The new era in financial services Culture. Innovation. Regulation.Financial Review Banking & Wealth Summit Playback

We are pleased to share a playful articulation of the conversation that took place at the Financial Review Banking & Wealth Summit 2016, which captures the key themes through media coverage and Deloitte illustrations.

Over two days regulators, financial institutions, government and innovators candidly exchanged ideas, stimulating debate on the tensions between stability and innovation, customer trust and corporate culture, and turning challenges into opportunities.

Deloitte CEO, Cindy Hook, set the scene for the 300+ delegates: “Our task is to find the right balance to operate within good governance structures, as well as challenge the status quo where necessary, to enable innovation to deliver superior customer service and customer experience.”

Getting the right balance, building bridges and brave leadership were clear calls to action over the two days. William (Bill) Coen, Secretary General, Basel Committee on Banking Supervision, made the Sydney Harbour Bridge a recurring metaphor throughout the conference. He outlined the importance of safe and sound support similar to the Basel banking framework, he also pointed out that Basel, like the Harbour Bridge, requires regular maintenance and constant vigilance as well as stability and certainty. Hence the need to bed down this year’s Basel III capital requirements. Regulators, banks, wealth managers, government and innovators all agreed, good governance, culture and ethics is the only way to ensure customers’ best interests. Re-building customer trust and committing to open-ethical practices cannot be imposed because ‘culture drives conduct’ and effectively managing compliance and conduct risk is not the same as having a

healthy organisational culture. Just like slowing down while passing stationary speed cameras, is not the same thing as safe driving: NAB Chairman Dr Ken Henry.

Financial Services Inquiry Chair David Murray took the bridge analogy further reminding us that before the Sydney Harbour Bridge was opened the NSW Government defaulted on its debt due to a global financial crisis. He also told the story of the bridge’s pylons which are purely cosmetic. Their purpose is ‘to look strong’ to ensure ‘trust and confidence’ in the community – critical requirements for the financialservices industry that need to be carefully and purposefully protected.

From complacency to paranoia to opportunism, fintech partnerships will accelerate the pace of innovation.

Jesse McWaters, Financial Innovation Lead at the World Economic Forum, said the complacency to paranoia trajectory from 2014 has now shifted from exciting CEOs to the possibilities of fintech partnerships, and how they might enable them to offer new services to their client to be more efficient and innovative.

Australian fintechs have become increasingly skilled at exploring innovation where significant

customer friction meets large pools of profit, which was one of the key findings of the Deloitte World Economic Forum Future of Financial Services research. It is clear that the transformative effect of the digital revolution will only intensify the pace of innovation and Greg Medcraft believes Australia can take on the world and lead.

Australia should aspire to be a leader in innovation.

Westpac Chief Information Officer Dave Curran said technology is taking the industry down a more open data access path. As we go down that path, we must not lose the concept of trust we have in banking. It is something we cannot recreate later. Making a payment to buy a book is one level of trust, entrusting my life savings and personal identity is a very different level of trust. In defence of being accused by fintechs of not being more open with data, Curran explained the difficulty of linking core banking systems with other information. It is happening but it has to be safe and secure. People expect banking services to work every time and remain cyber secure. Partnering with social media companies, retailers, telcos and fintechs to create the ‘hassle-free’ experience customers want, is happening but we are doing so with prudence and care.

CULTURE

Harrison Young, Director and Chairman of the Risk Committee, CBAON RISK CULTURE: MAKING FRIENDS WITH 220 DOT 13B

Risk culture is a form of wisdom. So is mastery of the Force. If the Force is the invisible glue that holds the universe together, risk culture in banks is part of the magic that makes banking work. We have an obligation not to endanger the financial system.

CULTURE

David Murray AO, Chair, Financial System InquiryHOW SHOULD AUSTRALIAN FINANCIAL SERVICES SERVE THE NATION?

If you spend your time looking for the next blow-up, there will be one. We want an innovative nation but a risk adverse corporate nature doesn’t lend itself to that.

CULTURE

Dr Ken Henry AC, Chairman, NABTHE FUTURE OF BANKING

A bank that truly puts the customer at the centre of everything it does should not need regulation. Australian banks survived the stress testing of the global financial crisis in stronger shape than before. A continued focus is not a bad thing. And on innovation: “Digitisation of P2P is new, peer to peer lending is old.”

