Digital transformation is well underway in capital markets: look out for the Top Six disruptorsSeptember 18, 2018
Digital transformation is well underway in capital markets: look out for the Top Six disruptors
If you’re looking for a market that’s being turned on its head by technology, you don’t need to go much further than capital markets. You may say look what Uber has done to ride-hailing, Amazon has done to retail…but just take a look at what robo advisors are doing to investment and wealth management! We’ve taken a look at what market commentators think are the biggest tech transformation catalysts for capital markets and come up with the following ‘Top 6’. See what you think.
- The advance of new data architectures and data analytics
The massive proliferation of both structured and non-structured data is being used to enhance trading and risk models resulting in better regulatory compliance and enhanced profitability. Much more advanced analytical tools and capabilities enabled by machine learning and AI also mean new insights are being revealed from data that were hidden from previous analysis methods. These huge volumes of data can now be handled by today’s data analytics platforms far more effectively than legacy platforms and a fraction of the cost. For example, Cap Gemini identifies ESP – event stream processing – as a gamechanger in the market, which helps to analyse data even before it is stored.
- Growing use of the cloud and SAAS solutions
Growing cost pressures are driving the outsourcing of non-core strengths, coupled with a shift towards more flexible infrastructures. This also helps address the ballooning of structured and unstructured data volumes. New models are being sought including on-premise clouds, off-site clouds and a variety of hybrid combinations. Accenture sees this as the fastest growing area of new technology adoption in capital markets, growing by at least 19% YOY in the current 2018 year. SAAS solutions also have massive cost benefits over on-site platforms, as well as high resiliency, availability and scalability. By moving non-core services to 3rd parties, it allows capital market players to focus on client-side strengths and customer service experience and becoming innovation rather than cost centres.
- The rise of ‘regtech’ (regulatory technology)
With an increasingly complex regulatory environment, financial institutions are looking at AI to gain meaning from larger and larger volumes of regulatory data. With newer regulations like Fundamental Review of Trading Book (FRTB) and Consolidated Audit Trail (CAT) compliance, a ‘tech-first’ approach will become necessary. RegTech has a vital role to play as firms move beyond initial MiFID II compliance and gain more long-term benefits from the regulation and take a tech-first approach to their compliance efforts.
- The implementation of distributed ledger systems such as blockchain
Blockchain implemented by exchanges and alternative capital market operators reduces settlement times and organises financial transaction data, making it more transparent and efficient. Beyond removing intermediaries and allowing for a shared view of permissioned data, blockchain simplifies many areas from asset servicing and accounting to allocations and administration.
- Developments in robotic process automation (RPA)
In capital markets, post-trade processes that are manual or semi-manual are an ongoing source of costs and operational risk. Regulators are often focused on workflows and processes that involve high degrees of human intervention with the corresponding possibilities of error. Furthermore, operational managers are under pressure to reduce resource costs such as manual staffing. As a result, many capital market firms are resorting to RPA as a quick and tactical solution to transform their back office to achieve cost reductions and higher efficiencies.
- Grappling with cyber threats
All these massive tech changes coupled with the interdependence of global financial markets mean cyber threats will continue to evolve with equal levels of sophistication. Information security spending will continue to boom. Threat sharing between banks is a response to this, joining forces to create so-called ‘resilience centres’ and reg tech companies will invest in AI and machine learning to detect new threats to data security.
There are many others catalysts of tech transformation. However, capital market firms still have a long way to go if they are to catch up with the extraordinary digital and data revolution that’s underway and genuinely ‘transform’ themselves into modern market players. To quote the wealth management and capital markets specialist Arvind Sankaran: “We’re witnessing the creative destruction of financial services, rearranging itself around the customer. Who does this in the most relevant, exciting way using data and digital, wins!”
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