Q4 2022 Results

CBI/PwC Financial Services Survey

  • Issue
  • 20 minute read
  • 12 Jan 2023

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CBI/PwC Financial Services Survey Q4 2022 Results

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Moving into 2023 with renewed optimism

Confidence within financial services (FS) has recovered from last quarter’s lows as markets have stabilised, inflationary pressures started to ease and the Government has reinforced its commitment to FS growth and competitiveness. A period of increased certainty has supported an increasing focus on investment in skills, technology and growth. How can FS organisations make the most of the investment? How can they deal with disruption and capitalise on the opportunities ahead, whilst balancing an uncertain global economic environment in the year ahead?

General insurance

“After a period of increased political and market stability, our latest financial services survey is marked by a recovery in industry sentiment and investment from the lows of Q3 2022.

The Edinburgh Reforms announcements have brought increased clarity for the sector on the UK’s regulatory agenda. The Government’s focus on green finance, technology and removing unnecessary regulatory burdens will be welcomed. However, as the UK enters another period of regulatory change, it is unsurprising that regulation remains the number one source of disruption for FS organisations over the next 12 months.

It is welcome to see that despite challenging economic conditions, there is a renewed commitment to IT investment. These investments are a prerequisite for future business success. However, making these count demands a clear strategy to ensure they support improving customer outcomes, operational efficiency and other growth priorities for the sector, such as driving the green transition and growth.”

Isabelle Jenkins, Leader of Financial Services, PwC UK

Key themes this quarter

  • Confidence bounces back as markets stabilise
  • Reform agenda brings clarity and opportunity ahead
  • FS organisations stand by employees
  • Step-up needed to industrialise green finance
  • Markets face recessionary pressures

Confidence rebounds as markets stabilise

What the results say

  • Overall optimism in FS increased by 10% in Q4, following the sharp dip in Q3.
  • The renewed optimism is leading to increased investment in systems and skills.
  • But sentiment is uneven, with the upturn in optimism among banks (+40) standing in marked contrast to the significant dip among insurers (-73) and limited movement in investment management (-2).
  • The continuing challenges ahead are reflected in anticipated falls in revenues and returns over the next three months.

After the market turbulence of recent months, the rebound in optimism in Q4 reflects what many FS organisations hope will be calmer waters ahead. As the mood turns, many of the investment projects that had been put on hold in Q2 and Q3 are back up and running again. But some FS sectors are more buoyant than others and returns across the industry will continue to be hard won.


Banks show the greatest increase in optimism of the FS sectors. Financial market expectations that inflation may have peaked are  evident. We are also seeing less dramatic rises in interest rates and a gradual drop in fixed mortgage rates, albeit from very high levels by recent standards. Sentiment has been further supported by increased political certainty and moves towards regulatory clarity set out in the ‘Edinburgh Reforms’.

But banks recognise the continuing challenges ahead. They are the most likely of the FS sectors to point to the disruptive impact of inflation, new regulation and the acceleration in digital transformation.

The response is a significant pick-up in systems investment following the curbs on expenditure highlighted in our surveys in Q2 and Q3. Banks are also planning a major drive on upskilling. Both will be critical in meeting rising customer expectations and reinvigorating growth, while cutting persistently high operating costs.

In turn, banks are keenly aware of the difficulties faced by customers grappling with rising prices, high borrowing costs and the squeeze on real incomes. More than nine in ten banks (93%) have launched special initiatives to help consumer or commercial clients address the cost-of-living and cost of doing business. To prevent problems escalating, banks are prioritising early identification and support for customers facing hardship.

Banks expect non-performing loan (NPL) rates to increase over the coming three months. It’s notable that the rises they anticipated in Q2 and Q3, didn’t materialise. This is welcome news. But with economic conditions continuing to be challenging, credit risk will remain an area of concern in 2023.

“A period of increased market stability is welcome and is reflected in the recovery in optimism. Economic conditions remain challenging, but this further reinforces the need for an increased focus from the banking industry on digitisation and innovation to support growth and the broader economy. The extent to which banks recognise the need for a human-led, tech-powered transformation is evident in the fact that systems investment is now matched by funding for people and skills. Banks also recognise the vital importance of supporting both customers and employees through the financial hardships ahead."

Mark Batten, Leader of Banking and Capital Markets, PwC UK


Insurance CBI servey

Following the strong optimism seen throughout much of 2022, insurance saw a significant drop in optimism in Q4. Insurers expect business volumes to fall in the coming three months, but returns to sustain their gradual rise.

Factors that are likely to be weighing on sentiment include the continued pressure on consumer spending. Insurers are also facing significant rises in salary costs, but may find these difficult to pass on to customers. It’s notable that 70% of the insurers in our survey cite skills shortages as a driver of disruption, much higher than FS as a whole. These pressures are likely to drive further pay increases.

