• Phil Dutton, CEO and Founder at Solidatus


• 10.03.2023 06:15 am
#banking

The world of banking and finance has changed.

Gone are the bricks-and-mortar standalone businesses that provided the foundation for our society. The global financial crisis of 2007 and 8 showed us just how interconnected and interdependent our banking ecosystem was.

Fast forward to 2023 and that ecosystem is systemically dependent on Big Tech. There are no boundaries between Big Tech and finance anymore; there’s just one big poorly understood and poorly documented data and service supply chain.

Systemic risk isn’t isolated to the ‘too big to fail financial institutions’; it’s located in each critical digital link of the financial system. The real problem is we don’t understand which of the links is critical and what its impact would be if the chain broke.

So, what’s the state of play, what could be in the offing regulation-wise, and what should banks do if they want to get ahead of the game?

The regulation was critical to forcing a change in approach in banking, but it needs to go not just wider into all critical links of the data supply chain but deeper too. Unfortunately, old habits die hard, and profit and market share are attractive sirens that continue to pull the ships toward the rocks – for now, at least.

Regardless of when new regulations arise, the unsustainable situation calls for a fundamental shift in thinking, prioritization and practice to ensure good data governance and management of critical financial data and service supply chains.

Though regulation will force the issue in years to come, it shouldn’t be the stick that drives this behavioural change; we should prioritize protecting our businesses and our customers. Regulation should be the check and balance to ensure the standardization of actions across the ecosystem.

Technology that enables businesses to visualize complex connected data ecosystems can provide that standardization, helping you identify and prevent negative impacts while avoiding unnecessary risk impacting your business processes, decision-making and customer service. There will be a substantial amount of time before both Big Tech and banks, and regulations are thoroughly aligned and implemented. The key to protecting the vast amount of data available to Big Tech firms, including information on financial services customers’ spending habits and wealth, is to ensure that there is complete, clean visibility of their data dependencies.

As digitization increases and data sets grow exponentially in size and connectivity, we need a regulatory rethink. Data-rich Big Tech companies must be regulated, or risk being classified as too big to fail. If – and I’d predict, when – they are, banks will need to react. But by then, it’ll be too late to stay competitive.

Until this is a realistic possibility, banks and other financial institutions must protect themselves by mapping their critical systems and supply chains, to flag anything that is classed as a risk in the absence of proper regulation. Urgent action must be taken, otherwise, banks should be considered negligent for creating a serious risks of compromising customer data, breaking compliance and receiving a hefty fine, and impacting their reputation and future.