Capital Markets 2016: Data, Disruption and Regulation


Software AG (Frankfurt TecDAX: SOW) today shared its predictions for capital markets in 2016, derived from its expertise, market observations and interactions with its customers.

Nigel Farmer, solutions director for capital markets at Software AG said: “Capital markets are in a state of flux thanks to new regulations and disruptive competition from fintech, so 2016 will be the year that defines the way financial services companies can move forward. The new landscape means they have to get creative to address new competition while still remaining in compliance. I believe there are five key trends that will occur in 2016.”

1. A compliance officer will go to jail

In 2016, a compliance officer will go to jail for not stopping an illegal act executed by one of his or her colleagues. Regulations, including MAD II (Market Abuse Directive) and MAR (Market Abuse Regulation), hold compliance officials responsible for anyone in their companies for breaking the law, which means criminal sanctions. The pressure on an already tight labor pool may send potential applicants elsewhere, even as compliance officers head for the door.

2. Capital market firms will be buried in data

Data requirements for reporting transactions, risk data aggregation and reporting (Basel Committee on Banking Supervision 239), communications surveillance and swaps data repository reporting are creating a bureaucratic nightmare for capital markets firms. Few are prepared to handle the basic regulatory requirements, never mind take advantage of what could be useful for market monitoring and transparency. The ability to analyze and act upon the data before it becomes stale and loses value will be a key differentiator for capital markets firms going forward.

3. Blockchain technology will transform capital markets

Blockchain will evolve from something banks are suspicious of to “the” disruptive technology that will totally transform the banking system, eliminating the need for securities depositories and central clearing, and reducing settlements delays. One report notes that blockchain could cut up to $20 billion a year off of a bank’s infrastructure costs. Blockchain will also help to nail money launderers through its distributed ledger and the historic traceability of funds.

4. Predictive Analytics will destroy insider and rogue trading

Regulators and financial services firms will monitor trades and traders to spot aberrant behavior and anomalous trades, using streaming analytics with predictive analytics models on top. This way they will be able to predict, with a good deal of certainty, when something bad might happen; insider trading, market manipulation, even money laundering will be halted before markets are affected.

5. FinTech will begin to disrupt investment banking

While financial technology companies have already disrupted retail banking and investing business models with lower cost banking and financial planning websites, they have only scratched the surface of the behemoth investment banks’ businesses. This will change in 2016 as fintech firms begin to target and invade wealth management, private investment and small business lending, beginning in the U.S.

“Capital markets will begin to see some real disruption in 2016. The financial services firms that are prepared for the onslaught of new rules and data, and are proactively embracing fintech, are the ones which will still be there at the end of 2016,” concluded Farmer.

About Software AG

Software AG empowers customers to innovate, differentiate and win in the digital world. Its products help companies combine existing systems on-premise and in the cloud into a single platform to optimize and digitize their businesses. The combination of process management, data integration and real-time analytics in one Digital Business Platform enables customers to drive operational efficiency, modernize their systems and optimize processes for smarter decision-making. Building on over 45 years of customer-centric innovation, Software AG is ranked a leader in many innovative IT categories. Software AG has more than 4,300 employees in 70 countries and had total revenues of €873 million in 2015.

Software AG, 11700 Plaza America Drive, Reston, VA, 20190

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