What the financial industry hopes for from quantum computers

Quantum computers pose a threat to common encryption methods, which poses challenges for the financial industry. However, for local banks and insurance companies, the technology not only poses risks, but also opportunities, as the Bankers Association states in a report.

Quantum computers will soon make the step from the laboratory to industry – the question is when and how this will happen. The timing remains unclear – estimates range from the late 2020s to well into the 2030s – but the potential impact on the financial sector is already becoming apparent, according to a report from the Swiss Bankers Association (SBA) and Quantum Basel.

The report aims to highlight the risks and opportunities of quantum computers for the financial industry. There is particularly great potential in four areas of application:

• I am Risk management and monitoring Quantum computers allow the analysis of complex interdependencies between assets and derivatives as well as near real-time monitoring.
• I am Portfolio management Quantum computer portfolios can be optimized through parallel calculations and better simulations, thus enabling higher returns.
• I am algorithmic Trade There is the possibility of using quantum computers to establish more efficient and accurate algorithms for trading in financial markets.
• Quantum computers also enable cheaper and faster construction Training AI modelswhich can then provide more precise and efficient prediction models when used in everyday business.

Through their ability to perform complex calculations and simulations more efficiently and precisely, quantum computers also open up new application possibilities and a lead in calculations and analysis for banks and insurers, according to the report.

Tomorrow’s problem is today’s risk

However, there is also the risk that quantum computers could crack the current encryption methods that are also used in banks’ IT systems. Due to the risks posed by so-called “harvest now, decrypt later” attacks and the long lead time to introduce quantum-secure cryptography, quantum computing already poses a serious challenge, the authors of the report note. From this they derive recommendations for action to banks, regulatory authorities and politicians:

• Banks should continually adapt existing security policies and develop a roadmap to adopt quantum-safe cryptography. They should also build up their skills around quantum computing in collaboration with specialized organizations and research institutions. This includes, in particular, support for application research with Swiss universities and research institutions in order to strengthen mutual know-how and ensure a sufficiently large talent pool in the future.
• Regulators and supervisory authorities in the financial industry should maintain regular dialogue with the industry to understand the application areas of quantum computing in the financial industry and identify potential needs for action. From a regulatory perspective, the SBA recommends restraint. The possible risks from the use of quantum computing would be adequately covered by the usual, technology-neutral and principle-based regulation, according to the report.
• The use of new technologies such as quantum computing, AI and distributed ledger technology (DLT) is crucial to ensure the long-term competitiveness and innovation as well as the resilience of the Swiss financial center. Decision-makers from the financial industry, authorities and politics should already set the course today in order to exploit the opportunities offered by quantum computers in the financial industry in the coming decades and to recognize and reduce the associated risks.

The SBA provides the full report online (PDF).

You can find out more about “harvest now, decrypt later” attacks as well as the risks and background of quantum computers here.

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