How would you describe the role of a CIO today?
How would you describe the role of a CIO today?
CIOs role has constantly been redefined as they wear many hats along the journey of an organization. It can be said that a CIO must be a master of the present and a predictor of the future. Hence, my advice is to get more adept at looking outside of their four walls to adopt new ideas, tools and new ways of doing things.
What is your advice for the upcoming or budding CIOs?
The day job is important. But I would advise budding CIOs to think ahead into the future and to look outside their organization for clues as to the future architecture of their firms. In particular, for those CIOs in wholesale or investment banking and capital markets, there are major developments underway that were not really imagined a few years ago.
"The increasing need to be nimble and cost efficient is driving demand for cloud-based infrastructure, BPO, and IT outsourcing on a much grander scale"
Putting the longer-term potential of blockchain/ Distributed Ledger Tech (DLT) to the side for the moment, take the power of the cloud. Capital markets firms are really only beginning to tap into this trend. The increasing need to be nimble and cost efficient is driving demand for cloud-based infrastructure, BPO, and IT outsourcing on a much grander scale. For instance, Bank of Tokyo Mitsubishi is embracing IaaS and private cloud to improve delivery for customers.
Celent believes the cloud is really coming of age for capital markets. The appetite for cloud-based services in capital markets has reached a critical point and cloud is set to become the main delivery model for certain key functions in the near future. Cloud adoption is being driven by four key factors in the capital markets: cost pressures, flexibility in creating new and rapid solutions, demand for flexible infrastructure, and managing and leveraging data in the most effective fashion possible.
The cloud has emerged to solve these challenges, offering firms a more agile infrastructure that enables them to address ever evolving regulatory requirements and the proliferation of trading applications as well as the need to rapidly connect to multiple liquidity sources.
What does the digital transformation of capital markets look like?
Investment and wholesale-oriented banks are beginning to transition their IT infrastructure to a new architecture based on a new vision: digital. Moving to digital has been slower in investment banking and capital markets. True, while some investment banking functions have been going digital for some time, such as front office and client-facing applications (such as research portals), the pace is accelerating and digital is moving front to back. For instance, JP Morgan wants to shrink number of software applications it uses by 25 percent, with an increasing allocation to new investments and technologies. A transformational initiative at Deutsche Bank will work to reduce the bank’s operating systems from 45 to 4 while also shifting applications to cloud computing. UBS’ Neo platform is another example of a bank moving investment banking functions to the digital age to more efficiently serve clients. Other firms like Barclay’s, Standard Chartered, RBS and Credit Suisse are also engaged in these types of initiatives.
A goal of digital transformation is clearly to simplify IT and operations, reduce cost, and thus improve return on equity (ROE). Digital is driving demand for the aforementioned cloud-based infrastructure, BPO and IT outsourcing, with banks moving many applications to cloud. As all roads lead to Rome, we believe that all initiatives to optimize operations for greater efficiency lead to cloud, SaaS, IaaS, and mutualization or utilities.
As the capital markets technology sphere evolves with each passing day, what are some of the latest trends that are gripping your mind?
What’s gripping my mind is the full scope and potential of moving to a new architecture, because it is much more than the movement from analog to digital. Emerging technologies like machine intelligence can not only drive efficiency, but also offer advanced analytics and insights leading to investing and trade ideas, superior compliance practices, improved customer engagement, additional revenue opportunities and more.
Also, the blockchain design pattern is an aggressive form of digital transformation. Instead of a digital front/middle/back office, we see digitally native financial agreements from issuer to asset owner and counterparty to counterparty. But as digital alters financial agreements, intermediaries will still be needed to sponsor networks, so capital markets are not going away.
How can the evolving technologies help financial industry realize new opportunities?
To create this aggressive form of digital transformation, a new financial technology stack is coalescing around Internet of Things (IoT) and blockchain, powered by cloud. The blockchain design pattern allows for cryptographically secured environments upon which to conduct wholesale and investment banking functions.
We believe financial institutions will deploy blockchain networks with distributed ledgers in increasing numbers. Smart contracts, which are agreements whose execution is both automatable and enforceable (according to Barclay’s CTO Lee Braine), will be powered by the networks and backed by digital assets, legal templates, and standards. IT and open source organizations will provide the fabric for blockchain networks, including cloud, while a number of technology firms will deploy and manage these networks to support applications atop this fabric.
Smart contracts will be enabled by confidentiality, security, and digital identity. The underlying technology will incorporate cryptography, programmable digital assets, distributed ledger technology (DLT) and interledger protocols.
Yes, getting to the world of smart contracts requires a lot of organizational change– mostly moving from a known IT architecture to a largely unknown one. Fortunately, blockchain creates some first mover advantages. So it’s not just cost reduction, but actual revenue opportunities that will encourage change.