Re-imagining the future
We live in interesting times, and operate in an industry that’s ripe for disruption. It reminds me of the technology sector a few decades back, when hardware and mainframes were at the heart of its industry. Yet today it’s microprocessors, software and the ubiquity of mobile technology and the cloud that drive access to both computing functionality and power. So too the telecommunications sector now operates in a very different world to that which previously existed. Today, its collaboration across sectors such as the technology and automotive industries is commonplace, and telecommunications operators themselves have become an enabler of technology innovation and disruption.
Closer to home – or, as some might feel, right in our backyard – we see the bourgeoning financial technology industry disrupting the conventional payments space. Such disruption goes beyond the traditional payments sector, proving a catalyst for shadow banking through peer-to-peer lending and other emerging alternatives such as block chain technologies. Catalytic change – or perhaps a game-changing competitive threat – for our industry is more likely to come from a technology firm that is free from burdensome legacy infrastructures, and agile enough to meet clients’ needs at a speed that traditional players will struggle to match. The gauntlet is laid down for traditional participants to foster an environment of greater innovation for our most creative minds, amid a perfect storm of regulatory onslaught, geopolitical uncertainty, economic volatility and rising risk complexity.
So now is the time to question the orthodoxy of our own industry – to re-imagine our future. A future where T+2 is of a bygone era – the market instead expecting T+2 seconds settlement of both cash and securities; where the traditional distinction between cash and securities no longer exists; where collateral is ‘the new settlement’ for custodians and CSDs, and identity itself becomes the new collateral; and where regulation and compliance cannot alone defeat cyber threats. Such possibilities demand more than simply weighing political and regulatory intent, and marrying it up to economic trends, but rather considering the unintended consequences of the raft of policy that our industry, and those related to it, are grappling with. Yes, there will be a fundamental shift in how banks, intermediaries and infrastructures compete and cooperate. But perhaps not in the way many pundits continue to speculate.
The great post trade urban myth of the past few years forewarns of great disintermediation along the custodial chain, driven by legislators’ and regulators’ efforts, and the increasing capital costs of traditional business models that result. In contrast, I believe that as the marketplace evolves the opportunities to extend our relevance to our network of partners will only increase. Our intention to offer open, flexible services in a utility model should benefit all participants in different ways, depending on their own business models. And I see such desire to further partner from across industry, forging new models of collaboration and unprecedented cross-industry partnerships – perhaps accelerated by the rise of new digital currencies, new asset classes and security types that are traded through new venues that are as yet undefined (much like MTFs were undefined only a few years ago), and an environment where capital and liquidity are scarce commodities. It is no surprise that financial institutions are today re-thinking their approach to operations, where the attractions of cost mutualisation outweigh the need to build and maintain proprietary processing functions. And so it is to trusted infrastructures they will look – utilities that have a proven track-record of fostering cooperation for the benefit of the wider marketplace. Providing new relevance to a long-standing franchise creates a new dimension of interdependencies, making stronger the relationships between infrastructures and banks who chose this path.
In summary, I believe that with the tectonic plates of policy, regulation and economics shifting, market infrastructures will play an even more important role of enabling collaboration with the industry, which is particularly pressing in the low-growth European environment. Co-opetition will be the order of the day, with financial institutions, market infrastructures and technology companies focusing on what they deem core to their franchise, and partnering to connect services in ways not seen before but deemed necessary in this brave new world. Our responsibility, as vested members of the industry, is to embrace the possibility of disruption and to stay a step ahead while preserving the integrity, resilience and trust of the global financial system. While there is no certainty to the future, as an industry we must keep our eye on the horizon, anticipate the unimaginable, and stay open to new ways of cooperation. At the end of the day, it is this kind of partnership that will support the continued growth of the financial system, and in-turn the prosperity of the world’s economies.