Reston, VA,
February 4, 2016 – Software AG (Frankfurt
TecDAX: SOW) today shared its predictions for capital markets
in 2016, derived from its expertise, market observations and interactions with
its customers.
Nigel Farmer,
solutions director for capital markets at Software AG said: “Capital markets
are in a state of flux thanks to new regulations and disruptive competition
from fintech, so 2016 will be the year that defines the way financial services
companies can move forward. The new landscape means they have to get creative
to address new competition while still remaining in compliance. I believe there
are five key trends that will occur in 2016”
1. A
compliance officer will go to jail.
In 2016 a compliance
officer will go to jail for not stopping an illegal act executed by one of his
colleagues. Regulations including MAD II (Market Abuse
Directive) and MAR (Market Abuse Regulation) hold compliance officials
responsible for anyone in their companies for breaking the law, which means
criminal sanctions. The pressure on an already tight labor pool may send
potential applicants elsewhere, even as in situ compliance officers head for
the door.
2. Capital
market firms will be buried in data.
Data requirements for
reporting transactions, risk data aggregation and reporting (Basel Committee on
Banking Supervision 239), communications surveillance and swaps data repository
reporting are creating a bureaucratic nightmare for capital markets firms. Few
are prepared to handle the basic regulatory requirements, never mind take
advantage of what could be useful for market monitoring and transparency. The
ability to analyse and act upon the data before it becomes stale and loses
value will be a key differentiator for capital markets firms going forward.
3. Blockchain
technology will transform capital markets.
Blockchain will
evolve from something banks are suspicious of into “the” disruptive technology
that will totally transform the banking system, eliminating the need for
securities depositories and central clearing, and reducing settlements delays.
One report notes that blockchain could cut
up to $20bn a year off of a bank’s infrastructure costs. Blockchain will also
help to nail money launderers through its distributed ledger and the historic
traceability of funds.
4. Predictive
Analytics will destroy insider and rogue trading.
Regulators and
financial services firms will monitor trades and traders to spot aberrant
behavior and anomalous trades, using streaming analytics with predictive
analytics models on top. This way they will be able to predict with a good deal
of certainty when something bad might happen; insider trading, market
manipulation, even money laundering will be halted before markets are
affected.
5. FinTech
will begin to disrupt investment banking.
While financial
technology companies have already disrupted retail banking and investing
business models, with lower cost banking and financial planning websites, they
have only scratched the surface of the behemoth investment banks’ businesses.
This will change in 2015 as
fintech firms begin to target and invade wealth management, private investment
and small business lending, beginning in the U.S.
“Capital markets will begin to see some real
disruption in 2016. The financial services firms that are prepared for the
onslaught of new rules and data, and are proactively embracing fintech, are the
ones which will still be there at the end of 2016,” concluded Farmer.