De-risking operational change in capital markets

Investment Technology

De-risking operational change in capital markets

Stephen Collie

Stephen Collie

10/11/22

Breaking the cycle of traditional constructs, to become future-ready 

Steve Collie, Co-Founder and Co-Head of Client Delivery, FINBOURNE Technology  

Balancing cost optimisation while delivering clients with value-added solutions is one of the biggest challenges to hit Capital Markets. In recent years, many firms have endured painstaking, manual and people-heavy workflows to deliver clients the data they need at their fingertips, often during heightened conditions.  

The reality is, what was once good simply isn’t good enough anymore. While  the evolution of the mainframe has served global capital markets for over a century, we need to understand it was only ever intended to answer specific questions at a specific point in time. As markets and client needs have evolved, this infrastructure has become quickly outdated, leaving a gap between what the business needs and what the technologists could offer. 

In its wake, it’s left a legacy of duplicitious systems, interfaces, fragmented best of breed solutions and manual workarounds, now handicapping firms as they struggle to respond to a world in which ESG and private assets have become the norm. In fact, 58% of Buy Side and Sell-Side respondents in our recently commissioned FIMA Benchmark Report rate the trust in their data (25%) or the timeliness of it (33%) as less than good.  

In short, delivering transparency to a new generation of data-hungry investors in the current status quo, has equated to increasingly manual and costly operations. With the added threat of broader regulations, net zero targets and continued fee scrutiny, capital markets firms are finding themselves in an unsustainable situation. 

Making multi-asset investment, market and reference data and the processes surrounding it, low-touch, translatable and scalable, is now an urgent need. Our global market engagement, including recent COO roundtables and industry events, echoes this. It is critical that firms take action now to replace all the sticking plasters, manual re-mapping of data and spaghetti workflows, with a trusted data foundation that can secure valuable insights, boost performance and add value to clients.  

The question is; if the traditional constructs are no longer fit-for purpose, how can firms approach operational change in the present day?  

Common barriers to operational change 

To date, the choice capital markets firms have had has been limited to best of breed solutions, outsourcing, or big bang, front-to-back, multi-year transformations. Over the years, this cycle has led to severe infrastructure complexity and often a single vendor dependency that is now inhibiting competitive growth and innovation. These traditional constructs have also contributed to a common misconception that operational change can be more costly than value-generating.  

It’s no surprise then, that when we asked leading asset managers and asset owners in a recent workshop at TSAM East Coast (USA) what the biggest barriers affecting buy-in to operational change were, cost Vs value perception was indeed noted as the third most experienced barrier.  

What are the barriers that exist in the business, affecting buy-in to operational change? 

Investment data is a central business asset. Owning and controlling your organisational data is the first and most vital step to unlocking value from the data you hold today. While cost V value perception did come up high in the order, it was interesting to see that it was topped by higher priorities elsewhere (56%) and lack of a business sponsor (44%).   

From the poll, we can infer that these firms may not yet have identified data as the root of business-wide challenges. And yet, we know from the aforementioned FIMA survey that firms are spending far too much time, in some cases 50% or more of their day, on manual reconciliation, locating data at source, or attempting to figure out positions and exposure from siloed data – across the investment chain. 

Additionally, what firms don’t always recognise, especially those reliant on single platfforms, is that the data models mandated by the vendor of their choice often compound the issues they face around data. As a result, poor quality data and inefficient processes are now impacting a number of workflows; from performance, attribution and exposure calculation, to accounting and reporting. 

The failure to understand the central role data plays across the firm can also explain why many are unable to make a compelling argument for change at the business-level – leading to a lack of a business sponsor (44%) as a secondary barrier.  

Leveraging clean interoperable data is a clear business priority. To address data-led change and to make the transition from cost centre to value generation, we believe firms will need to start asking the uncomfortable questions around the costs they bear and the capabilities they are missing, not at the operational level, but at the business level, in order to trigger senior leadership buy-in.  

  • What is the opportunity cost being missed today? 
  • Does the budget split between keeping the lights on Vs discretionary budget support the organisation’s needs? 
  • Are the data and operations ‘good enough’ to survive today and deliver resiliency tomorrow? 

A safer SaaS-native path to operational change 

Tackling the fundamental problem of understanding, accessing and controlling the data is something the industry needs now, not in five years’ time. We need to stop the ‘big bang’ revolutionary thinking and start taking an evolutionary approach that is empathetic to the fact that the industry is not starting from a blank slate.  

This starts with acknowledging the industry’s appetite for risk. In our recent survey, when asked about risk appetite for change, only 12% of firms cited a high-risk appetite, with the majority leaning to low-medium risk. As vendors, we need to address this low appetite for risk, if we are to support firms in addressing the inefficiencies impacting them and become future-ready.  

De-risking the process of change, through Software as a Service (SaaS) investment data management technology, empowers firms to focus on the core of their business rather than the distraction of a multi-year transformation. Ultimately, a SaaS-native approach enables you to start small with mission critical areas, realise the value quickly and build the business case for further change.  

For too long, the industry has focused on hoarding and consolidating data, and is only now realising the ability to integrate disparate data sets and derive meaning is missing. Challenging traditional constructs and leveraging a host of SaaS capabilities, we have designed another way, with our Modern Financial Data Stack. It’s a cloud-native, interoperable data store that reduces operational complexity and lowers the risk of change, by opening up existing ‘closed’ systems.  

By building a trusted data fabric that makes sense of the technology investment made to date, firms can fundamentally solve the final piece of the puzzle – understanding and deriving value from the data that sits in the organisation.  

What it is not, is yet another monolithic data store. Delivering safer, better and faster data at the core, the Modern Financial Data Stack forms a data hub that can adapt and evolve towards the future state desired. It bridges the gaps in a firm’s existing infrastructure, including connecting to external innovation via open APIs, to augment investment data processes and outsource non-differentiating activities. 

Taking this evolutionary approach and understanding the industry’s risk appetite means that capital market firms are empowered with the flexibility to innovate on their own terms. It definitively enables them to migrate between data models, do business the way they want, and to bring on new systems easily. Addressing data at the foundational level, is what we believe will achieve the transparency, trust and control firms need, to win back productivity and operating margins. 

Ultimately, it’s what we believe will break through the cycle, improving efficiency and transparency and driving the future of capital markets. Securing this future, however, requires actionable change today and recognising that what was once good, is no longer good enough. 

To learn more about the Modern Financial Data Stack and how it can drive your business forward, see here. 

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Stephen Collie

10/11/22

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