AI and ML to combine with human subject matter expertise to drive innovation
Kevin Welch, managing director, business transformation, BBH
In recent years, we’ve seen the evolution of artificial intelligence (AI) and machine learning (ML) beyond front-office utility to support automation efforts in the back/middle office to create scale and make businesses leaner. As we look ahead, it will be interesting to see how firms combine these tools with human subject matter expertise, optimising collective intelligence to help firms introduce new products and features that deliver innovation, differentiation, and business results. Today’s workforce and talent market is increasingly challenging and dynamic. Recent studies show on average the tenure of employees is between three-to-four years. This means that building and retaining institutional knowledge swiftly is more critical than ever. 
Consider the expertise and experience needed to understand the terms and requirements of complex corporate actions, such as tender or subscription offers. By training an AI algorithm to perform in the same way a subject matter expert would, proactively identifying risks and anomalies, it is possible to surface those insights more systemically and assist those analysts to make decisions and eliminate risks quickly.
Accelerated interest in technology spend that will impact the bottom line
Roy Saadon, CEO, AccessFintech
For major financial institutions, the scene heading into 2023 is one of continued focus on enhancing the customer experience and operational efficiency. In a rising interest rate environment and with economic uncertainty, there is accelerated interest in technology spend that will impact the bottom line, whether that’s driving additional operational efficiency through cloud analytics or data efficiency. Financial firms will be focusing on projects that allow their capital to be put to work better in a responsible way, reduces their fees, and impacts their bottom line. It’s a case of ROI, right now, definitively.
Additionally, the pendulum swing of regulation following the crypto turmoil after FTX may see efforts move in the opposite direction. Regulators must be seen to be thinking more stringently on applying rules to safeguard the financial system and investors. We have T+1, CAT and CSDR phase 2 on the horizon for 2023. Regulators have a renewed focus on ensuring that they are keeping pace with emerging technology and emerging areas of risk, as well as ensuring that there is a level of understanding of what the expectations are from financial institutions for managing through that.
Factor in necessary upgrades for T+1
Brian Collings, CEO, Torstone
2022 saw an increased focus on post-trade processes, especially with the introduction of the Settlement Discipline Regime in Europe in Q1. It has been positive to see greater engagement and spotlight from the industry on their post-trade processes but that doesn’t mean that 2023 will be smooth sailing. Operations and post-trade teams are stretched due to ongoing market turbulence, and with the continued momentum in the shift to T+1 settlement, it is vital that the industry bake in the necessary upgrades and investment to their systems to facilitate this move in their 2023 planning.
Recent research we conducted with Firebrand Research estimates that 81% of brokers and banks active within the US and Canadian markets are either using manual processes or home-grown systems to support their post-trade processes. Manual processes and inefficiencies are a serious risk for firms facing the prospect of a shortened settlement cycle. To combat this, we expect increased appetite among market participants for cloud-based solutions to offer the scalability and flexibility they need. There will no doubt be teething issues on the way to T+1 but we’re looking forward to serious progress, especially in the North American market.
Operations teams face a tough year ahead
Virginie O’Shea, founder, Firebrand Research
The US and Canada are on a path toward shortening the settlement cycle and several Latin American countries have also pledged to make the move, but there is general market anticipation that it will be a slower move than the DTCC anticipates. 2023 will likely be a foot dragging year for the industry in this regard as the recession bites and operations budgets are placed under even greater pressure.
Regardless, Europe is not in a position to make the move due to ongoing settlement inefficiency – penalties have not worked sufficiently to bring down failures as yet. The relative effectiveness of CSDR will be a priority item for ESMA and the European Commission in the next 12 months. Market side, there is huge concern in the EU that the UK will move to T+1 to try to differentiate from the EU. This, in turn, could cause markets such as the Netherlands to move out of step with the rest of the EU in a bid to appear competitive with the UK. This would be extremely problematic at the cross-border level. Not all of this will happen in 2023, of course, but expect these to be big discussion topics throughout the year.
It will likely also be a tough year due to the recession and operations heads are already discussing further downsizing their teams to reduce overheads, but there is little budget to direct toward new IT implementations. Getting more from existing vendor relationships and partners without increasing the budget substantially will be a priority.
Digitisation will be the focus
Gabino Roche Jr., CEO, Saphyre
With the recession deepening, there will be tremendous pressure on financial institutions to operate at higher levels of efficiency. Couple that with high inflation, and offshoring to find cost savings is no longer what it used to be. Innovation through technology to achieve digitisation is the answer. Financial firms cannot continue to support the same pre-trade operational processes.
Onboarding, tax, KYC, legal and compliance teams that predicate their activities on the same client data and documents have already been the centre of digitisation efforts by tier one firms in the last three years. The true efficiency play comes when those same firms apply it to eliminate up to 70% of redundant post-trade activities and their associated errors. This is not only a cost-save, but a competitive advantage and a revenue play at the same time.
Achieving true end-to-end digitisation from pre-trade through post-trade seems daunting to most firms because of the myopic perspective of how they manage their own firm’s data internally compared with the disparate set of data from counterparties that span between asset owners, investment managers, custodians, and sell-side brokers per account. To bridge that chasm, automated intelligence that assembles the relationships between those counterparties per account will fulfil the digitisation of pre- through post-trade. The firms who’ve embarked on the pre-trade portion of the digitisation journey will begin to validate the post-trade value proposition in 2023, as pressures mount to find those efficiency gains that also happen to naturally lead to increased competitiveness and performance gains, which in turn, brings in more revenue.