To make up for lower head counts and revenues, the sell-side expects a considerable increase in automation across its front, middle and back offices. In fact, in a survey of nearly 500 banks and brokers by Lantern, supported by FIS, 84% of respondents expected automation to significantly impact their business.
Reading the results
The impact on process is predicted to be considerable, with 63% expecting that the need for the middle and back office functions will be reduced by automation. Some technologies, such as distributed ledgers, can allow firms to share a database of transactions, thereby removing the need for functions such as reconciliation in the middle and back office.
While existing automation in the front is expected to continue – 79% predicted increased use of trading algorithms – trading operations are not alone; a surprising 31% thought that investment analysts could potentially be replaced by technological solutions, while most (56.9%) expected them to be augmented by technology.
Overall, 87% said their company is becoming a ‘technology-led’ business, with 46% of those attributing the change to their firm’s investment in the latest technology, while 28% based their opinion on the skills the firm had. Interestingly, the 13% who do not see their firms becoming technology-led also described skills as the reason, with 45% of those calling skills the primary barrier.
So what does this mean for dealers? The advantages they gain from technological investment are perceived to be powerful, however there are practical considerations. Clearly, headcount, which has been widely reported to be falling, is expected to fall further.
Regulation has been imposing additional processes, or greater levels of process. For that reason, 48% of respondents who predicted regulation would impact revenue, cited increased compliance costs as the reason. Understanding how automation can provide advantage to a broker’s operations will prove invaluable in managing cost and delivering equivalent or superior service. Not only will automation help to manage costs, it can facilitate a paper trail for activity while also increasing the consistency of process.
Getting a grip on these advantages is not easy for firms who are seeing drops in return on equity and margins, as well as ever greater self-support amongst buy-side firms. Investment banks need to consider which IT partner they can trust to support the adoption of machine learning and automation across their operations.
Taking a wider look
A view across asset classes is essential if dealers are to mimic the buy-side trading desk approach. Front-to-back office insight is also a necessity. Perhaps most importantly, a holistic view of market dynamics is crucial if the tech partner is to build in automation that can grow with future requirements across the enterprise. Fifty one percent of respondents expected back office functions to be outsourced and 36% predicted outsourcing of the middle office. That exercise in trust can only be supported with a partner that is flexible enough to handle current and future operations.
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