A key theme in the OMFIF 2022 research was the race between technological growth and adoption. This is especially true when it comes to the data management and processing systems that enable increased efficiencies in financial institutions. This year, OMFIF examined the efforts of a variety of financial organizations to strengthen their data processing. Our results paint a picture of the financial system in which several well-funded private institutions lead in improving their data systems while others lag behind. Meanwhile, public institutions are puzzled as to how best to balance the significant costs and security concerns associated with the dissemination of such data.
In early 2022, the importance of improved data access was a key theme in OMFIF’s Global Public Investor 2022. In the GPI, over 70 participants in the survey of central bank reserve managers told OMFIF that knowledge of that particular asset was a key barrier to accessing new asset classes. The existence of such a barrier became particularly evident when central bank reserve managers were asked about environmental, social and governance acceptability. A majority indicated that insufficient data is a barrier to implementing ESG initiatives. This suggests that both improved access to ESG data – and in many cases improved tools to process that data – would help many central banks achieve sustainability goals.
We continued to look at the hurdles financial institutions face in relation to their mutual fund data management. In the Global Public Pensions report, over 80% of the public funds that took part in our survey have attempted to build or improve their data management systems. However, 70% cited problems integrating new technologies into their existing infrastructure, and a growing majority cited cybersecurity and cost as barriers. Such challenges have existed, for example, in relation to cloud-based storage systems, which can be much more efficient but are more vulnerable to threats.
Data integration, cyber security and costs are the main barriers to adopting new technologies
What are your biggest technological challenges? Proportion of respondents, %
Source: Global public pensions 2022 and 2021
Another key issue was the role that developing countries in the Global South have played at the forefront in the adoption of many modern data systems and digital tools such as cryptocurrencies. Our research shows that many of them are also generally working to improve the digitization of their financial system. This was a theme of the Africa Financial Markets report, which highlighted the significant efforts being made by many African countries to strengthen their processing of digital financial data. Egypt marked a particularly big step in developing its data capacity and working to create a fintech hub. Meanwhile, Uganda formulated a five-year plan that included additional support for big data, artificial intelligence and machine learning.
In the Digital Assets report, OMFIF examined the proliferation of digital assets and the potential emergence of central bank digital currencies in a growing number of countries. As outlined in this report, if such efforts are successful, government access to data on transactions taking place in the economy would be greatly improved. This brings with it the prospect of expanded oversight of market operations, bringing both benefits for deterring illegal activity and risks of transgression. Similar considerations to improve data access and processing surfaced in the Future of Payments report. Here, central bank survey respondents expressed the need to balance the cybersecurity and exchange rate volatility risks of digital payment systems with the clear benefits for cross-border payments.
So how is the financial system dealing with digitization and the increased need for improved data management practices? Our findings from this year’s reports suggest that many public institutions are doing so with caution. They are simultaneously striving to strengthen their management systems while defending against cybersecurity challenges that can erode value. In 2023, financial institutions will continue to use digital payment systems and data management tools.
Julian Jacobs is an economist at OMFIF.
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