Concerns over the disruptive impact of regulation also remain high, though lower than FS as a whole. The big challenges have included the final countdown to the new insurance contract standard, IFRS 17. While bedding in the new measurement and reporting requirements will be difficult for many insurers, the businesses out in front are already using the investment in systems and data as a springboard for finance transformation and sharpening business insights.

Hurdles in the year ahead include the Consumer Duty, with insurers coming to recognise the significant strategic as well as compliance implications of the new consumer protection regulations.

“The pressures on costs, revenues and returns make a step-up in the pace of transformation all the more urgent. The insurers making the strongest progress are marked out by a holistic strategy for transformation that recognises the close interdependencies and need for integration between data, cloud transition, infrastructure modernisation and legacy elimination. They are also making sure their workforce has the buy-in, motivation and skills to make the most of their systems capabilities as part of a human-led, tech-enabled approach.”

Alex Bertolotti, Leader of Insurance PwC UK

Investment management

investment CBI servey

The mood in investment management is less buoyant than banking. But it’s a lot more positive than it has been in recent months.

The early part of Q4 was marked by record outflows in funds and the Bank of England’s emergency interventions to address systemic issues relating to liability-driven investment (LDI). However, the sector saw some positive signs on flows as Q4 progressed, with European mutual funds recording the first month of positive net flows in November, the first since April. Money market funds also showed much higher outflows, signalling investors are now ready to add risk back into their portfolios.

With markets more stable and some positive news on flows, investment management sentiment is turning. Investment managers expect both revenues and returns to recover in Q1 2023.

However, asset and wealth managers also recognise the need to address a range of structural challenges that have been amplified by the recent uncertainty and market volatility. These include the technology investment needed to address legacy operational model challenges, accelerate digitisation and respond to rapidly evolving customer needs.  The  regulatory agenda remains busy, including Consumer Duty, Sustainable Disclosure Requirements (“SDR”) and changes to come from the Edinburgh Reforms. The sector  needs to invest in fast growing segments such as sustainable and responsible investments.  All of this increases costs, against a backdrop of reducing margins, placing a rethink of business models at the top of CEO agendas for Asset & Wealth managers in 2023 and beyond.

As asset and wealth managers look to boost performance while insulating themselves against market shocks, we’re likely to see continued growth in non-correlated assets and private markets as well as further expansion into retail, particularly in overseas markets such as China. One of the knock-on impacts of the LDI crisis has been the reduction in alternative asset allocations by some affected funds, creating further impetus for the push by asset managers to make private assets more widely accessible to retail investors.

Environmental, social and governance (ESG) orientated funds have shown their resilience, These funds are expected to continue to be a key growth priority for the sector. Drawing on a survey of 250 institutional investors and asset managers worldwide, new research from PwC shows how growth in ESG AuM will continue to outpace other areas of the market. By 2026, we anticipate that ESG funds will make up more than 20% of global AuM.

Building a business model that is fit for the future, will also require asset managers to accelerate the pace of operational transformation. The cost control needed to sustain margins and demonstrate value for money is clearly an important driver. Just as critical are the specialist skills including Data & Analytics, technology and the expertise needed to deliver on the growth priorities such as ESG and alternatives. 

Partnerships with best-in-class managers, digital business partners and asset servicers can provide a fast and cost-effective way to meet investor demands and evolve business models. But surprisingly few investment managers (11%) are planning either acquisitions or joint ventures as they look to deal with disruption.

“The need to optimise performance, risk and cost in today’s tough market conditions is triggering asset managers to step up the pace of transformation, with many viewing taking out costs and inefficiencies as the top priority for 2023.  An increasing number of asset managers are turning to Managed Services as a flexible cost-effective option to address operational cost challenges in areas such as tax, legal, finance, middle office functions and more. Many asset managers value the operational flexibility and the freedom to focus on their core capabilities and investment activities.

However, asset managers also recognise the critical role the sector plays in the real economy, and the need to build on the UK’s prominent position as a leader in sustainable investing.”

Albertha Charles, Leader of Asset and Wealth Management, PwC UK

Priorities ahead

  • Close the capabilities gaps: Our survey highlights the growing gulf between the FS front-runners who’ve modernised their technology and are realising the benefits and a trailing pack who are still in the transitional stage of implementation. Investment needs to look at the three key lenses of cost, control and customer expectations. Getting this balance right will enable FS organisations to unleash the full value from their data, embrace partnership delivery and turn cloud transition into a platform for innovation, agility and operational excellence.
  • Move forward with purpose: Our survey highlights the importance of a proactive and purpose-led approach to financial literacy, inclusion and wellness. For example, when asked what FS organisations could do to support consumers during today’s difficult times, the top priority was early identification and assistance for clients facing hardship. This was closely followed by improving education and explanation on financial products and improving access to products.
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Reform agenda brings challenges and opportunities ahead

What the results say

  • Regulation remains the number one source of disruption for FS organisations over the next 12 months (85%), ahead of inflation (79%) and acceleration in tech development (70%).
  • Nearly half of FS organisations (46%) are switching operations and/or processes in response to regulation.

