How can Capital Markets CIOs harness data to enable digital ways of working?

2020 was a year of unprecedented challenges and disruption for all industries, and Capital Markets firms were no less affected. The global COVID-19 pandemic added volatility to markets which were not prepared for the effects of a global incident of this nature. Governments increased borrowing at an unprecedented level to combat the risk of financial collapse, and large financial institutions were faced with the prospect of a wave of defaults caused by COVID-related bankruptcies.

Capital Markets firms face an ambiguous 2021, with continued uncertainty around how and when economies will return to normal levels. These firms are also reacting to changes to working habits and patterns as workforces continue to work remotely. In this blog post, we discuss how Capital Markets organisations can harness data to enable increasingly digital ways of working.

Enabling digital ways of working

If 2020 was the year in which Capital Markets firms embraced digital in the way that their people operate, 2021 could be the year that sees investment flows shift towards digital and moving away from the traditional physical assets that have historically dominated Capital Markets.

At the beginning of 2021, there were around $708 billion physical U.S. stock certificates. In 2020, the Depository Trust & Clearing Corporation (DTCC) - the world’s largest trade repository which holds $48.3 trillion in U.S. issues - launched Project ION. This project aims to explore accelerated settlement cycles by leveraging digital assets and distributed ledger technology in clearing and settlement. Accelerated clearing and settlement allows firms to drive greater value through reduced manual intervention in trade processing, whilst minimising risk by reducing margin requirements. DTCC is an advocate of moving towards T0 (settlement on the day a trade is executed) or T+1 (settlement on the working day after a trade) and states that this option has not been adopted by the market in part due to legacy business and operational processes.

In the derivatives market, DTCC have also laid out a roadmap to achieve Global Data Harmonization in Derivatives Trade Reporting. In this paper, they advocate the use of a common standard to help drive data consistency across trade repositories and jurisdictions.

This focus on the digitisation of global clearing, settlement, and trade reporting flows by the world’s largest trade repository suggests that it is almost inevitable that the market will move in a new direction, and Capital Markets firm will therefore need to be ready to adapt. By approaching the problem in a cohesive manner, carrying out a data maturity assessment at an early stage can help to identify where the impacts will be most strongly felt. Similarly, by analysing legacy technology and business processes, firms can quickly implement transformation programmes to ensure that they stay ahead of the curve and leverage the benefits offered by a digitised clearing, settlement, and trade reporting flow.

Enhancing operational controls

In recent years, the effective and efficient management of operational risk has become an exercise in data collection, analysis, and investigational challenge. Across Capital Markets firms, there is growing concern around the possibility of potential infrastructure disruption. The last 12 months have proven that a resilient operational controls framework is essential to coping with unprecedented market events. The record trade volumes experienced in March 2020, with European stock trading volumes at three times their daily average, to the more recent volatility in Gamestop trading activity, have shown how the threat to traditional market behaviour is evolving, leaving outdated operational risk and control frameworks under threat. However, most financial institutions continue to rely on narrow controls in the form of systems, procedures, and people operating in data channel and risk silos.

This traditional approach leaves Capital Markets firms at risk of inefficient functions that do not highlight risk early on, or do not highlight risk in enough detail to allow it to be assessed and managed effectively. Firms can tackle this issue by bringing data together and developing integrated analytics. An improved data and analytics capability will allow firms to identify the scale and impact of operational risks across the business, rather than the fragmented view which prevails in many firms with outdated operational risk control and monitoring.

Of course, technology alone cannot solve the problems that Capital Markets firms commonly face when modernising their operational controls framework. Of equal importance are the analysis and investigative frameworks, and the skills and capabilities of the risk professionals that use them. By using intelligence led surveillance, Capital Markets firms can ensure that they have the enhanced operational controls that are able to handle market disruption.

How Credera can help

Credera is uniquely placed to support organisations with this process, combining our deep technical experience in data and technology with extensive experience of delivering successful business transformation programmes. This synergy between business drivers and technology will be critical in enabling digital ways of working.

Our approach to tackling data governance can help to break down data silos and allows firms to solve the real issues that they are currently facing. By adopting an Agile data governance approach, firms can move away from the top-heavy approach of traditional data governance and maximise their ability to leverage the value of their data analysis.