Capital markets firms are re-evaluating business models as they develop strategies to tackle regulation and governance, globalization and changes in industry and market structure.
Intense regulations and governance as well as changes in market structure stand out as the top challenges to the success of organizations, according to a survey conducted earlier this year by Broadridge Financial Solutions and the Economist Intelligence Unit. The survey garnered responses from 414 executives engaged in securities-related businesses, with buy-side operations, sell-side operations and corporate management about equally represented.
“One of the specific insights that we felt was quite interesting was the fact that the COO's role is not only executing change to meet what the Economist calls the ‘new normal,’ but also that those who are overseeing operations are expected to bring proposals forward to the CEO,” Tim McConnell, managing director at Broadridge Financial Solutions, told Markets Media.
The research found that the ways companies react to regulatory change is quite different between leaders and laggards.
“The leaders are investing today, right now,” said McConnell. “They're using technology to enable a new environment and a new structure, which could be entering or exiting markets, or redeploying of capital to right-size the business.”
The largest proportion of executives (43%) say that building automated processes that integrate risk management, audit trails and compliance processes is the most effective strategy for adapting to more intense regulatory and governance requirements.
New business models stand out as the top approach for 77% of survey respondents. This includes 47% that are in the process of developing a new or substantially revised business model and another 30% that have already launched one.
In specific areas such as collateral management, new business models such as shared services, utilities, and joint ventures are being explored in order to address the cost-complexity issues that plague collateral management infrastructures and operations, according to research firm Celent.
In a report, Celent said collateral management activities are entering a new stage beyond merely firm-level infrastructure and data enablement, toward market participants looking to connect pools and movement of collateral at an industry level.
New capabilities for managing collateral are required, but prohibitive costs and complexities still prevail, especially for market participants outside of the realm of tier 1 banks and larger broker-dealers, such as regional banks, insurers, asset managers, pension funds, hedge funds, corporates, and supranational entities.
“As the shakeout in capital markets continues to intensify, there are emerging ways of operating that are starting to appear on the horizon,” said Cubillas Ding, research director of Celent's Securities & Investments practice and author of the report. “For firms watching along the sidelines, doing nothing or holding on to simplistic approaches are no longer viable options.”
The market is observing collaborations taking place in a number of ways, ranging from commercial relationships to joint ventures, acquisitions, and market-led utilities, according to Celent. There is already evidence of more proactive market participants using partnerships and acquisitions to aggressively adapt where they lack requisite capabilities or scale.
Broadridge’s McConnell predicts is that financial services firms are going take a page from the automotive industry and begin outsourcing processes to improve efficiency and enable growth.
“Financial services has been a little bit slower in that kind of outsourcing,” he said. “Because of the market dislocation of 2008 and all the regulation that came out of it, plus the regulation that is anticipated in the future, firms are going to have to find a more automated process and leverage their third-party providers to become more efficient. Trying to do it all on your own in financial services is a thing of the past.”
Featured image via Azuki/Dollar Photo Club