Capital markets on a firmer footing for 2014
Following the tumultuous change that came in the wake of the subprime crisis, capital markets firms have yet to regain a strong foothold but 2014 is showing increasing evidence of a shift to a higher gear, writes Subhasis Bandyopadhyay.
Meanwhile, the global economy showing signs to recover with recent projections for GDP growth in some countries, notably the USA and UK, at a better rate than that of some other European and emerging markets. With equity market valuations near all-time highs, the data warrants at least a little optimism.
Moreover, the current business scenario and the crisis pushed the investment management industry into a gradual shift from accumulation to income and risk management – opportunities for retirement provision will represent the single largest driver of growth and profitability for the financial services industry.
Outsourcing has evolved to become a key component of strategy for capital market companies globally. Keeping pace with the recent trend, almost all the well-known asset management players started viewing outsourcing more as a way to increase the value of their businesses, rather than just cost reductions and are seeking tangible results from both IT investments and improved business processes. They are moving toward the integration of business and technology and assessing IT value not only in terms of reducing costs but also in enabling productivity and innovation.
Upcoming regulations and compliance in the capital market industry will be the catalyst for the next generation of capital markets innovation. Governance, risk management and compliance are not new concepts however implementing them, in an integrated model aligned with business processes and strategic objectives, is still something with which many organisations are struggling.
According to KPMG, the annual cost of GRC consumes more than 6% of organisations’ annual revenues. With Portfolio Modelling and Risk Analytics technology considered very important applications by the buy-side, IT spending on this category will rise at 9.1% CAGR over the next few years.
Current regulatory requirements, including EMIR, FATCA, T2S, AIFMD, MiFID II, Basel III and others, will pose great challenges for investment banks, asset and investment managers and hedge funds as they quickly move to comply and stay competitive and the growth will be driven by firms replacing home-grown applications and ad hoc systems with vendor applications. Besides, risk analytics technology spends will grow, driven by regulatory pressure as buy-side firms concentrate on building their own central risk management infrastructure. GRC spending will grow almost in all areas with Asia Pacific, North America & Europe expenditure will be growing slightly faster than other regions on the basis of CAGR respectively.
In the coming years, IT spends will happen in the IMS space as capital market firms are realigning their infrastructure outsourcing strategy. Remote infrastructure Management based services are creating a common operational model among most capital market intermediaries. Large outsourcing deal sizes are down with unbundling of services and platform based services picking up and cloud infrastructure services are increasingly demanded. The infrastructure spend will consist of 40% to 50% of the total IT budget where the 2014 IMS market for Indian companies is $15 billion. India serves only 10% of the outsourcing and there is headroom to grow.
This apart, capital market players will look for the following core services and specialised services from their IT vendors:
- Data centre Infrastructure Management
- Enterprise Infrastructure Management
- Enterprise Infrastructure Applications
- Infrastructure Strategy and Optimisation
- End User Computing Technologies
- Helpdesk and Service Desk
- WaaS – Workspace as a Service
- Security Services
- GRC – Governance, Risk , Compliance
- IDAM – Identity and Access Management
- UTM – Unified Threat Management
- DLP – Data Loss Prevention
- Cloud Services
- Cloud Infrastructure Management
- Cloud Enablement and Migration
- Unified Communication Services
- Enterprise Messaging and Voice
- Collaboration and Mobility
- Bring your own Device
- Integrated Mobile Operations Support
The capital market industry will continue to leverage IT in its growth in 2014. New technologies such as SMAC – social, mobility, analytics, and cloud – will gain adoption in as the majority of capital market firms will spend 15-16% of their IT services/outsourcing spend on SMAC projects. It has been mooted that cloud-based Mobile, Social, and Advanced Analytics are seen as relatively less beneficial to business when used individually (in most cases) than when used in combination with each other, and as part of enterprise business systems. Currently CIOs are being influenced by these newer technologies and are starting to see the potential value and utility of systems, technologies, and business operations that are only loosely-coupled and not tightly integrated. Areas like client management systems and CRM, Governance/Compliance systems; client reporting systems; ecommerce systems and finance systems will see the major traction in 2014/15.
After years of uncertainty, capital markets firms are ready to reposition for growth in 2014. GRC, IMS, client reporting, integration between IT and ops and SMAC will see the maximum growth while data management, testing and ADMS are equally important components that will contribute in scaling.