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CBI PwC Financial Services Survey
Q3 2019
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- Optimism continues to decline in Q3.
- The key themes emerging from this quarter’s results focus on resilience, compliance, and managing Brexit and Libor disruption.
- Employment continues to grow strongly across the sectors.
- Uncertainty around Brexit means we’re seeing plans to launch new products and services on pause.
People
Employment continues to grow across the board after the slight dip in headcounts we saw back in Q1. The boost in numbers is likely to be in response to an increase in regulatory requirements.
Growth
The global economic slowdown is having an impact on demand. Profitability has dipped again and is now at its weakest performance since June 2009. But although expectations of growth in the next quarter are cautious they’re less negative than we saw in last quarter’s results.
Disruption
As well as Brexit, financial services is also making sure there are plans in place to manage the risks posed to business by climate change and the related changes to compliance obligations. Preparations are also underway for operational resilience and Libor transition.
Looking forward
- Businesses will be reducing spending on training in the short term, as the focus moves from specialist skills to contingency planning.
- Investment will prioritise technology over traditional marketing channels in order to consolidate existing customers and grow domestic market share.
- Managing climate change risk and identifying its second-order effects will start to move up the agenda.
Download the full survey results
Banking
What the results say
- Optimism is declining at a faster rate than during the global financial crisis.
- Banks are hiring at the fastest rate since 2006 to manage projects, regulation and shore up their Brexit contingencies.
- Investment plans are largely targeting domestic customers.
- A range of preparations are underway for managing new risks posed by climate change and the Libor transition.
People
Headcount numbers in banking are up this quarter. In contrast, training spend is declining.
Growth
Profitability has declined sharply but stabilised operating costs are cushioning the impact. Although investment plans look weaker, banks are still tentatively ambitious and are focusing IT spending on new customers and services.
Disruption
As well as Brexit planning, there are also a range of preparations underway for managing climate change risk and related compliance obligations. Banking is also starting to get ready for the Libor transition. A third of firms now say they’re confident they have appropriate plans in place.
Looking forward
- Banks will continue to prepare for post-Brexit disruption.
- We’ll see more urgency driving the development of Libor transition plans.
- Spend on traditional marketing channels will be diverted into more cost-effective technology to target existing customers with new and better services.
Insurance
What the results say
- An overall positive picture for insurance this quarter.
- Business performance is good, despite a gloomier mood in broking.
- Technology is having an impact on purchasing behaviour as well as the shape of the workforce.
- Brexit is not the only disruption as businesses start to prepare for second-order effects of climate change and Libor transition.
People
The sector continues to try and find the right balance between investment in technology and training the workforce of the future. Employment numbers and spending on training in general insurance are rising. But headcounts in broking continue to fall as acquisition activity consolidates back office operations.
Growth
General insurance is continuing to spot opportunities in pricing and technology investment, and broking’s revenue and profits remain healthy. But there are some concerns that technology is enabling customer switching and that fickle purchasing behaviour is starting to happen further up the value chain.
Disruption
Surprisingly few organisations are thinking about the impact of climate change on their business. Things like weather events may have a short term effect on business in the shape of claims losses, but there are second-order impacts that need to be considered too; compliance obligations could affect firms and their third party suppliers. And business reputations based on environmental awareness could become a competitive factor.The survey results show that broking is more prepared for the Libor transition than the rest of the sector.
Looking forward
- Insurers will start to take a longer term view on climate change risk.
- As technology becomes a bigger enabler of purchasing behaviour, clients further up the value chain will begin to switch more often.
- IT investment will focus on new products and services to reach new customers.
Investment Management
What the results say
- Optimism is down but sentiment is less negative than previous quarters.
- Headcounts and training spend is on the rise and expected to increase.
- We’re seeing strong growth in business volumes and capital expenditure.
- The Libor transition and new climate change legislation both threaten disruption.
With the leaders of £367bn of UK pension funds...signing a Climate Charter this week demanding that asset managers take immediate, meaningful action to combat climate change, the pressure is on for the investment management industry to up its game.
People
Firms are reporting concerns about access talent; either due to Brexit or the wider need more for technology and AI skills. Employment numbers and training spend are increasing in order to skill up workforces in preparation.
Growth
Investment in IT, land and buildings, and vehicles has increased at the same rate. The key drivers for the capital expenditure primarily relate to increasing efficiency and speed, providing new services and accessing new clients which is consistent with the key themes for success that we identified in our Asset & Wealth Management Revolution: Empacing Exponential Change report.
Disruption
The Libor transition could have a bigger than expected impact on products and services in the sector. New climate change legislation is on the way and will impose updated reporting requirements. And Brexit continues to cause economic uncertainty.
Investment managers are primarily focusing on growth through winning new clients, cross selling and developing new products. LIBOR transition may present opportunities in winning the battle for organic growth.
Looking forward
- Firms will need to make sure they understand how the Libor transition might impact their range of products and services.
- Regulations will still be high on the agenda as new climate change legislation comes in and regulators continue to make sure compliance is being implemented properly.
- M&A activity will increase as firms use deals to access new technology, Alternative strategies and new Markets.
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