CULTURE

Helen Rowell, Deputy Chairman, APRAGOVERNANCE AND CULTURE IN SUPERANNUATION

The best interest of superannuation members has to be central to super trustees who must lead the culture. Having too many people on the board hinders good decision making as does length of tenure. The longer a director sits on a board the less likely their judgement will be independent.

CULTURE

John Lonsdale, Deputy Secretary, Markets Group, TreasuryIMPLEMENTING THE FSI AND INNOVATION AGENDA

Global economic risks are real and we would not be doing our job if we weren’t preparing for them. Australian banks cannot be complacent. It is better to make the effort now while we are strong. Regulators have put culture in the spotlight; it is the industry that needs to do something about it.

CULTURE

Greg Medcraft, Chairman, ASICREGULATING FOR THE FUTURE: INNOVATION, DISRUPTION AND CYBER-RESILIENCE

Culture is a key driver of conduct and purpose. Technology is just an enabler. None of it changes our fundamental need for regulation. As innovators are more agile, regulators will need to ensure institutions sustain a customer-focused culture. They have to behave for consumers to have confidence.

INNOVATION

Jesse McWaters, Financial Innovation Lead, World Economic ForumWORLD ECONOMIC FORUM: FUTURE OF FINANCIAL SERVICES

Distributed ledger technologies, like blockchain, could dramatically reshape financial products and processes. They could redraw the map of financial services; even be used to usher in the cashless society. But it is not yet clear what will differentiate winners and losers. The questions to ask are whether incumbent institutions can rely on regulators to help protect their core business; what building blocks are necessary for successful incumbent and new entrant collaboration; and how to attract and nurture the talent to meet the challenges of tomorrow.

INNOVATION

Dilip Rao, Managing Director Asia Pacific, Ripple Labs HOW WILL BLOCKCHAIN REVOLUTIONISE THE COMPETITIVE LANDSCAPE?

Technological transformation historically seems to take 10 years. When EFTPOS was introduced in 1989 there were 11,452 terminals, 10 years later there were 220,455. When BPAY began in 1997 with $0 it accelerated to exchange $1bn by 2007. Blockchain’s transformation is well underway and in 2016 a cluster of banks will move real money on it. It will require partnerships between fintechs and institutions, with cross-border payments as one of the best use cases. The exciting prospect is the nature of the shift from the internet of ‘things’ to the internet of ‘value’. Let us encourage 1000 networks to bloom!

INNOVATION

Jemma Enright, Co-Founder and CEO, MoneyBrilliant Mark Hand, MD Corporate and Commercial Banking, ANZMike Hirst, CEO, Bendigo and Adelaide BankDebbie Blakey, CEO, HESTAAntony Cahill, Group Executive, Products & Markets, NABTHE NEW ERA

Jemma Enright: The dynamics in a smaller organisation are different. Every person in the company comes in everyday to innovate for the customer. Mark Hand: I would get approached almost daily by a startup with an idea that is going to revolutionise my business. Mike Hirst: Taking risks to get ahead of the wave means being dumped sometimes, but if they know why, customers back you.

REGULATION

Wayne Byres, Chairman, APRASAFETY, SOUNDNESS AND RISK

We need the financial sector to take up the challenge to put in place better incentives for prudent behaviour. I think when you look outward from Australia you can see risks in every direction you look. We are paid to be pessimists.

REGULATION

Professor Ian Harper, Chair, Competition Policy Review, and Partner, Deloitte Access Economics PERSPECTIVES ON THE IMPORTANCE OF COMPETITION FOR INNOVATION AND EFFICIENCY IN FINANCIAL MARKETS

There is choice and competition in what we do. Consumers are the guiding principle of competition and choice. The speed of change is fast and furious and it will continue to accelerate.

REGULATION

Bill Coen, Secretary-General, Basel Committee on Banking SupervisionTHE GLOBAL REFORM AGENDA

The most important question about bank capital is whether it is adequate to ensure resilience. I react sharply when I hear Basel rules are choking off credit to the real economy. That’s nonsense. Sick banks can’t lend. Banks that have the confidence of their depositors, shareholders and regulators can lend.