23 May 2018
Breana Patel- Bonova Advisory
Breana Patel

Breana Patel- Bonova Advisory

Breana Patel - Bonova Advisory | Risk &Regulatory Advisory

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Trends in Financial Services

Trends in Financial Services

A community to discuss the future of financial services and any other interesting trends, strategies, ideas, views.

Unfolding Digital in Capital Markets

23 September 2017  |  12197 views  |  0


Over the years, digital technologies have found their way to many business areas within banking and finance. This is true now more than ever before, with specific technologies like Block-chain, Crypto currency, Robo Advisory etc being sought after by most financial firms.

To adapt to the customer’s needs and expectations firms have been provoked into implementing long term strategies that revolve around digital transformations.

Capital markets make up about 13 percent of the nation’s GDP. These changes can help speed up transactions, automate repetitive manual processes, incorporate machine learning to know the customer better as well as quicker/better decision making, reduction in operational costs, keeping records secure and improve general efficiency.

This current era as quoted by the founder of World Economic Forum as “The second machine age” is undergoing a tremendous metamorphosis digitizing almost every sector of business. Capital markets are noting increasing activity around solutions for complex front office, mid office and back office operations throughout the trade life cycle. Below are four pillars of Digital Revolution:

  • Big Data
  • Artificial Intelligence
  • Automation
  • Digital Security


 Making use of these technologies is extremely important to stay relevant in this ever-changing world of finance. Relevancy however, is not as significant as the other changes these technologies bring. Efficiency, cost-effectiveness and simplicity are all characteristics associated with the digital revolution.


A surefire way to increase speed, decrease costs and improve control standards for various processes is to adopt an automated system. Not many organizations however have begun implementing it because large scale adoption doesn’t come without its challenges.

The most popular variation of workforce automation is Robotics Process Automation (RPA). In situations like this, manual tasks are totally automated and this helps reduce the duration of timelines. This also helps maintain a secure work environment and avoid error completely. In addition, automation cuts operation costs significantly and reduces the number of failed/rejected trade.

With regulations developing and technologies surfacing every day, firms are applying their resources towards automating regulatory reports. It would be extremely expensive for capital market firms to replace their longstanding systems with newer technologies and most of them do not have the budget to even attempt such a revamp. Automation is a way around this, because it can bring out the efficiencies without requiring high costs of implementation.

Here’s where automation can be potentially applied in capital market firms:

●     Onboarding Clients – An automated system can be used to inspect client data to ensure that new clients comply with all regulations. This will improve regulatory compliance and reporting at little to no cost.

●     Intersystem Transference – At various trade cycle stages data will need to be transferred between systems. With Robotics Process Automation in place, errors between datasets can be evaded improving both precision and productivity.

●     Regulatory Reporting – Robotics Process Automation can prove itself valuable when it comes to producing quarterly or annual reports to regulatory bodies. Writing these reports manually is a tedious task and if robotics could extract the data automatically and send out the reports, it would make things a lot smoother.

●     Trade-Cycle Automation – Entire trade cycles from initiation to the point of implementation can be completely automated saving both the time of the employee and customer.

Application is a serious chunk of the implementation process. Where can Robotics Process Automation be applied in a firm? Where would it prove useful? Robotics Process Automation can be adopted in almost every sector of a capital market firm. Diagram below shows areas where robotic automation is in progress within capital markets.

Digital Security

Data theft is become more common by the day, and is a susceptibility in the investment banking market. Client data can be used for things like identity theft, blackmail, and many other alarming scenarios. Capital market firms need to have extremely high ethical standards and high-tech security systems to adapt to the privacy requirements of today’s world. This can be done by:

➢    Encrypting Data – Client data needs to be encrypted by high level security personnel. Encryption keys should only be available to employees that absolutely require them.

➢    Establishing a Cybersecurity Team – Every firm that deals with data in high quantities should have a dedicated cybersecurity team on site at all times in case of a potential breach.

➢    Private Servers/Cloud – All data needs to be uploaded on a private server (preferably within the establishment), this way, outsider access is next to impossible. A cloud storage system can also be used as long as it is being monitored at all times.

BIG Data

All major firms have access to a plethora of client data but it isn’t being used to their advantage. Large quantities of data can be analyzed to discover meaningful patterns. These patterns can then be used to make predictions/forecasts for things like future sales, potential customer bases, etc. The simultaneous application of statistics, computer programming and operations research can also be used to quantify the performance of the firm itself. This is an exceptional way for a firm to conduct a self-evaluation. Here’s where big data can play a role in capital market innovation:

  • Clustering: Clustering is an extremely effective technique to group similar sets of data together to be further evaluated at a later time.
  • Forecasting: With some basic formulae, data can be used to predict future company sales
  • Capturing trends: By heavy analysis trends in data can be found that can help a firm identify what is the mega trend in the market.

Artificial Intelligence (AI)

Some capital market firms have been investing in artificial intelligence for many years now but are yet to see substantial payoffs. This is mostly because artificial intelligence is not being used to its full potential but when its true potential is unleashed, it is an undeniable force to be reckoned with.

What AI is capable of is performing tasks that require near-human cognition and visual perception. This was unheard of a decade ago but is becoming significantly more popular with every passing day. The AI can make decisions based on its cognition and perception and can even respond in a human manner. AI will prove itself worthy even with its huge price tag in the following ways:

❖    Chatbots – Chatbots can be used to emulate customer service representatives by responding to customers based off of keyword perception. This will mean less wages for the firm to pay.

❖    Robo-advisor – Through machine learning, algorithms can be used to build a financial portfolio based on the customer’s goals and risk tolerance. This system can also react to real time changes in the market more quickly than a human advisor.

❖    High-Frequency Trading – Algorithmic trading is now possible and enables users to make extremely fast trading decisions. These algorithms are human-built and implemented into software that can use these algorithms to make trades on their own.

Digital systems are taking the capital market by storm and this revolution has been occurring under our noses for a long time. However, it is a welcome innovation, as it saves both the firm and the customer base time and money. The four pillars discussed in this article are only the beginning and there is no doubt that we will hear more about digital systems in financial services in the near future.

Digital in Capital Markets TagsArtificial IntelligenceTrade execution

Comments: (1)

A Finextra member
A Finextra member | 23 September, 2017, 00:34


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job title CEO | Thought leader in Bank Regulations
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Founder of Bonova Advisory a management consulting firm that helps Financial services and government agencies navigate today's most complex regulatory, risk and operational environments.

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