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Maximizing the value of EMIR and MiFID II investments: MANAGING COMPLEX FINANCIAL ECOSYSTEMS

Part 2: Managing complex financial ecosystems

There is a great potential now to derive innovation value from investments in EMIR and MiFID II. New or improved capabilities developed under these regulations can and should be reused.

The primary function of the securities industry (and the key focus of recent regulations) has been managing transactions between parties exchanging value. As the financial industry evolves, its processes and business models become more complex and involve an increasing number of players. This new ecosystem will need to be managed, and financial firms are the prime candidates for the job.

Under EMIR and MiFID II, firms had to improve (amongst other) their abilities to understand counter-party relationships (who owes what to whom) and to keep real-time track of transactions (who owns what). Building on that, two important perspectives will aid establishing a function for managing parties in complex ecosystems. These are outlined below. 

1. NETWORK BUSINESS MODEL

Financial services firms are partnering with more and more parties, such as intermediaries, advisors and technology providers. Accessing the connected data and applications through these sophisticated networks will enable firms to reach new markets and wider customer segments. However, trust is paramount and benefits will only be realized when customers and partners are willing to use the digital offerings of the network members. Lack of confidence and fear of data misuse will undermine relationships and discourage potential users. Open banking is a variant of a network business model and gives banks a head start on other participants.

2. QUALITY ASSURANCE

Increased speed and complexity of financial services offerings demand corresponding efforts in quality management. Financial firms should aspire to take on a role of quality assurers in the new financial ecosystem. Roles of agents, intermediaries and brokers appear and disappear as industries and regulations evolve. In the mind of the consumer, the bank or asset manager should be evaluating services and processes and representing the clients’ interests, rather than industry associations, specialist firms or rating agencies.

 

Future regulations will increase the complexity of the new financial ecosystem through requirements involving the use of open APIs, sustainable investments and counter-party control across jurisdictions. For example, major regulatory changes will come into force with the launch of GDPR and PSD2 later this year (and their sequels). Also, cross-country flow dynamics will alter, REGULATORY CHRONICLE as evidenced by the emerging negotiations on panEuropean pensions (PEPP). The underlying functions to consider for managing parties in complex ecosystems should include:

• API management

• Business model design and innovation

• Alliance management

• Co-creation

Financial services firms never operate in isolation. Their business involves transacting with multiple parties in many markets. Establishing a function to manage parties in complex ecosystems is a baseline requirement for surviving future regulatory (and business) change. Your organization and your customers need to know who they are dealing with and what transactions are safe and appropriate.

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