Revenues across securities services have effectively flatlined over the last decade, with a report by McKinsey showing the industry had grown by just 3% p.a. since 2010, as it faces a surge in regulatory costs and client pushback on fees. Responding to this challenge will require the industry to channel resources into technology and digitize many of the manual processes in the securities transaction chain. By facilitating automation and removing intermediation, growth in the securities services business could accelerate.

Panelists at The Network Forum in Vienna (25-27 June 2018) acknowledged that while disruptive technologies such as blockchain and artificial intelligence (AI) had a role to play in the industry, their integration into systemically important infrastructures needed to be well risk-managed. Valerio Roncone, Head Product Management & Development, Member of the Management Committee, Securities & Exchanges, SIX, said the Swiss exchange is a systemically important financial institution and subject to heavy regulation. The rollout of such disruptive technologies requires adequate operational insight and experience.

Integrating this kind of technology is a learning process, and it takes time.

Valerio Roncone, Head Product Management & Development, Member of the Management Committee, Securities & Exchanges, SIX

If technology change is applied badly at systemically important financial institutions with little forethought paid to interoperability or risk, markets could grind to a halt. Another panelist concurred, although he added it would be prudent for large institutions to adopt a continuous technology change program, carrying out incremental developments on a monthly basis to keep pace with evolutions in the market – an approach which would also help mitigate the costs and risk of executing large one-off system upgrades.

Having once been mesmerized by the opportunities offered by technologies like blockchain, many industry participants are now becoming more pragmatic, recognizing that clearing, settlement and custody will not be disintermediated by these innovations anytime soon, a point made by Valerio Roncone. Disruptive technologies have the potential to remove surplus costs from some manual processes, but providers attending The Network Forum appear to be taking a conservative approach towards implementation given the high risks involved.