New Tides: Nat Benjamin on challenges and opportunities for investment banking

On Wednesday 20 July we welcomed Nathanaël (Nat) (Executive Director for Authorisations, Regulatory Technology, and International Supervision at the Prudential Regulation Authority (PRA)) to UK Finance for a keynote speech.

Nat’s speech, to a packed audience, was entitled ‘New Tides’ – an allegory for the new challenges and opportunities ahead for the investment banking community. The speech was testament to the open and collaborative approach the PRA has taken with UK Finance and industry in recent years on matters of key importance and in the shared aspiration for a collaborative discourse on the direction of the UK’s financial services sector. 

Nat spoke of how investment banks might be impacted by geopolitical events, wider macroeconomic changes, climate related disruption, and the digitalisation of financial services. Future cyclical and structural changes could challenge the profitability and sustainability of certain business models. In recent years, “good volatility” has been favourable to liquid businesses, often offsetting the risk from less liquid businesses during a market correction. However, this relationship between liquid markets and supernormal profits may not be the norm, and banks should be alive to the changes in the environment in which they operate. 

Climate change and digitalisation featured heavily in Nat’s speech as key factors affecting the marketplace. He asserted the inevitable regularity of climate-related events and their subsequent impact on the global economy; managing transitional and physical climate risk is now a priority for firms. Moreover, banks that demonstrate an understanding of the risks that arise from entering into digital assets, adopting artificial intelligence, introducing the cloud, or entering third-party relationships will likely be rewarded, as they will be sought after as safe havens for sound services.  

His speech provided guidance on how banks may ready themselves for choppier market conditions and emphasised that all risks should be captured and considered to ensure robust financial and operational resilience. On the topic of counterparty risk, for example, Nat outlined instances where an investment bank could consider risk concentrations, not only on a client-by-client basis, but across clients combined and across the client’s market-wide portfolio. 

While the “new world” will pose some challenges, there are opportunities for investment banks. Nat highlighted the relationship between “safety” and competitiveness. An investment bank in the UK will set itself apart competitively where, owing to the robustness of its financial and operational resilience processes, it will be regarded as a “safe haven” for individuals and firms alike. 

 

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