Overcoming the Complexities of Capital Markets: Strategies for Success
Capital markets across asset classes go through their cycles of boom and bust. In bull markets, the focus usually is on finding undervalued assets which can be multi-baggers and in bear markets, the same is usually on finding assets that can be immune to macro and microeconomic conditions. However, the fundamental tenets for adopting and managing these scenarios do not change. Financial firms still need to process transactions, service customers, comply with regulations, report their financials to investors and regulators whether it is a bull market or a bear market.
It’s tough enough to manage all aspects of your investment and trading business without adding technology complexity on top!
The challenge for financial institutions is the need to balance risk and returns. Investors in FIs (including shareholders, customers, and employees) are typically looking for predictable, consistent, and stable returns. This can often run counter to the attributes commonly associated with business model transformation and innovation—i.e., taking risks, experimentation, and learning through iterations. There is no room for experimentation when it comes to technologies supporting Key Financial Applications (KFAs) that has a direct impact on the balance sheets of the institutions or the customers they service.
The ever-evolving business landscape is placing an increasing demand on technology groups within financial institutions. Many of the new technologies that are being implemented as a result of business demand such as cloud computing, big data, and AI (artificial intelligence), modern integration with internal & external systems can be difficult to deploy or manage. This is a significant challenge for FIs who must ensure they have adequate capabilities at hand while still balancing risk to not disappoint business or any party interested.
Quinnox’s capabilities in capital market solutions enable institutions across investment banking, asset and wealth management, treasury, risk management and regulatory compliance to modernize their operating models and brace for a robust digital future. We are focused on following five areas of complexities within capital markets and work with customers on strategies for success and sustainability:
- Core Platform transformation
- Regulatory compliance
- Integration of external and internal systems
- Speed to market
- Mergers and acquisitions
Core Platform transformation
Core platform transformations are fraught with risks and pitfalls. They can derail any business initiative and can have a direct impact on the P&L and balance sheet of the organization. A core platform transformation needs to take into account multiple pitfalls like the integrity of data from legacy to modern platform, integrity of integrations with internal and external systems, integrity of functionality while retiring legacy custom code, ensuring right data is used to provide regulatory reports and many more. The adoption of new technologies like Cloud, Chatbots, RPA tools, modern integration platforms, micro-services architecture further amplifies the complexities. Many organizations tend to kick the can down the road rather than focusing on creating business and technology capabilities to modernize legacy platforms and keep changing them with changing times.
Regulatory compliance directly impacts the balance sheet, capital requirements, P&L of the financial institution. Compliance with regulations starts with understanding the regulations, assessing the business impact of the regulations, creating policies that act as guardrails for running the business, designing business and technology processes to comply with regulations, developing functionality in core platforms and product processors to align with new regulatory needs, capturing the right data needed for regulatory reporting and finally, creating a regulatory reporting layer which is responsive to ever-changing regulatory needs.
Integration of external and internal systems
Capital Markets have been one of the fastest expanding segments in financial services in recent years. As financial markets today expand their product and service offerings, they often find themselves struggling to keep up with all their new product processors and integrate external partners like market data vendors or asset servicing partners into an integrated platform that can be accessed internally as well outside sources. The process has become more challenging than ever before given data security concerns surrounding third parties who may not properly protect sensitive information being shared across various channels.
Speed to market
Speed to market can be a major lever of differentiation for financial institutions which brings with it a host of challenges at the same time. The challenges can be in the form of how quickly can one onboard a new customer? Can it allow front to back straight-through processing with minimal human intervention? How quickly can it add and test new functionality in core systems? How quickly can it adopt a new regulation? Can it have a data fabric that can allow any-to-any integration on demand? Can it reconcile massive data sets in a completely automated way? Can it provide quick access to data needed for running financial models which can provide much-needed alpha?
Mergers and acquisitions
Businesses that grow through mergers or acquisitions face the challenge of fusing their separate businesses, customers, products, business processes, technology systems and product processors into a single ecosystem that is effective and efficient. This can oftentimes result in data-related challenges, redundant applications, lost functionality, and increased costs.
While mergers and acquisitions are driven by financial considerations, they cannot be successful unless the merged entity is able to reduce technical debt, simplify eco-systems and provide significant long-term savings. The roadmap for any merger initiative goes through major business process and technology rationalization initiatives that focus on customers, products, data, business processes and finally IT infrastructure.
By overcoming the complexities of capital markets, businesses can achieve even greater success. Capital markets can be a complex environment, but with the right strategies in place, your business can overcome these challenges and achieve success.
Connect with us now to discuss your specific Capital Markets complexities in greater detail. You can also download our case studies for an overview of how we can help simplify numerous challenges that pose a risk to business operating models.
Look out for our next blog as we take a deep dive into the challenges faced by capital markets. To know more about our offerings around Capital Markets – click here.
Author: Kaustubh Tare | Senior Vice President