Last week I was in Paris attending a two-day technology and capital markets conference that was organised by the industry body, the Association of Financial Markets in Europe (AFME) and Euromoney. It was a gathering of the investment banking industry – senior people from bulge bracket and midsized sell-side firms, asset managers, regulators and some consulting and tech firms. The conference was a good size at around 200 people.
Here are some key takeaways:
Data and Analytics Are the Biggest Tech Issues for Investment Banks
AFME and PwC consultants launched a report on technology and innovation in Europe’s capital markets based upon research conducted with AFME’s members – generally global banks doing business in Europe. Four key technology areas were identified that would have the highest impact on the investment banks’ value chain in the medium term:
- Data management and analytics
- Artificial intelligence
- Cloud computing
- Distributed ledgers
And whilst these are the top four, data management and analytics is the area that stands out. From survey data, it was identified more than any other as likely to have a “medium” or “high” positive impact on banks’ value chains.
I don’t think there’s any surprise here. “Data is the new oil” is, perhaps, now a banality. But it does express a truth – the economic impact of data is significant now and will be more significant in the future. Data will not only determine how existing products are constructed, priced and their risk hedged, but it will also enable the creation of new products. BBVA stated directly that data is a strategic resource for them – that it will determine how products are built and how clients are interacted with in the future.
This focus on client interaction was also expressed by asset managers. Today, it can take weeks for communications about asset allocations to be communicated to clients (often going through intermediaries). Many clients are not happy with this – they expect to know, essentially in real time, what asset managers are investing in. This kind of transparency is not something the industry is used to, and it requires existing data assets, both structured and unstructured, to be used in new ways.
Data also underpins artificial intelligence initiatives. Any such project relies upon data, and certain types of machine learning relies upon vast amounts of it. Therefore, the management of it is key.
In one roundtable session on AI, there was general agreement that throughout an AI project, 80% of the effort is related to data management issues and only 20% is related to creating and deploying the AI models.
MiFID II Isn’t Over
MiFID II came into force in January 2018 and in many respects, this date should be seen as a start, not as an ending. The enormity of MiFID (the Financial Times estimates 1.7M paragraphs) means that the downstream consequences of it will continue into the medium term.
The good news is that firms used MiFID II as a forcing function to change the tech in their own organisations – removing silos, legacy and replication and putting more business on electronic channels, capturing pre-trade data, etc. But there’s still so much to do that is inhibiting operational efficiency, with many systems and data still sitting in silos creating integration headaches and being difficult to change and evolve.
The reporting requirements of MiFID II are directly creating new technology demands. Central banks are now being sent millions of trading records per day. What are they doing with them? The answer is very little, apart from storage. But this will change, and a new area of financial technology is emerging – supervisory tech or “suptech.”
Emerging Tech Is Still Emerging
Cryptocurrencies have had a very hard time in 2018. The altcoins have lost over 90% of their market value. Some argue that the game’s up, if it ever really started. But, in live survey data during a keynote, 25% of conference attendees reported holding cryptocurrencies. What to make of that? Is that higher than would be expected of a fairly conservative audience or lower than would be expected of a financial savvy audience with a tech slant? It’s difficult to know.
And on distributed ledger technology itself, it’s probably fair to say it’s still work in progress. There’s belief that it will disrupt existing systems and change the way processes and relationships work, but, as so often is the case with the field, real-world examples beyond “an interesting proof of concept” are hard to find.
Paris Is Unashamedly Pitching Itself to Take Business Away from London
The governor from the French central bank was rolled out with the message, “Come to Paris, the only credible alternative city to London in Europe.” We’ll see how that pans out.
How MarkLogic Helps Financial Institutions Address These Challenges
MarkLogic has plenty to say about all of this, of course! See what MarkLogic is doing regarding data in finance here, and find out how MarkLogic handles the quantities and different structures of data that MiFID II compliance is producing here.