by Kristina Drye, on Jan 19, 2022 3:37:54 PM
2022 is upon us, and with the new year comes new challenges facing financial institutions and private companies. Among the most evident are adapting to COVID for the third year in a row; accommodating new forms of currency and transaction; and ensuring compliance with not only formal regulations but also customer expectations of sustainability and equality of service. Below is an in-depth look at what three trends that will reign supreme in 2022, and what that means for you and your organization.
1. Privacy and Data Will Be Key.
If the past few years have been a time for technology to grow at an exponential rate, we can expect that this year will focus on the use of data and the regulation of smart technology. This is happening for two reasons: first, across the world, constituents and customers are becoming more deeply involved in the conversations about the use of their own data. Rather than passively allowing the use of personal data because it provides access to a variety of technologies offering convenience, consumers are now demanding an active role in choosing what data they provide to a company. They are demanding input into how that data is used – both to provide the product to the user, and where it goes after. We expect that in 2022, governments and companies around the world will begin to substantially propose regulatory legislation regarding privacy, data, and customer rights. The key here is to look at how different regions are handling it. The European Union (EU) is already approaching technology regulation much differently than the United States, who in turn will undoubtedly take a different approach when compared to nations such as China. Companies that operate across borders will need to closely monitor all of these developments.
For the United States specifically, there are two important points to make. First, midterm elections are happening in November, with inauguration for the victors in January 2023. With the potential for a split Congress or split Legislative/Executive branches, those watching regulation and policy should expect a push for successful legislation in the next 12 months. On the other hand, however, trends regarding advanced technology, artificial intelligence, and data privacy are proving to be one of the few topics that have the potential to transcend party lines. Given this, movement on these topics at the federal level might prove easier than expected.
2. Financial Technology and Regulatory Technology will continue to specialize and diverge.
In the beginning of the marriage between technology and finance, the terms financial technology and regulatory technology (better known respectively as fintech and regtech) were used interchangeably. However, as technologies and use cases become more specific, and as decentralized finance (DeFi) continues to expand in both use and availability, expect the two terms to advance as their own pathways and fields. With this prediction, we expect regtech technology will refer exclusively to technology that allows organizations – both finance and otherwise – to operate their compliance, onboarding, and risk management functions at scale. This will be separate from fintech, which will refer to technology offering digital financial capabilities to customers and clients. For example, screening and vetting will fall into the regtech bucket, while financial applications like Acorn or Mint will fall into the fintech bucket.
Don’t expect one to be bigger than the other, or more or less important: a truly comprehensive organization will need both to succeed. However, with cross-border e-commerce, personalized technology and finance, and digital currencies and transactions all growing at an incredible rate, all organizations will need both a robust compliance operation, enabled by regtech; and a variety of convenient offerings for clients, which will be enabled by fintech. With this, expect collaboration between competitors to get the job done.
3. ESG will loom large.
If you paid attention to the financial space in 2021, you’ve heard the term “ESG.” Standing for “Environmental, Social, and Governance”, ESG expectations will loom larger than ever in 2022. Most companies are hiring ESG executives, and you can expect this trend to continue. ESG is a wide umbrella, and as such it includes a variety of metrics and practices now expected from eagle-eyed consumers. In fact, not having a solid ESG practice in 2022 will be a reputational risk for your organization.
To tackle ESG, keep in mind some questions you can ask yourself. For the Environment portion: Is your company operating sustainably, in production, operation, transaction, and distribution? Are you adequately addressing climate change and environmental responsibility? For the Social portion: Are you equitable in your practices? If you are a financial institution, are you tackling financial inclusion at scale? For private companies: are you monitoring your supply chain for trafficking practices and labor violations? And for the Governance: Does your company’s management structure operate in morally? Are you working with other organizations who also operate this way, or is there a risk of working with organizations that do not meet the standard?
This is a lot to think about, these will be consumer expectations in 2022. Consumers who are proving quick to leave organizations they do not perceive to be socially responsible. The way to address this as an organization is to assess your practices. What technologies and solutions are you using to screen for risk at scale? What choices are you making regarding data and its use to fine-tune these practices? Frankly, answering these questions will be the key to ESG success in 2022.
Watch our webinar on Forecasting 2022 Trends here.
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