The rapid pace of change coming to the technologies used by financial services firms has the potential to revolutionize the industry.
Although the back office typically receives little attention in discussions of fintech, or financial technology, the 2017 DTCC Fintech Symposium put the focus on the intersection of transformative technology and the post-trade space. Those back office fintech discussions have largely centered on distributed ledger technology (DLT).
As the hype surrounding DLT has lessened a bit, however, the potential impact on the post-trade space across a broad spectrum of fintech has come more clearly into focus, as has the need to pay attention to those technologies. Whether it’s cloud computing, robotics, artificial intelligence (AI) or machine learning, the fintech conversation has moved well beyond simply talking about DLT.
As DTCC President and CEO Michael Bodson noted during his opening remarks at the Symposium, the effect all of these new technologies could have on the back office environment raises far-reaching implications for market structure, regulation and the management of risk.
Striking a Balance
“Because market infrastructures play a critical role in protecting the stability and integrity of the global financial system, there are unique issues and considerations that must be taken into account,” Bodson said. “The fundamental question underpinning this debate is – how do we balance innovation and the security of the marketplace?”
Bodson noted that one key way to accomplish this was through even greater collaboration among the industry, fintech providers and regulators. This point was echoed throughout the Symposium.
Chris Church, Chief Business Development Officer at Digital Asset, raised the point in relation to interoperability and the need for agreement on standards during the Beyond the Hype of Digital Ledger Technology panel. Church said open source efforts and market infrastructures would likely play crucial roles.
“Market infrastructures are extremely well placed, because of their trusted position, to be able to drive this sort of collaboration. They are trusted by the regulators. They are trusted by the participants. They can drive this through,” Church said. “If there’s a call to arms today then it should be around collaboration, around the things that don’t give competitive advantage, but rather open up the opportunity which we all see in distributed ledger.”
Bridget van Kralingen, Senior Vice President, Industry Platforms at IBM, wrapped up the Symposium also talking about the importance of trust for the ability to realize the benefits of innovation during a discussion with Bodson.
“There’s this whole idea of a scalable, trusted, secure network and infrastructure, and the main point is that it be open source, open governance, and be a permissioned ledger and process. It needs to be scalable,” van Kralingen said. “The big questions for firms going live, are now going to be: can I scale it? Can I secure it? And can I trust it?”
Of course, the transformative potential of the technologies was also a theme that carried through every session of the Symposium. Saman Far, Senior Vice President, Technology at FINRA, spoke of the broader shift underway during the cloud computing panel.
“You’re not just transforming applications and infrastructure. You’re transforming the organization. We spend a lot more time speaking about organizational change and philosophical change and rethinking processes,” Far said. “When you think about it from that perspective -- that you’re transforming the organization and the organization’s approach to technology and deploying applications -- it’s a little bit more palatable than simply what’s going to happen to my role.”
During the Unlocking the Power of Robotics, Machine Learning & Automation in Finance panel, both Roger Park, Partner/Principal, Strategy and Innovation Leader, Financial Services at EY, and James Lee, Managing Director, Chief Technology Officer, Enterprise Infrastructure at DTCC, noted the thresholds overcome in terms of technology.
“There’s now a pervasiveness of data, a lot more data than we’ve ever seen before. There is also digitization, and there has been big change in automation technology,” Park said. “In the past, the threshold for automation was very high because you had to open existing systems, and any time you open an application it takes nine months and you have a million hours of regression testing, etc., etc., Park said.
“But with robotic process automation, it can run on top of the existing system, and that’s a big change in the paradigm. You don’t have to open the underlying systems, and you also don’t have to necessarily program these robots. They’re being trained by watching actual workers do the work and they’re learning on their own. That changes the addressable scope of the processes that you can now automate,” he added.
“Historically, our approach has been siloed and myopic. We have automated specific tasks as opposed to looking at the holistic end-to-end business aspect,” Lee said. “Because of the data explosion, because of our better understanding of what’s happening through some of the enabling capabilities that are starting to develop in the marketplace, the holistic picture is starting to become clearer. By looking at things much more holistically and trying to look at it from a business value standpoint as opposed to automating a particular keystroke or task, we can move beyond incremental gains to the more transformative change.”
“New technologies are coming at us faster than ever before and this is not going to subside anytime soon,” Bodson concluded. “Regulators face several imperatives and the industry faces its own set of priorities.
“We won’t answer all the questions in a day or a week or a month,” he added. “But we can work through all these issues if we maintain an ongoing dialogue with all key stakeholders and by sharing ideas and information.”