Economic and Regulatory Environment
As a global financial institution, we operate in various countries, each of which imposes its own regulations (often with extraterritorial implications). These define how we operate, as well as our conduct, behavior, and standards to which we must adhere. Our strategy and execution model is affected by different political environments and a large number of regulatory requirements. We remain continually aware of these forces that influence our business, and we engage in political and regulatory decisions. This is fundamental to understanding wider political developments and the evolution of the regulatory environment, as well as fostering stakeholder trust.
In recent times, international and national political systems have shown signs of fragmentation. This directly affects our business model. In 2017 alone, we saw crucial elections in France, the UK, and Germany, as well as a new US government whose Congress passed a comprehensive tax reform that had an immediate impact on our US tax position. The UK has formally declared its exit from the EU, and negotiations are under way. This will have repercussions on our structure, operations, client relationships, and staffing. Furthermore, wider political developments in the Euro zone (such as important national elections) will impact the stability of financial markets, market prices, and long-term investment decisions by companies. All of this affects our entire value chain.
Just as regulatory frameworks shape how financial service providers and economies develop, so, too, do structures of the international financial markets. It is remarkable how much has changed in Europe since the global financial crisis almost ten years ago: comparing H1 2007 (the peak of the boom) to H1 2017, revenue composition has shifted towards less-volatile sources, with the share of net interest income up to more than half of the total, and trading income much diminished.
As well as the issues discussed, we keep our eye on wider emerging issues that are gaining traction in recent years. These include financial crime and the response to it, digitization and data security, and demographic, environmental, and social change.
Financial Crime
World financial flows have grown exponentially in the last three decades. While these have benefited the world economy, they do present risks, including financial crime, which is multifaceted, borderless and constantly evolving. The same infrastructure that facilitates global flows of goods, capital, and people has also created the possibility of new security threats. According to an estimate from the UN, the amount of money laundered globally in a single year can reach as high as 5% of the global GDP. Therefore, we are continuously intensifying our Anti-Financial Crime (AFC) measures accordingly.
Digitization and Data Security
In the digital age, sectors are evolving dramatically and rapidly. Large digital companies and technology entrepreneurs are challenging established strategies and business models of incumbents across industries. This creates opportunities to innovate and establish a leadership position in the digital ecosystem.
Digital is enabling self-service, making it possible to deliver capabilities via scalable platforms in the location and time chosen by the client. Success is achieved by reducing friction for clients through cutting the number of steps or difficulty of doing something and creating new products and services. With digitization, the scale, scope, and speed of financial services is markedly different from previous eras. As competition intensifies and technology rapidly develops, companies must focus on problem-solving for clients’ problems and improving the user experience quickly and efficiently.
At the same time, IT security is becoming hugely topical. This is in part driven by the increased number of digital transactions, as well as an increased migration of data access in households and companies to the cloud, with powerful mobile devices increasingly becoming the means of data access. This is an important signal for traditional banks, since customers are becoming justifiably worried about the eavesdropping activities and potential data abuse, particularly when it comes to sensitive financial data.
Demographic Change
Demographic change will affect today’s consumer market in coming decades. An aging world population and declined populations in some countries will impact the needs and demands of our future clients. Combined with more fluid career paths and a growing expectation for a healthy work-life balances, demographic change is prompting the financial sector to reposition itself as an employer. This is of particular importance for workforce planning and development, accounting for aspects such as the impact of digitization and a multigenerational workforce on talent retention and leadership behavior.
Environment and Social Development
The Sustainable Development Goals address the most pressing economic, social, and environmental challenges of our time. These challenges include issues closely related to global warming and climate change, whose impacts remains a topic of public discourse. For example, 19 out of the 20 developed and emerging countries confirmed their commitment to the Paris Agreement on climate change during the G20 summit in Hamburg. Additionally, during the United Nations Framework Convention on Climate Change, at the 23rd Conference of the Parties (COP 23), participants negotiated measures to achieve the so-called 2°C goal. Public and private-sector collaboration will be critical in shaping the shift towards a low-emissions global economy and in forging a climate-resilient development “pathways.”
Another enduring global trend is poverty and migration. More than 800 million people around the world live in extreme poverty, while 65 million people are refugees (half of them children). Around 57 million children below the age of ten have no access to schooling or education, and many youngsters are disenfranchised, even in the Western world. Goal 17 of the UN’s 2030 Agenda aims to revitalize the global partnership for sustainable development by promoting effective public–private and civil society cooperation to tackle the worlds’ greatest challenges. Leveraging their corporate citizenship, global firms like Deutsche Bank have the opportunity to make a tangible difference—especially when they join forces with others to promote impactful initiatives that create shared value.