Capital market players need to invest in the cloud to stay sharp

If global capital markets players want to remain competitive, they will have to adopt a five-year horizon and invest in architecture modernisation, according to a new paper from Capco, Rightsizing the legacy and optimising front-to-back cost.

The benefits of a multi-year focus are likely to be a 20-30% run rate reduction in IT spend and a lower change budget going forward on a like-for-like basis. In addition, firms will have the ability to cope with capacity volatility, a prize long desired by the industry – as well as security from external and internal threats.

There is no one right answer. The legacy challenges are well documented but different businesses and institutions require different architectural solutions and patterns.

Developments in technology though have changed the architectural options available. It is not only easier to build and deploy customised technology, but also to engage with third party services.

Capco found five common themes among the 120 firms including broker-dealers, asset managers, wealth advisory firms, private banks and investment banks –they polled to solving legacy platform challenges and reducing complexity.

Use of cloud was first on the list.  Firms placing a high priority on cost and profitability through deployment of cloud-based solutions, creating better customer experiences and automating manually intensive processes. The next two years will see an increased emphasis on growing new market segments and sustainability.

Data was number two with firms actively analysing the possibilities of cloud-based data architecture, opening up possibilities to solve some of the industry’s long-standing processing and data challenges.

Process ecosystems was also high on list. Firms are expanding their universe of vendors, fintechs and utilities in order to rationalise, standardise and simplify. They are consolidating down to fewer or even single platforms for one or multiple asset classes, front to back.

The study also found that custom or cloudbased engineering is providing a step-change in how systems can be architecturally designed and built, allowing firms to fill gaps or rebuild legacy architecture afresh with custom solutions.

Not surprisingly, security was also a key priority. Keeping data and infrastructure secure is an ongoing, multi-threaded challenge which requires scale and continuous improvement to govern, control and protect the underlying infrastructure and data, according to the report.

“Capital markets players will need to invest in architecture modernisation in the long term to remain competitive,” says Peter Kennedy, Capco Partner and one of the paper’s authors.  “The cloud, data, custom engineering and security dimensions collectively mean that companies have a growing range of options and opportunities to deliver rightsizing and cost reduction alongside enhanced efficiency. It is no longer a binary decision between ‘buy versus build’ and it does not have to be a lengthy all-or-nothing transformation.

He adds, “As firms continue to right size, we’ll move towards a world where interchangeable and interoperable cloud-based services can solve many of the complexities existing within the industry today. Companies will increasingly be able to enhance systems, security, products and customer offerings without breaking downstream systems to ensure their commercial operations remain unaffected.”

©Markets Media Europe 2021

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