Regulation remains a significant source of disruption for FS organisations. While the Edinburgh Reforms are set to usher in a further period of substantial change, they also bring the benefits of greater clarity over Government policy and the direction of regulation ahead.

The announcements do not represent a ‘bonfire’ of regulation. Rather, they seek to strike a pragmatic balance between market and consumer protection and boosting competitiveness and growth. In the post-Brexit world, the Government wants to see an “open, sustainable, technologically advanced financial services sector that is globally competitive”. 

Key goals include ensuring onshored EU regulation is suitable for the UK market and sustaining the UK’s place at the forefront of technology, innovation and green finance. Measures to support this include the addition of growth and international competitiveness objectives for the PRA and FCA. There will also be some relaxation of the ring-fencing rules for smaller banks. Further plans include adjustments to Solvency II to help increase infrastructure investment and release more insurance capital into the real economy.

But as much as the Reforms have been welcomed by the FS industry, there is a lot of detail still to come and work ahead in implementing the changes and realising the opportunities.

Priorities ahead

  • Prepare for change: Be mindful of the volume and pace of regulatory change as a result of the Edinburgh Reforms. The UK is entering a period of significant regulatory change, keeping on top of this developing agenda will require investment. 
  • Technology: A fast paced and changing regulatory environment reinforces the need to invest in technology to support risk management and regulatory compliance. Investment now will reduce costs over the medium to long term. 
  • Think strategically: The lessons from the aftermath of the global financial crisis were that firms that took a strategic view of the business and operational implications from regulatory reform, rather than a tactical approach, have adapted to the new reality better.

FS organisations stand by employees

What the results say

  • FS headcounts rose in Q4.
  • FS organisations’ top two workforce priorities over the coming year are supporting employee financial wellbeing and strengthening employee engagement. Limiting labour costs is low down the list.
  • Upskilling and reskilling the workforce is moving towards the top of FS organisations’ transformation priorities, now ranking just below operational resilience.
  • The most important objective for reskilling is improving workforce agility in areas such as handling new technology.

As margins come under pressure, cost control remains critical. However our survey suggests that many FS organisations now favour investment in skills and retention over retrenchment. Not only would upskilling help FS organisations drive transformation and growth, research also shows that it’s a more cost-effective option than recruitment or redundancies.

Alongside support for hard-pressed customers, there is also a growing recognition among FS organisations that strengthening the engagement, wellbeing and financial wellness of employees is a critical part of their purpose. This makes sound business sense as well as being the right thing to do. PwC research has found that more than 80% of UK workers believe that their wellbeing affects their productivity. In turn, research carried out by PwC in the US shows that supporting the financial wellness of employees can boost retention and productivity.

Priorities ahead

  • Know what counts: Determine what your employees value and what motivates them – ‘good work’. Providing this kind of rewarding experience encourages loyalty, leads to better performance, and is a significant source of competitive advantage.
  • Upskill with purpose: Upskilling is a key part of the organisation’s social contribution – the S in ESG. Research we carried out in partnership with the Financial Services Skills Commission highlighted the extent to which community training initiatives would help to bridge the talent gaps in an industry with mounting skills shortages and where most jobs are located outside London.

Step-up needed to industrialise green finance

What the results say

  • When asked what are your top two climate change priorities over the coming three months, the most common choice was planning the practical steps towards achieving net zero goals. This was closely followed by accelerating green financing options and products to support wider societal transition to net zero.
  • Climate change and ESG are only seen as a disruptive trend by around a third of FS organisations (34%). This could suggest one of two things: they are making strong progress on the agenda, or may not appreciate the full impact of it.

A key theme of the Edinburgh Reforms is the role of FS in delivering net zero and how to sustain the UK’s global role as a green finance hub. To succeed, funding needs to be made available on an industrial scale – PwC research has found that £40 billion of annual capital investment in new low carbon and digital infrastructure is needed to ensure a credible pathway to meeting the UK’s decarbonisation goals.

Priorities ahead

  • Seek a just transition: Judge how investment in green finance and divestments from carbon-intensive businesses would affect employment and ensure that reskilling is available to support people with jobs at risk.
  • Make sure communications are credible: Until there are sufficiently clear and consistent regulatory reporting standards, the onus will be on the FS organisation to ensure the credibility of the information needed to support effective decision-making and stakeholder communications. To support this, the rewired.earth framework offers a valuable standardised data platform for ESG impact reporting.

Contact us

Isabelle Jenkins

Isabelle Jenkins

Leader of Industry for Financial Services, PwC United Kingdom

Tel: +44 (0)7711 773030

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