Speaking at Sibos 2021, Noel Quinn, Group Chief Executive at HSBC, shares his unique insights into some of the changes, which are likely to revolutionise both the banking and corporate landscapes over the next few years.
Adapting to a crisis and planning for the future
As with many other major organizations, HSBC was forced to rapidly adapt its business model to deal with the unprecedented COVID-19 crisis. Central to HSBC’s success and operational resilience, notes Quinn, was its ability to set policy from the centre and then subsequently delegate responsibility seamlessly across 64 + markets. “We have all learned a massive lesson from COVID-19, namely that in the face of adversity we can get things done which might not have been possible during normal market circumstances,” says Quinn. For example, Quinn highlights that HSBC lent USD41 billion to corporate clients in the first eight weeks of 2020 enabling a number of embattled businesses to overcome their various liquidity challenges during the crisis’ peak. These loan issuances were provided despite most of HSBC’s employees working remotely, and being unable to meet clients in person. Elsewhere, large-scale digital transformations– most notably the development of front-end websites enabling customers to apply for moratoriums, government support or seek out restructuring assistance - went live in the space of a week – a process which would typically take several months to implement, says Quinn. COVID-19 resulted in many banks setting new benchmarks in terms of what they could achieve, a standard which many anticipate will persist when normality returns.
Post-pandemic, it is clear that employers will need to take a more flexible approach towards remote working. A recent survey by Accenture of people working in financial services revealed 24 per cent wanted to work from home entirely post-pandemic, while 39 per cent said they were willing to forgo compensation to make this possible.1 Sixty-nine percent told Accenture they would prefer to work two days or less per week in the office moving forward. 2 A number of banks appear to recognize that a hybrid model of working is likely to become more ubiquitous post-pandemic. “As a leader, I trusted my colleagues last year to run the bank while they were working from home and they all did a great job. If I were to then turn around and say that I do not trust them to work from home but instead require them to work five days a week in an office, then that is a betrayal of trust,” says Quinn. However, Quinn says workplaces are bedrocks for creativity, innovation, learning and teamwork, so it is important that people do regularly go into the office. In addition, Quinn adds there are some roles – such as high frequency traders or client-facing retail branch workers - which simply cannot be performed remotely. Irrespective, it is clear that a balance does need to be struck between facilitating remote working and going into the office.
Sustainability: No time to wait
COVID-19, says Quinn, has been a massive wake-up call for the world, illustrating just how vulnerable the global economy is to natural events. “We are very fortunate in that there is a road out of the pandemic, which has been made possible through vaccines. However, there may not be a return path out of a natural climate event, so sustainability needs to have a more prominent role going forward,” comments Quinn. Leading banks including HSBC are playing an integral role in supporting clients with their transition to net zero. While there have been calls in some quarters to withdraw financing altogether from pollutant companies, Quinn is more nuanced, stressing that it is important to help clients operating in carbon-intensive industries reduce their emissions. From this, banks can then provide financing to support companies with their transition away from fossil fuels to either alternative technologies, more efficient, cleaner energy sources, or even different business models entirely. Quinn adds changes are already underway in carbon-intensive sectors such as auto; oil and gas and aviation. In the case of the latter, Quinn told SIBOS that airline companies are trialling sustainable aviation fuel on long-haul flights, in what could help them reduce carbon emissions on such journeys by upwards of 80 per cent. While sustainable aviation fuel has been successfully tested on aeroplanes, Quinn says the lack of refining capacity is precluding it from being more widely used. Through thoughtful engagement and intelligent financing, banks are assisting a wide array of industries with their energy transition.
In the run-up to the COP 26 climate conference later this month in Glasgow, a number of banks are participating in the SMI’s [Sustainable Markets Initiative’s] Financial Services Taskforce [FSTF], an initiative which Quinn is chair of. As part of this, these banks are collaborating together to bring about greater transparency around sustainability, and some of the measurables underpinning it. If pledges about sustainability are to carry any weight in the banking sector, Quinn says the industry needs to develop a science-based definition about what net zero means precisely and how it can be obtained, something which is being enabled through the FSTF’s work. Although there are sceptics who believe net zero is unachievable, Quinn remains optimistic about its chances. “People initially thought it would take two to three years to get a vaccine for COVID-19 yet the scientists did it in under 12 months. I still believe we collectively have the capacity to accelerate change and achieve these sustainability objectives,” continues Quinn.
Digital currencies: Laying the foundations
Interest in alternative digital currencies – such as crypto-currencies, StableCoins and Central Bank Digital Currencies [CBDCs], a form of digital legal tender backed by Central Banks or governments – is gathering pace. Quinn says HSBC is part of the digital currency journey but also stresses there are two fundamental criteria he wants these assets to meet. Most importantly, Quinn emphasises that transactions involving digital currencies need to be wholly transparent, so that international banks can identify who the buyers and sellers are, and understand the nature of the intermediaries in the chain. A failure to properly identify counterparties to digital currency transactions involving cross border payments risks putting banks in a difficult position from a compliance and financial crime perspective. The second yardstick for digital currency adoption is convertibility. “There are some digital currencies being put forward as asset classes, which are highly volatile. While these volatile asset classes may be suitable for some clients, they are not okay for all clients. There is a conduct issue if organizations are promoting asset classes like digital currencies or crypto to clients where the volatility is unsuitable for them. I do not see digital currencies through a fixed lens but I want to understand how they will operate based on those two attributes.” says Quinn.
Opportunities are aplenty
Adaptability and an ability to weather disruption; a clear focus on sustainability; and a willingness to navigate change in a well-risk managed way will be critical if financial institutions are to flourish moving forward.