Recently a 2018 outlook statement from SIFMA, which quoted data from the consultancy Ernst & Young’s Global Capital Confidence Barometer was released. Here it is stated that 27 percent of the global managers studied cited digital technology as the most disruptive power in their industries, edging out changing customer behaviors at 26 percent. Capital markets companies use IT investments to refresh legacy systems, enhance cybersecurity, and the customer experience and adopt new technologies, the SIFMA report notes. In 2019, AI, blockchain, data security, and process automation will be key trends to watch in the capital markets area. Here is an instantaneous primer on them:
Artificial Intelligence Will Develop Investing and Decision-Making
AI is estimated to take off in capital markets, primarily because it improves profitability. As per Goldman Sachs, artificial intelligence (AI), and machine learning will enable USD 34 billion to USD 43 billion in yearly “cost savings and new revenue opportunities” within the financial department by 2025, reports a news portal. Most investors view at a range of circumstances when testing a private equity manager, such as the manager’s investment track papers and team experience, Paulo Salomao, the managing director of Accenture Asset Management, communicates in an Accenture blog post. However, he states, “such assessments are often conducted in solitude for each variable, with overall resolutions made based on expert judgment.” To guarantee the best results, some investors are beginning to use AI to “assess [private equity] contributions, drawing on a variety of qualitative and quantitative variables to calculate the odds of achieving superior risk-adjusted returns,” he records in the blog post.
AI Will Also Support Automate Processes
AI will also support capital markets firms to become more active, especially for back-office responsibilities. “Process computerization can help the capital market companies to substitute manual legacy systems, maintain the audit path, make the system compliant with KYC and other regulations, [reconcile] the different articles and also integrate middle- and back-office methods,” states Girish Patil, an associate consultant at IT consultancy Mindtree. “Robotic process automation will bring effectiveness in terms of time and business, analyze the processes, AML, and can redefine the business rules.”
Robotic process automation digitalizes repeatable, high-volume tasks previously conducted by humans, according to TechTarget. RPA will encourage capital markets firms to boost effectiveness. They are linking it with AI to modify RPA into intelligent process automation, says Capgemini. Increasing data quantities and the challenge of integrating legacy technologies and systems pushing firms to automate middle- and back-office operations, the consultancy declares.
Blockchain Will Define Capital Markets to become More Fruitful
Blockchain, also identified as distributed ledger technology, will become more important for capital markets firms this year. “Blockchain can build the smart contracts enabled with the encryption for transactions, [creating] distributed reports,” Patil says. “This will assist in using real-time transparent data and build an efficient settlement and transaction processing.”
Distributed ledger technology, or DLT, can be utilized for issuing and transferring securities and could eradicate the need for intermediaries that provide adjustment and depository functions, Capgemini states. DLT is a “logical, effective alternative to allow seamless and reliable data transmission throughout the capital markets atmosphere” according to the firm’s statement.
Data Protection Will Rise in Importance
Another possible factor many capital markets firms must acknowledge this year is the European Union’s General Data Protection Regulation (GDPR).
GDPR, which produces strict new controls on personal information, takes effect on May 25 and affects any organization that collects data on citizens in EU countries. For instance, as CSO Online notes, “companies will require the same level of protection for devices like an individual’s IP address or cookie knowledge as they do for addresses, name, and Social Security number.”