In June 2015 The World Economic Forum published a report ‘The Future of Financial Services: How disruptive innovations are reshaping the way financial services are structured, provisioned and consumed’ which noted that  “Disruption will not be a one-time event, rather a continuous pressure to innovate that will shape customer behaviours, business models, and the long-term structure of the financial services industry” and in January 2016 they published another report, Employment, Skills and Workforce Strategy for the Fourth Industrial Revolution which stated that “The financial services and investors sector will undergo a significant shift, with major job growth for computer and mathematical roles such as data analysts, information security analysts, and database and network professionals.”

It is clear that we are living at a time of unprecedented change and all board and executive committee members should be familiar with the talent implications of technological advances in financial services.

On Tuesday 24th January 2017 we were privileged that Sir Mark Walport, Chief Scientific Advisor, HM Government, and Andy Haldane, Chief Economist, Bank of England addressed three key topics:

  • the progress of emergent technology in financial services
  • the predicted timeline for its impact and
  • how this might change the nature of the talent they employ and their working environment

Science, 4.0 and Financial Services

Science and technology have been the driver behind all the major industrial revolutions, be it the industrial revolution of the 1770s which was driven by mechanised industry and steam to the current industrial revolution, the Fourth Industrial Revolution (4.0) which is driven by advanced data technologies.

The role of the Government’s Chief Scientific Advisor, GCSA, is to advise on all aspects of science, engineering, technology, social science in relation to all aspects of Government policy and in this task is supported by the Government Office for Science. The Government Office for Science has three areas of focus: science for resilience; science and technology for the economy; and evidence and analysis for policy.

The Government Office of Science is interested in financial services because:

  • The City and our science base are among the UK’s most valuable assets.
  • The City depends on science, engineering and technology to deliver existing services, to innovate and remain competitive.
  • Equally, science, engineering and technology require financial capital and services to prosper.
  • Both must flourish for the UK to attain short-term growth and secure its long-term position within the global economy.
  • However, despite our world-class science-base, UK spends less on R&D than other comparable countries.

Starting from the premise that many parts of the finance and services sector do in fact carry out R&D but do not recognise it as such, Sir Mark made it one of his priorities when appointed GCSA to strengthen the links between science and the City and encourage a more proactive approach to science.

The City is entering a period of major disruption caused by new technologies such as artificial intelligence (AI), big data analytics, intelligent advisors, autonomous vehicles, Internet of Things (IoT), cryptocurrencies and Blockchain.   Collectively known as data science, it is already affecting banking (FinTech) and will equally disrupt other key City sectors such as insurance (InsurTech), legal services (LawTech) even regulation (RegTech).

Many of the most exciting opportunities for the City will lie at the interface or overlap between areas of UK strength. For example: IoT has the potential to enable new FinTech services while distributed ledgers offer potential platforms to ensure the security of IoT devices and the integrity of the data they generate. Traditional competitors may be displaced by companies such as Google, Facebook or Amazon cherry-picking markets. 

Intelligent advisors powered by machine learning may displace independent financial advisors and call center staff; and so-called Blockchain smart contracts back office staff and solicitors.

Most City sectors and major companies have over the years successfully leveraged their professional knowledge to keep pace with technological change.  Now companies and individuals need to educate themselves in these new technologies, so they can embrace innovation and change.

In the future, we will therefore need a multidisciplinary and collaborative approach to both research and application.

It is encouraging to see City institutions recognise the need to innovate and are reaching out to our world-class universities and research councils.  An example is:

postgraduate data science students – companies are offering projects to PhD and Masters students as a way to explore new ideas.  For example - EPSRC Centre for Doctoral Training in Financial Computing and Analytics, the first major collaboration between the financial services industry and academia (UCL, LSE and Imperial College London), offering training in financial IT, computational finance, financial engineering and business analytics - has 80 PhD students that collaborate with and work at financial institutions in London.  The Centre has received £8m backing from the UK Government and support from twenty leading financial institutions.

What are the challenges that the City faces out to 2030?

  • Communication: how can we remove barriers to communication between the science and financial communities?
  • Collaboration: how can we promote more multidisciplinary scientific collaboration to tackle shared problems?
  • Legacy infrastructure: how can we promote uptake of innovation in institutions burdened with legacy infrastructure?
  • Investment: how can the capital markets be incentivised to invest more in science and technology?

In the case of every new technology the question is not whether the technology is ‘in and of itself’ a good thing or a bad thing.  The questions are: what application of the technology? For what purpose? And applied in what way and with what safeguards?  Data can be transformed into Information and Information in turn into knowledge. 

Intelligence means a lot of different things to a lot of different people and intelligence and wisdom are not quite the same thing.  Technology isn’t always used/crated wisely and new technology creates new vulnerability.

What can Government do? The Government has some extremely powerful levers, for example:

  • As a regulator that supports innovation
  • By using procurement smartly
  • By defining standards, and
  • As a risk-sharer to support early-stage investment.

Indeed, it is these advanced data technologies such as IoT, machine learning and distributed ledgers that are driving change in financial services in the City.

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