Operational resilience remains the top priority for financial services firms, as the sector reports the most significant improvement in optimism since December 2013.

This is according to findings the latest CBI / PwC survey of the sector, published this morning.

Respondents also reported continued growth in profitability – albeit at a slower pace than last quarter – with all sectors except banking experiencing profits growth. Overall, profitability is set to grow at a faster pace next quarter.

Conducted in March, the survey identifies changes in regulation and in customer preferences and behaviours as the biggest drivers of disruption for financial services businesses over the year ahead.

The majority of firms are responding by offering new products or services to customers or implementing new technologies within their business.

Nevertheless, employment fell for the fifth consecutive quarter, although the rate of decline eased. Numbers employed are expected to continue falling over the next three months, but at a slower pace once again.

Investment in land and buildings and vehicles plant and machinery is set to be cut back again in the coming year. Spending on IT is expected to increase relative to the previous twelve months, at a rate above the long-run average. That said, the number of firms citing uncertainty about demand as a barrier to capital expenditure was the lowest since December 2014; instead, inadequate net returns are now cited as the top constraint.

Rain Newton-Smith, CBI chief economist, said: “It’s encouraging that financial services firms are feeling optimistic about the months ahead, likely warmed by the prospect of a phased reopening of the economy. This is clearly driving expectations of a strong rebound in business volumes and profits over the second quarter.

“Firms also have their eye on the future. COVID is continuing to accelerate business transformation, with the role of the office space evolving to facilitate greater hybrid and flexible working. The majority of financial services firms also anticipate greater need for technological, people management and leadership skills, and are preparing their workforce for this.

“Clarity provided by the government’s roadmap is hugely welcome, but the ongoing weakness in non-IT investment plans suggests that business resilience is still fragile. As with the rest of the economy, the stability of financial services firms will rest on facilitating a wider economic recovery.”

Isabelle Jenkins, head of financial services at PwC UK, added: “As the UK eases out of lockdown, our survey confirms that financial services organisations are well placed both to lead the economic recovery and boost their own competitive reinvention and growth.

"The businesses out in front recognise the importance of understanding what customers really value in this fast-changing marketplace and of securing organisational buy-in for the road ahead.

"However, regulation is rising back up the agenda for firms, reflecting the significant changes in areas ranging from pricing to sustainability and financial reporting.

"Firms should continue to maintain the kind of consistency we've seen throughout the pandemic to ensure that they can withstand the headwinds on the horizon."

Detailed findings: Resilience in financial services (Source: CBI/PwC)

Disruption
The biggest drivers of disruption for FS businesses over the year ahead are changes in regulation and changes in customer preferences and behaviours. The majority of firms are responding by offering new products or services to customers or implementing new technologies within their business. Operational resilience remained the top priority in future business strategy and transformation plans, followed by advances in technology.

Upskilling

Nearly all financial services businesses anticipate a greater need for skills in technological proficiency and most also believe that people management and leadership skills will be needed. The majority of firms are upskilling existing staff and looking at greater agility in ways of working to equip their business for future skills needs. A majority are also considering recruiting new staff to this end. Over 90% expect to automate standardised or repetitive tasks over the next five years, in response to growing digitisation and new technologies.

COVID-19

The COVID-19 pandemic has brought about a greater shift towards remote working for the majority of financial services firms, with many looking to reappraise office space. Over two-thirds of FS firms are looking at redefining or reconfiguring use of existing office space while nearly 60% are considering reducing office space, mainly in banking. Just under three quarters of FS firms believe that the role of office space will change to facilitate greater hybrid/flexible working (eg., more hot desking), with two thirds stating that they will be utilising more space for collaboration activities between staff.

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