Capital markets: is the enemy within?

Last week, I attended the 2018 Sibos conference in Sydney – a worthwhile and inspiring event as always! One discussion there stuck with me in particular. Early in the week, I participated in a panel moderated by HSBC's John van Verre alongside Deutsche Bank's Fiona Gallagher and Stella Clarke of Murex. The event focused on financial institutions' need to find new paths to sustainable profitability and growth.

The transformation is here

Capital markets are being transformed. New technologies, regulation and new entrants enabled by open API technology are changing the playing field. Faced with an earnings challenge and cost pressures, financial institutions are looking for the right way to respond.

On the whole, the industry has to decide between two approaches. Do we each follow our own vested interest, trying to outdo each other in the pursuit of short-term profits? Or do we work together to create joint solutions and long-term infrastructures that will enable sustainable profitability and growth?

Collaboration is key

I believe the answer must be the latter. We need to find ways to turn "the enemy within" into an ally in pursuit of a common goal. And we've already done so. Take the work on anti-terrorist financing, crypto asset custody or KYC, for instance via industry associations such as ISSA. These are cases where regulation became a driver for true cross-industry collaboration.

Or take TARGET2-Securities. It's true that here the ride hasn't always been smooth. Nevertheless, we have succeeded in replacing 23 disparate settlement systems with one harmonised platform. This is an important step towards overcoming fragmentation and a great achievement for the securities industry!

Sustainably leveraging technology together

Collaboration is also a great asset when dealing with new technologies. (The audience we polled at Sibos put technology as the top driver for change in the securities industry.) Financial institutions sometimes get a little skittish, wondering if – going forward – intermediaries will simply be regarded as noise that impedes efficiency. I don't believe so. The roles filled by intermediaries are vital to ensure trust and asset safety.

Instead, the capabilities of new entrants and the strengths of incumbent financial institutions should be combined to drive innovation while ensuring integrity, safety and transparency for all participants. A lot of it is about the people leading this industry getting together and jointly agreeing to move it forward: such as in Clearstream’s HQLAx partnership, which my colleague Philippe recently blogged about.

With all participants working in concert on concrete, hands-on solutions – and supported by necessary regulation – we can achieve sustainable change that benefits the whole industry.