Introduction
The entire financial industry, particularly capital markets, is witnessing a wave of transformations with several aspects that intersect and overlap. Technological infrastructures are being upgraded to next-gen technologies and business models and customer experiences are also being re-defined to meet new economic realities. The competition from fintechs encroaching on traditional banking services has seen success stories riding purely on tech adoption and customer-centric services. This has challenged the reliable revenue zones of banks. These changes are prompting banks to transform their legacy infrastructure to become more agile and lean, remolding the service approach to a more customer-centric approach. The large-scale change in the technology stack of banks also alters the way trading business and associated functions operate. The capital markets segment is also undergoing several changes arising from digital and cloud transformations, adoption of Artificial Intelligence (AI) and Machine Learning (ML) models, experimentations with DLT (Distributed Ledger Technology) and a plethora of adaptations and enhancements due to emerging risks and opportunities.
Synopsis
Trend 1: ESG investing
Environmental, social, governance (ESG) investing is witnessing maturity much faster than predicted, with the focus having turned to the transition and outcomes, companies and investors are moving into the implementation phase of their net zero journeys.
Through 2021, a total of $649 billion has been invested in ESG-focused funds, which is a new high. This is an increase from the prior years' $542 billion and $285 billion. ESG funds currently account for 10% of all fund assets worldwide. Stocks of companies with strong ESG compliance ratings have performed well. The MSCI World ESG Leaders' index gained 22 percent by the end of 2021, compared to 15 percent for the MSCI World Index.
Trend 2: Operational resilience
The ability of a company to maintain business operations in the face of an unanticipated disruption is known as business continuity (like disasters, system outages). Operational resilience is a process and a quality of an organization that allows it to react quickly to changing environments and needs (like Covid impact and technological advances) that extends beyond BCP (Business Continuity Planning).
The Covid-19 pandemic has made operational resiliency an important program for every company worldwide. Businesses of various sizes and types had to adjust to remote work, restructure physical workspaces, and remodel logistics and supply networks because of sweeping changes due to pandemic. The Financial Conduct Authority, Prudential Regulation Authority and Bank of England (joint FCA/PRA/BoE) rules and guidelines have come into force on 31 March 2022 in the UK and in US where the Federal Reserve (Fed), Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC) published a joint paper in October 2021 prescribing sound practices to strengthen operational resilience.
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