May 6, 2017

Technology’s Challenge to Capital Markets: Are You In or Are You Out?

Steven O'Hanlon, CEO, Numerix

The capital markets today are faced with some significant challenges: regulatory uncertainty, changing global financial market dynamics, and worries over potential trade wars and rising volatility. As banks sit at the center of the world’s economy and are the primary target of any current and pending regulations, this macro-level commotion may drive banking leadership to re-examine strategy, challenge traditional revenue models, redesign parts of business structures and make tough decisions regarding company organization.

One particularly significant issue impacting banks is a regulatory overhaul known as FRTB (Fundamental Review of the Trading Book). FRTB is a set of regulations that is by far the most comprehensive in the last decade and will require banking organizations to undergo massive and costly preparations to meet a fast-approaching 2019 deadline. It could cost banks up to $200 million or more each to be in compliance with the new rules. It may also mean increasing headcount by up to 2,000 new employees for each individual institution, depending on its size. [Source: FT].

Believe me, this is serious. Operationally, FRTB will require banks to overhaul their technology platforms to simply deal with the data demands and the scale and scope of reporting required.

Clearly, business-as-usual is not going to be an option for the banking industry, which it really hasn’t been for a long time, but this phenomenon could create immense disruption for banking executives.

However, there is a strong line of defense: the fintech industry.

As a fintech, our purpose is to build technology solutions that solve for issues just like the one presented in the new regulatory landscape. I believe the smart players in banking will be the ones that look to build the right partnerships with fintechs, allowing banks to focus on their key strengths while adapting to these challenges with speed, accuracy and with less costs.

Wanted: Advanced Digital

Exciting trends are emerging in fintech, and the technological advances are beginning to touch every part of the traditional financial industry. Until recently, fintech was mainly focused on the payments, remittance, and peer-to-peer lending sectors. But over the course of the last year or two, we have seen strong signals that point to an increase in fintech activity in the capital markets.

What’s driving those signals? Like I just highlighted, there is an incredible onus on banks to comply with new regulations and operational risks, and one area that is being especially hit hard is trading operations. There will be serious implications for trading desks, finance departments and risk managers and, in my opinion, the solutions they will need must emerge in the form of fintech solutions. And these solutions are needed now, because the time to comply is running short. Regulators have deadlines, and they don’t hand out exceptions.

So, in fact, partnering with fintech may not be a choice.

The need for digital expertise and innovative technology is paramount to tackling these complex issues with the speed regulators and the markets demand.

Are You In Or Are You Out?

This is where I present my challenge to banks. You have two choices before you as we embark on the year ahead.

One approach to take is to just “fit in” and make only the necessary technology changes that meet the bare minimum requirements of the new regulations. The other approach is to “stand out” and envision a future-state technology foundation that operates from a bank-wide enterprise perspective, not just at the trading desk level. I’m talking about technology that improves performance, enhances profitability, and minimizes risk.

There is so much innovation going on in fintech firms that by partnering to fully participate in that innovation, banks can “stand out” instead of “fit in” to realize a distinct competitive advantage.

Will You Fit In or Stand Out?

Steve O'Hanlon is president and CEO of Numerix, a Fintech specializing in solutions for capital markets. O'Hanlon has spent his 25+ year career in leadership positions growing start-ups and SMBs across the financial services technology industry. He has a passion for entrepreneurship, leadership and innovation. Today O'Hanlon is focused on building businesses, promoting a digital mindset and driving success.

Follow more of Steve O'Hanlon's insights on Leadership, Technology, Innovation and Entrepreneurship on LinkedIn.

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