Sell side in state of denial about regulation and new entrants
Some sell-side firms are in a state of denial about the scale of the regulatory burden and the threat posed by tech-savvy start-ups according to FIS.
The financial tech firm, which acquired SunGard last year, says the industry is “nearly unrecognisable” and too many banks and broker-dealers aren't facing up the fact their industry is being upended.
Many still lack many of the latest skills that set the pace in terms of innovation.
Others are held back by legacy technology systems, staff or working practices despite the advantages of a track record, access to capital and clients.
Over 460 sell-side executives were polled by FIS as part of the firm’s five-year outlook of the industry.
The majority (77%) expect the industry to enter a period of intense regulatory upheaval within the next 24 months.
A similar amount expect new rules to significantly change their revenue model but only 12% intend to invest more in regulatory compliance.
“They’re kicking the cans down the road, and they’re putting it off because it never fits into this year’s budget,” said Craig Costigan, division executive, risk, compliance and global securities, FIS.
"Sell-side firms must demonstrate that they offer clear value for money. Even if firms have postponed investing in improving their compliance procedures, they are likely to find it much harder to defer investments in the more detailed and immediate reporting called for by their clients."
Responding to the study, experts at Cipperman Compliance Services made the point that regulators don’t assess whether regulatory requirements fit into this year’s budget or how it affects the bottom line.
“Outsourcing back office functions such as compliance allows firms to best leverage their compliance resources to ensure regulatory compliance without blowing the budget.”
FIS experts added that sell-side firms must act boldly to close internal disconnects.
“If they wish to successfully compete amid all of these pressures, they must identify the optimal strategy for their business, possess modern (horizontal) leadership skills and up-to-date technical skills, and invest in new, potentially disruptive technologies and sought-after staff.”
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