Automation is so last year.
The pace of technological change right now is staggering. It permeates our lives every day, obviously, subtly and in ways we aren’t even aware of. Who remembers paper road maps, dial up internet… having to remember passwords rather than stamping your thumb on your laptop or phone?
Technological change is basically a feedback loop, the greater the change, or rate of change, the greater the need for more change and the speed of the reaction to that change. Take by way of a (granted boring) example financial markets regulation. The root cause of the plethora of regulation the market currently faces is complexity and innovation. Complex derivative products, repackaged turbo charged debt, increasingly complex market structures, the rise of algorithmic trading strategies, innovations in legal structures and creative ways to pay or avoid paying (as the case may be) tax. All these factors have led us along this path to a complex web of regulation. A reaction to a dramatically altered market. And all this regulation in turn, itself created by complexity, demands technology to enable compliance.
Automation is certainly key to solving for problems like trade reporting under SFTR & EMIR, regulatory margin (UMR) and MiFID, whilst at the same time controlling cost and improving efficiency. But I’m not sure it’s enough any more.
It’s probably fair to say that most financial institutions are pretty well advanced in “exploring” new solutions for resource-intensive businesses. Stuck between the rock and hard place or constrained financial resources and reduced margins, cloud computing, artificial intelligence (AI) and, distributed ledger (DL) are all buzz words right now. It’s also true that many financial institutions have massive change programs in flight and are ripping out legacy systems architecture and replacing or outsourcing to specialist providers.
I think ISDA's CEO Scott O’Malia put it perfectly at the recent ISDA AGM when he noted that “Current infrastructure is a bit like a wind-up wristwatch. It tells the time, but it relies on a series of complex gears and mechanisms. You need manual intervention to keep it going, and even the best-kept watch will almost certainly be fractionally slower or faster than your customer’s.” I take this to mean that it’s no longer good enough for firms, and segments of the markets, to solve problems on their own. Change and problem solving needs to be holistic and industry wide. Perhaps this is where concepts like DL really come into their own. Certainly firms like my own are betting big this will be the case and are wholeheartedly embracing the technology across a number of processes (HQLAx & the Liquidity Alliance being great examples of this).
Predicting the future is generally a fools game… but I’ll go out on a limb and predict that whatever the future state of financial markets may be, for firms to be present, to still have the lights on, they are going to need to be talking the same language as their clients, peers and competitors. Information needs to be in the same format, delivered at the same time and records of the information need to match. There’s massive scope for firms, and any technology that can normalise, translate and communicate data, linking market participants and allowing everyone to talk the same language.
Automation helps, but it’s so 2018.