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Role of Digital in Realising the Value In Capital Markets

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Article by Kelsey Popplewell – Principal Consultant (US) and Joseph Suh – Consultant (US) at CAPCO

In today’s world, digital has become the go-to answer for capital markets firms looking to solve age-old problems and gain quick efficiencies. In this paper, we present the near-future opportunities for financial institutions to differentiate themselves from the competition. How firms embark upon their digital transformation journey is as important as the opportunities being pursued. In this paper, we present the key approaches when digitizing capital markets and explore near-future opportunities for financial institutions to differentiate themselves.

Key trends for approaching digital transformation-

  1. Rapid Identification- Rapidly identify opportunities that can improve cost, efficiency, and client experience. Fail fast, fail often, fail forward. The more iterative, incremental agile methodology has overtaken the traditional sequential ‘waterfall’ method of software development in financial services: it embraces cross-functional teams, facilitates rapid development, and is conducive to the ‘fail fast, fail often, and fail forward’ mantra. If implemented correctly, agile is capable of significantly improving time-to-value; projects whose duration would typically be measured in years can be delivered sooner. Siloed development of digital solutions runs a high risk of accruing technical debt once implemented or of failing to achieve end-user/ customer outcomes. 
  2. Democratization of Development- Bring operations, the process SMEs, into the development lifecycle with Low- or No-Code platforms. Few financial institutions have the financial and human resources to meet market demand for rapid software development via traditional coding. One key trend to accelerating the transformation process is to democratize the development of digital capabilities through low/no-code platforms – a collection of tools that enable the visual development of applications. Firms should consider training and upskilling their current workforce while investing into digital. A key advantage of this model is that it inspires a new way of working. Upskilling and training operations staff to become a part of the firm’s digital culture feeds into one of the most sought-after attributes that current and potential employees look for in the workplace: the opportunity to learn. 
  3. Digital Orchestration- Assess your firm’s ability to orchestrate change. Even with the most cutting-edge technology, poor orchestration can result in lower ROI.  Orchestration is the ability to utilize a firm’s resources across disciplines and business lines in an efficient and productive manner. When capabilities of capital markets firms advance faster than orchestration, we often see lower return on investment (ROI) due to the need for rework and the duplication of effort. Firms with higher levels of digital capabilities and, more importantly, orchestration maturity bridge gaps across domains, and ensure that disparate capabilities and entities all move in the same direction. This leads to better user and client outcomes, delivering the promise of growth and efficiency at the same time.
  • Capabilities maturity: Firms should have robust methods for benchmarking and modeling customer experience and for driving towards client insights. Combined with the orchestration, a digitally based design can also be tailored to client/user preferences to improve experience and overall stickiness.
  • Orchestration maturity: Firms must aspire to become a ‘modern’ organization – one that has product managers, operational engineers, system architects/engineers, key business stakeholders, and a ‘servant leader’ to manage the value chain across capital markets. Furthermore, businesses and enterprise capabilities must continue to align and structure themselves to the client/user experiences. Finally, capital markets firms must embrace creative thinking to equip employees from many industries with innovation skills to co-create and spark innovation across functions.


  1. Artificial intelligence (AI) and machine learning (ML) technologies have numerous applications across the Sales, Data, Operations and Compliance functions. They can provide the power to harness data that the bank generates organically from bankers, traders, and clients, as well as the ability to drive predictive analytics around both internal employee and client behaviours.
  2. Optical character recognition and natural language processing (NLP) Over the past year, financial institutions have deployed digital onboarding platforms to speed up the collection of know-your-customer (KYC) information. However, many platforms have yet to automate end-to-end onboarding to further reduce their KYC lifecycle and simplify client journeys. Optical character recognition (OCR) and natural language processing (NLP) – two forms of AI together known as document imaging technology can expedite onboarding, cross-utilize existing data, and deliver insights into clients’ needs and preferences to make onboarding a competitive differentiator.
  3. Regtech automation to ease the burden of overly costly regulatory compliance. There is always a high risk of employees potentially gaming the system of conduct risk management, as current methods of managing conduct risks – by identifying irregularities on a rules-bases – are reviewed in individual sets that rarely ‘connect the dots. Regtech solutions leverage NLP, AI, and advanced analytics to enable firms to take a more holistic view of their employees’ behaviour. By sourcing data from several data sets, regtech allows computers to conduct comprehensive assessments of employee interactions. 
  4. Distributed ledger technology capabilities to improve efficiency, security, and speed, Distributed ledger technology – or blockchain technology refers to the technological infrastructure that allows simultaneous access to an immutable ledger (a database). The industry is at key juncture in DLT solution development and adoption, making it an imminent opportunity to transform operating models even in present time horizons. Specifically, we consider its application to the post-trade settlement process to be the next trend.

4.1 Blockchain technologies in the US repo (repurchase agreement) market. With the US Office of the Comptroller of the Currency (OCC) providing the greenlight to use stable coins as payment and participate in independent node verification networks, financial institutions are extensively exploring leveraging blockchain technology to provide, speed, security, and cost-savings to their clients.

4.2 Blockchain technologies in the equities market. Beyond instant settlement of cash and treasury transactions, blockchain can also be leveraged for equity and commodity settlement as well, offering benefits in liquidity and credit risk (particularly principal risk) management. The latest development in this space comes in the shape of Bank of America’s partnership with Paxos Trust Co, joining Paxos’ pilot network to facilitate settlement of equity trades in minutes rather than days.

CONCLUSION- As highlighted in the previous sections, capital markets firms must combine their deep subject-matter expertise and digital orchestration (ability to utilize a firm’s resources across disciplines) to realize value through digital capabilities. In fact, the process of creating and deploying a new digital tool/ capability is quite different from creating new financial products. Financial institutions must have the capacity to apply design thinking, agile, product-focused ways of working to ensure customer-centric design, innovation, and rapid delivery. To begin the journey to implementing a digital ecosystem, financial institutions should consider the following questions:

  1. What is the vision? Confirm the long-term digital goals and evaluate the multi-year vision for improving your capabilities inside. Only after clarifying the vision, can firms consider some of the harder-hitting strategic decisions.
  2. What are the right digital capabilities? Identify the core value-add business areas that should be optimized and assess the capability landscape to identify what technology should be implemented where.
  3. What is the target operating model? Assess how digital applications will communicate to streamline day-to-day tasks such as onboarding, data access, trade processing, and regulatory compliance.

Who are the right partners? Leverage the current market of innovative vendors to curate partner networks to accelerate delivery

SMEStreet Edit Desk

SMEStreet Edit Desk is a small group of excited and motivated journalists and editors who are committed to building MSME ecosystem through valuable information and knowledge spread.

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