New Horizons: Quantum Computing and the Banking Sector

The stage is set for quantum computing to bring about seismic changes in the world as we know it. As IBM and Google, among others, publicly race to develop quantum computers that can solve a real-world problem with an acceptable rate of error, a burgeoning body of research points to their transformative potential. But what could that mean for the banking sector? 

One key potential area of impact will be around the modelling of financial markets. Increased insight into market dynamics and behaviour, driven by better models, could be leveraged not only by participants but also by regulators and government as they oversee the banking sector and the health of the economy.

Such modelling could be further drilled down to the level of customer dynamics and used by financial institutions and regulators to illuminate and predict customer behaviour, providing risk trend insights and the opportunity to target offerings with greater fairness and precision.

What is true for the broader financial markets is also true for institutional balance sheets. Moreover, at a time when the PRA and FCA are increasingly focussed on operational resilience, the ability of banks to model their internal processes and work-flows, and to far better and quicker identify areas of weakness under stress is invaluable.

Finally, much has already been written about the risk quantum computers pose to current encryption practices. This risk merits serious thought: compromised cybersecurity has ramifications under both data protection legislation and (future) regulatory rules surrounding operational resilience. This risk can also, however, be overstated, as quantum technology equally offers an opportunity to devise super-secure methods of encrypting data.

This post is an abridged version of an article that appeared in the April 2020 issue of Butterworths Journal of International Banking and Financial Law. You can read the full version at https://my.slaughterandmay.com/insights/client-publications/new-horizons-quantum-computing-and-the-banking-sector.