Wholesale capital markets are undergoing significant change driven by changing regulatory expectations, technological innovations and increasing cost pressures. This is impacting the strategy, execution, governance and innovation of banks’ Operations functions.
A recent report from the Association for Financial Markets in Europe (AFME) identifies ten key trends in Operations functions across five critical areas, offering insights into the evolving landscape of Operations within European capital markets.
In light of these trends, AFME has identified six policy recommendations through which policymakers can drive a more resilient, efficient, and innovative financial ecosystem that benefits all stakeholders.
Operations top ten trends
1. Prioritizing cost efficiency: operations leaders are driving cost savings and efficiencies, and process transformation is the lever by which banks are delivering these savings.
2. Strategy and objectives: operations strategies and the ways in which strategic Operations objectives are tracked and measured have matured to deal with growing operational complexity.
3. Hybrid operating models: banks are striving to balance the benefits of standardized global shared services with the necessity of product-specific verticals to address diverse client needs and evolving regulatory requirements.
4. Reshoring processes: banks are constantly reviewing their offshored activities and functions, with decisions today typically based on access to technical expertise and service quality, rather than cost reduction.
5. Compliance by design: banks are integrating risk management into daily Operations with a “compliance by design” approach, enhancing efficiency and innovation.
6. Strengthening operational resilience and third-party management: efforts are focused on robust third-party management and operational resilience, driven by regulatory mandates and continuous monitoring.
7. Enhancing data-driven operations: addressing data quality issues from legacy systems, banks aim for enterprise-level data connectivity to drive decision-making and process visibility.
8. Leveraging cloud technology and AI: banks are finding immediate opportunities to enhance data quality, technology resilience, and risk management in preparation for AI adoption.
9. Evolving role of operations leaders: operations leaders are becoming integral to business strategies, requiring a deep understanding of technology, risk, and regulatory environments.
10. Developing leadership in low-cost locations: banks are enhancing senior leadership in low-cost locations to improve oversight, governance, and compliance.
Policy recommendations
1. Consider the operational burden and feasibility of regulations and ensure robust transition periods
2. Leverage direct oversight of third-party providers to ensure effective and sufficient oversight of supply chains
3. Work towards internationally-harmonized operational regulatory requirements
4. Avoid exacerbating fragmentation through localized obligations \
5. Recognize that new and cloud based technologies are likely to bolster, not risk, operational resilience
6. Acknowledge that foundational improvements are happening in preparation for gen-AI
The evolving trends in operations across the industry present a valuable opportunity for policymakers and operational leaders to collaborate on critical issues like AI and cross-regional regulation. Such collaboration can support and secure joint goals on innovation, resilience and market competitiveness.
“COOs are expected to be deeply involved in the details: understand the regulatory environment and client needs, stay close to the business, create an operational strategy, and identify key investments that drive their operational objectives,” according to an AFME statement.