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During the early days of every new administration in Washington, pundits are typically divided over whether the sky is about to fall or sunny days ahead. But for those of us responsible for keeping the day-to-day transactions of Wall Street ticking along, our fundamental business demands are unchanged — make our services better, more secure and cheaper.
Regardless of politics, trades must be cleared and settled, proxies must be reconciled, and data must be kept secure. For those of us who facilitate all those vital back-office, support and technology functions, no matter who is in the White House, our No. 1 goal remains the same — driving greater efficiencies to create better returns on equity that will enable financial firms to grow. Our priorities are the same now under a new administration as they were before — adopting blockchain and other new technologies, embracing digital communications with clients, speeding settlement times and other efficiencies.
In the early days of any new administration, it’s often unclear what the overarching policies regarding Wall Street will be. For sure, changes in Washington impact markets. Bond trading has picked up because of expectations of a coming fiscal stimulus, and the stock market has hit fresh highs with the Dow Jones Industrial Average topping 20,000 for the first time.
Some on Wall Street are awaiting clarity on how certain regulations will change. The new administration says it wants to overhaul the Dodd–Frank Wall Street Reform and Consumer Protection Act to make those regulations less onerous. It also may want to ditch the U.S. Labor Department's new fiduciary rule.
All these issues can be distracting, but those of us working in Wall Street engine rooms know our success does not depend on the political leanings of the occupant of 1600 Pennsylvania Avenue.
So, financial services firms, and those providers who support them, should focus on making their business more efficient, regardless of regulatory change. Becoming more efficient makes the entire financial services industry stronger and is the right response to every new president.
The good news is that the financial services firms that have survived the difficult years since the 2008 global financial crisis are more efficient. Now, they need to focus on the future.
Wall Street executives working on improving infrastructure should actively embrace new technologies such as blockchain to avoid being disrupted by financial technology startups. Blockchain, the technology underpinning the digital currency bitcoin, can revolutionize our industry, modernizing how we vote proxies and transforming such things as stock exchanges and trading in foreign currencies and commodities. Indeed, we’re so confident that blockchain will transform U.S. proxy voting that we have made technology acquisitions so that we can build the first iteration of our blockchain platform for proxies within two years, running alongside our current system.
Wealth management firms should consider incorporating the best of what robo-advisers offer while also using big data and analytics to give customers more personalized service. We should all work toward getting Americans to finally ditch paper statements by substantially improving the customer’s digital experience.
There are other opportunities where financial services firms can become more efficient without worrying about regulations. In 2017, it makes no sense that it still takes three days to settle an institutional trade, and it’s high time we speed up that process. Clearing trades faster would free up capital, allowing banks to deploy cash more efficiently, thereby boosting profitability. Countless wasted dollars could also be saved if financial services firms shared critical but routine back-office functions. Improving cash and securities reconciliation would bring even more savings.
Security, too, is a growing issue, demanding that Wall Street firms comply with new data security standards to avoid embarrassing breaches that can severely damage brands.
My list covers just a half-dozen topics, but every chief executive of every major firm can add their own pressing demands that are specific to their business needs.
Generating returns that beat the cost of equity capital is the overarching challenge facing banks over the next five years. Closing that gap will require that banks restructure, find innovative ways to cut costs and use their capital more efficiently — themes that dominated our report “Restructuring for Profitability.”
We live in an age of disruption, and our new president says he wants to shake things up in Washington too. However, the best way for businesses to respond to any disruption is always to become more efficient and embrace innovation in order to succeed and boost profits. Whatever happens in Washington, that won’t change.