EY advises financial services firms to exercise patience and avoid panic-driven investments

• Advises to focus on communication, enhanced consumer relationships and transparency
• Says ongoing pandemic will support a shift toward online distribution
• Urges firms to introduce comprehensive enterprise and cyber resilience models

As the rapid spread of the coronavirus is impacting global economic growth and leading to market volatility, Ernst & Young (EY) advises the financial services sector to tread forward in a cautious manner, instead of taking a leap.

Pointing out that the industry is impacted through weakening investment returns, which has hit the capital position of financial services entities, EY advised companies to have patience. 

“This is the time to exercise patience and to avoid panic-driven investment reallocation and repositioning. To navigate this challenging environment, financial services firms should focus on better communication, enhanced consumer relationships and more transparency with customers and investors,” EY said in its latest publication that was released this week. It cautioned that a sustained economic slowdown triggered by the outbreak would also put negative pressure on revenues and lead to a material increase in credit risk and a potential spike in claims, including those for health, credit and event cancellation insurance. 

EY stated that over the short term, the ongoing pandemic would support a shift toward online distribution and test business continuity policies. Whereas over the long term, firms should use this as an opportunity to introduce comprehensive enterprise and cyber resilience models to prepare, sense and respond to most forms of disruption.
Shedding light on the recent developments in the regional financial services space, EY shared that based on the feedback from its client base, asset managers are broadly well set up for remote working but challenges are observed in the middle market.

“Current circumstances are accelerating a pre-existing need to reassess operating models,” EY said.
It added that due to the necessary control being relaxed, any operational errors are resulting in exacerbated financial losses due to the volatile markets.

Commenting on what firms can do during the ongoing crisis, EY advised the financial services entities to review the risk appetite and capital allocation strategies. It urged firms to look at managing the aftermath of increased risk as well as decreased attention and focus to controls due to stress. 

Furthermore, EY said that firms could look at leveraging cloud technology to effectively scale infrastructure in response to demand. It also said it is timely for entities to re-evaluate and digitise business and operations to promote resilience. (SAA)