Covering a broad range of service offerings — from insurance, wealth management and advisory to hedge funds and digital currencies — the financial services industry has seen different trends and challenges. One of the most recent ones has alarmed market participants, such as investors and managers.   

How does the industry adapt to the stormy seas? Here’s a glimpse of the discussion between Bolder Group’s Global Head of Growth, Marketing and Communication Jeroen van Zanten and ISOLAS Partner Jonathan Garcia in our recent instalment of our Expert Series. 

For an in-depth look from the experts about this topic, stream our podcast here. 

Lookback: The financial services over the years  

In the last decade, the financial services industry has undergone significant changes, primarily with the adaptation of digitalisation, prompting financial service providers to diversify their offerings. These changes include the development of specialised banking, cryptocurrencies, digital assets and blockchains, to name a few.  

These changes bring new regulatory frameworks and guidelines to the global markets. Accordingly, executives are prompted to be informed and heavily involved in preparing their organisations for the risks and challenges of the digital world.  

The financial services industry amid the stormy seas: the way forward 

A prominent event in the first quarter of 2023 was the collapse of several banks in the United States. An example is the shutdown of the Silicon Valley Bank, or SVB, one of the more preferred banks for the country’s tech sector, primarily due to its support for startup companies. SVB’s services were popular among thriving tech companies, especially during the Covid-19 pandemic. In two weeks, two other crypto-friendly banks in the U.S. collapsed: Silvergate and Signature Bank. Some believe the market is taking a hit, especially due to the other recent crashes in the crypto space, with the FTX collapse as the most notable example. Nonetheless, experts note that crypto is not to blame for these events.  

The ‘crypto winter’, a term coined by industry players describing the shaky cryptocurrency space in 2022, is seen to be gradually passing. Forbes reported that Bitcoin recorded a nine-month high value, with Ethereum rising along with it.  

As mentioned, these recent events underscore the strengthening regulatory drivers in the crypto and digital asset space. The crash of the three banking institutions particularly drew regulatory attention with concerns about the lack of risk management and oversight.   

For a Bolder outlook on the crypto market for 2023, click here.  

Moving forward – what to expect and how to adapt  

According to Garcia, these recent crises should highlight that “risk and compliance culture [are] very critical and need to be deeply entrenched for a business to remain sustainable.” He also claims that insufficient checks and governance is a “recipe for failure”.  

In the case of the crash of FTX, Garcia explained that market commentators could not simply blame technology for the collapse, which has been proven safe and effective, but rather the failure of corporate controls and the absence of trustworthy financial information within the organisation.   

Furthermore, he claimed that pressures on the increase in regulation should be expected, along with the possibility of overregulation, especially in the wake of such significant crises in the sector.  

“[W]e will likely see enhanced rules for financial intermediaries, and jurisdictions will adopt tighter regulation[s]. I think the important thing is that as long as the focus is on mitigating risks in the sector and not overregulating, we would expect to see, or hopefully, we can expect to see, an increase in growth in [the crypto] space, … by facilitating innovation and, of course, subsequently increasing confidence in the space.”  

Jonathan Garcia
Partner, ISOLAS LLP

Van Zanten seconded Garcia’s insights, mentioning the need for heightened implementation of compliance and governance frameworks with fund managers. He attributed this to the fact that such market players understand the need to implement an ecosystem of risk compliance to protect and ring-fence risks in the financial services space.  

In summary, cooperation between regulators and organisations is vital in addressing these challenges in the financial services industry. Fostering confidence and trust in the digital space through robust and sufficient governance and regulatory frameworks, avoiding overregulation but stimulating innovation and mitigating risks are some ways forward.  

About Jonathan Garcia  

Jonathan is a Partner at ISOLAS, a renowned international law firm providing legal services in Gibraltar. He has a wealth of knowledge and experience in financial services, corporate advisory, regulatory and DLT practice. Moreover, he has undertaken significant work on international collective investment schemes while advising a global client base, including investment managers and banks.  

Contact Jonathan Garcia through Jonathan.Garcia@isolas.gi.  

Bolder Group in the financial services industry  

Navigating through the ‘stormy seas’ of the financial services industry requires the assistance of industry experts. Compliance and oversight can be addressed with the help of well-equipped and informed experts in a volatile and fast-paced environment.  

Bolder Group’s international team of professionals can assist in your governance and compliance requirements.   

Contact a Bolder Group representative now to know more about our services.