A New Financial Era: The Drive for Operational Efficiency

Facing the Winds of Change in Global Finance
The financial landscape is undergoing a fundamental shift as rising interest rates ripple across global markets. This new economic environment necessitates adaptations not just from financial institutions but also from the companies that provide services to them.
As we step into 2023, organisations are under increased pressure to sharpen their focus on operational efficiency, particularly in the realm of technological investments. The specter of a recession has firms scrutinising every expenditure, ensuring investments directly contribute to performance enhancement and support the bottom line.
The Cost of Technological Evolution
In a climate where every dollar is under scrutiny, the urgency to derive immediate value from technology projects is accelerating. Financial institutions are recalibrating their investment in internal processes and new technology ventures with a keen eye on cost savings and capital efficiency.
The established penalty rates under the Central Securities Depositories Regulation (CSDR) in the EU spotlight the necessity for asset managers to reduce fail rates promptly. There’s a growing realisation that collaborative data-sharing networks can unlock significant capital, offering a proven method to minimize penalty fees and operational costs.
The year ahead is likely to see the ‘network effect’ come into full force, where the collective strength of a connected data-sharing ecosystem can lead to greater efficiencies and reduced fail rates. This expansion promises to bolster the benefits of such networks, with more participants contributing to and leveraging the shared data.
The Regulatory Response to Market Turbulence
Following recent market upheavals, including the FTX collapse, there is an anticipatory wave for stricter regulatory oversight to protect financial stability and individual investors. Signs of such movements are already apparent, with data integrity becoming a central theme in regulatory conversations.
The SEC’s potential enforcement action using the Consolidated Audit Trail (CAT) – the world’s largest financial database, with annual costs over $2 billion – underscores the importance of robust data management solutions. Firms are actively seeking efficient systems to handle the increasing data flow and ease the burden of compliance.
The chaotic beginnings of CSDR in 2022 have put the focus on strategic solutions to address ongoing compliance costs. As organizations continue to seek out more permanent solutions, the anticipation of Phase 2 adds another layer of complexity to the regulatory landscape.
T+1 Settlement: A Cross-Regional Effort
The move towards T+1 settlement is gaining traction across regions, with the US and Canada targeting the end of 2024 for its implementation. This shift, although regulatory, is significantly market-driven, with key industry players recognising the benefits of improved liquidity and operational efficiency.
The convergence of the world’s major markets around T+1 by the end of 2024 is increasingly likely, with the US leading the charge. The momentum for this change is evident, as evidenced by the Association for Financial Markets in Europe’s involvement and the UK government’s establishment of an accelerated settlement taskforce.