling financial institutions to innovate and adapt. Central to addressing these challenges is the importance of high-quality ESG data and sophisticated systems for its collection, analysis, and reporting. These tools are essential for accurate risk assessment, compliance with evolving regulations, and informed decision-making. 

Implement robust data management systems, establish transparent reporting practices, integrate ESG considerations into the business strategy, and conduct regular audits to validate sustainability claims.

The Swiss financial services sector faces ongoing challenges due to constantly evolving regulations. These changes, driven by FINMA and other regulatory bodies, create significant compliance hurdles for institutions, often requiring substantial operational adjustments and investments in technology and training. Recent regulatory shifts have impacted product offerings and service models. FINMA’s increased focus on operational risk (OpRisk) management, as evidenced by its updated circular on operational risks, underscores the need for robust risk frameworks and resilient business processes. While these regulations aim to enhance market stability and consumer protection, they place a considerable burden on financial institutions to remain agile and responsive. Successful navigation of this dynamic regulatory landscape is now a key factor in maintaining competitiveness in the Swiss financial market. 

Stay ahead of regulatory developments, conduct regular gap analyses, and establish agile compliance frameworks to adapt quickly.

RPA is transforming operations in the Swiss financial services sector, delivering significant gains in efficiency and accuracy across functions such as compliance, customer service, and back-office operations. While RPA streamlines repetitive tasks and reduces human error, its implementation presents challenges. Financial institutions face substantial initial costs, potential employee resistance, and new operational dependencies. The high upfront investment in technology and process reengineering can be a barrier for some organisations. Nevertheless, despite these hurdles, the potential of RPA to boost operational efficiency and free up human resources for more complex, value-adding tasks continues to drive its adoption in the Swiss financial landscape. 

Develop a structured RPA adoption plan, ensure employee buy-in through training, and establish contingency plans for system failures.

Quantum computing is emerging as a transformative technology in the Swiss financial services sector, with the potential to revolutionise encryption, fraud detection, and financial modelling. For banks, quantum algorithms could significantly enhance risk assessment and portfolio optimisation, leading to more accurate pricing of complex financial instruments. Insurers could benefit from improved actuarial models and more sophisticated catastrophe simulations, enabling better risk management and pricing strategies. However, the adoption of quantum technology presents considerable challenges. It remains highly complex and costly, requiring substantial investment in both hardware and specialised expertise. The regulatory landscape for quantum computing in finance is still undeveloped, creating uncertainties for early adopters. Moreover, the advent of quantum computing could attract new cybersecurity threats, potentially compromising existing encryption methods and necessitating the development of quantum-resistant security protocols. 

Monitor developments closely, invest in quantum security research, and prepare for future regulatory requirements.