Operational resilience concerns are keeping operations heads awake at night in Europe, but it’s the competitive dynamics in the markets that are really driving transformational changes. There are a lot of operational challenges for sell-side firms to contend with in the current environment, according to a bank speaker at Broadridge’s recent webinar on digital transformation in EMEA - everything from dealing with the world of zero commission trading and its impact on the cost of doing business, to addressing legacy technology in a time of regulatory focus on resilience. The bank operations head highlighted the significant pressure on firms to focus on improving productivity and reduce costs, at the same time as transforming their competitive offerings.

The rise of zero commission trading and the increase in new entrants within the retail brokerage community in particular have placed pressure on incumbents to innovate and transform the way they interact with their clients. These pressures and the increase in the number of new technologies such as artificial intelligence (AI) have also forced firms to address their legacy technologies. Firms must maximise the return on their technology investments and automate as much as possible, agreed webinar panellists. The key to surviving in a much more competitive landscape is keeping staff focused on value-additive tasks rather than unnecessarily manual processes.

It was noted that the consultancy has seen much more of a push toward firms simplifying their technology stacks and offering more digital services to their clients, rather than pure cost-reduction projects over the last couple of years. Higher cost sensitivity due to decreased margins, a desire for increased resilience and the need for greater agility in supporting the front office are all drivers for this change. Broadridge’s International President, Samir Pandiri added that simplification and modernisation are the focus of many ongoing engagements as firms seek to rationalise their technology stacks and retire legacy platforms.

Client service and product improvement is often dependent on building a better data architecture and becoming more intelligent in the usage of a firm’s data assets, agreed panellists. The transformation journey therefore often hinges on improving data from front-to-back office via data governance programmes and connecting the silos via a more joined-up platform approach. Internally well-used technologies such as application programming interfaces (APIs) can also be deployed to enable external clients to access their own data assets on demand. However, APIs can expose any data quality issues to external parties if this approach is adopted without careful planning.

A tangible use case for operational data in Europe could be in compliance with the Central Securities Depositories Regulation (CSDR). Operational data can be used to help clients optimise their processes and reduce operational risk by predicting possible fails and enabling proactive fails management. This requires the application of AI technology to spot patterns within historical data and to predict possible outcomes based on that data.

There are many similar potential uses of data that is held within the four walls of an organisation but isn’t currently being mined for information, agreed panellists. How much data that could be used to improve the client experience is sitting on email servers, for example? Capital markets could learn a lot from the online retail industry in mining this information and applying next generation technologies to develop insights that could result in significant competitive edge. As noted by one panellist, 42% of the firm’s team’s time is spent using core platforms; the rest of the time is spent using desktop tools and email - for which the data could have a broader use.

Another key theme for the industry over the last decade or so has been regulation. It is no secret that regulatory change management has been an ongoing and increasing cost of doing business across the globe, but in Europe in particular, compliance burdens are considerable. Thankfully, regulators are beginning to assess and attempt to simplify the barrage of post-2008 requirements, but this will also consume valuable internal resources. Moreover, regulators in the region have now turned their attention to ensuring that the industry is in a good position to tackle the rising threat of cyber-crime and improve operational resilience as the industry increasingly automates and digitalises client interactions. 

The post-financial crisis focus on living wills and business continuity planning has extended further into what one panellist called “operating resilience”. The manner in which a firm operates now needs to be viewed holistically and any areas of operational risk must be addressed. The introduction of the European-level Digital Operational Resilience Act (DORA) heralds this new regulatory crackdown on both cyber-hygiene practices and operational governance practices. Firms need to think differently about planning for service availability, particularly given the example of the last few years during the pandemic, explained one panellist. The pandemic could be seen as a “Sputnik moment” for the industry, where most firms were able to quickly mobilise and convert to remote working, but the changes exposed many other threats including cybersecurity weaknesses.

Reference was made to the impact of DORA already being felt at most large European financial institutions as they evaluate their end-to-end processes and try to understand the impacts of a wide range of possible events. Top-tier banks may have the resources to throw at these projects, but many smaller firms will further be compelled to adopt cloud-based solutions in order to meet the business continuity and security obligations. They will rely on their vendor partners to help them build more resilient operations, and reduce risk as much as possible by automating key processes. The panel agreed that these new requirements are in keeping with good business practices, given the increase in threats across the spectrum from hackers to climate risk and weather-related incidents that can derail a firm’s core operations quickly.

From both the regulatory standpoint and that of the client, getting smarter about data and processes is key to keeping ahead of future requirements.