Leading IBs will emerge from this crisis with new organizational flexibility and agility, increasingly digital-first business models and streamlined operations process.
5. Data enabled risk management
Financial and nonfinancial risk management through the crisis have required a number of tactical adjustments to maintain the control environment and ensure risk transparency. Historically, IBs’ risk management, supervision and surveillance capabilities have relied heavily on physical oversight and manual reviews. As firms review their performance, we expect to see a transition to a more digital approach to risk management, which will be data-driven and artificial intelligence (AI) enabled.
The capabilities will include an ability to view risk exposure to a client or risk concentration at the enterprise level on a near-real-time capability, with predictive analytics leveraged to alert on potential exposure challenges. Digitally enabled supervision and surveillance will become prerequisites for increasingly allowing front-office personnel to work remotely in the normal course of business.
6. Operations digital transformation
The pandemic exposed a number of vulnerabilities across the operations functions of the IB, where market volatility and transaction volume spikes put pressure on operational capacity. The number of manual and custom processes that are offline to core workflow applications exposed specific challenges in providing flexible capacity to surge resource processes on demand.
IBs need to review their operational capabilities and identify opportunities for digitization and standardization of processes into a common data and process model to enable an agile operational function. Through the postmortem analysis, firms need to understand the root cause of operational frictions and bottlenecks to strategically address them at the source, enabling the digital transformation of the operational function, enhancing operational capacity, resource flexibility and realizing efficiencies. This approach will also open opportunities to leverage greater industry tooling and utilities and provide the ability to offer management insights on status and issues on a near-real-time basis through a standardized workflow tooling.
7. Enhanced elasticity of IT Infrastructure
IB technology infrastructure has come under strain with the significant market volatility and volume impacting performance, reliability and resiliency. The increased processing demands on infrastructure highlighted challenges to meet service-level agreements. The increased threat from cyber attacks and capacity constraints to virtual private networks (VPN) due to remote working also presented similar challenges.
Firms need to focus on upgrading legacy technology applications and infrastructure, such as mainframe infrastructure, which struggled to support the remote working environment. Leading firms are also transitioning to a flexible microservices architecture. The need to have an elastic supply of capacity and maintain performance through load balancing is challenged by legacy infrastructure, which was a bottleneck to firms through the pandemic that needs to be addressed.
Firms should also review their cybersecurity protocols and capabilities, which also showed vulnerability through the pandemic. Firms that address deficiencies in bandwidth, cyber and surge capacity that the crisis exposed will create lasting competitive advantages due to IT flexibility, distributed capabilities and security.
IBs broadly have demonstrated resiliency and played a key role in sustaining an orderly market, supporting the economy, ensuring market liquidity and business continuity. They should, however, use this as a learning experience to further enhance their capabilities and address the challenges observed to improve their own and the market’s resilience.
Firms should take two immediate actions. First, firms need to develop a detailed multistage and staggered cross-functional return to work strategy playbook. Second, firms should initiate the execution of a holistic and proactive post-mortem review, developing prioritized remediation action plans. We expect both to form a central part of audit and horizontal supervisory reviews over the coming months.
From a strategic perspective, it is imperative that firms refine their transformation objectives considering lessons learned to date through the pandemic and review their broader strategic agenda. We expect the most proactive firms in assessing their vulnerabilities to be best placed to direct strategic investment. IBs that focus on digital transformation strategies and upgrade their data, technology and front-to-back infrastructure will be strongly positioned for growth and profitability in the new normal.
The leaders of IBs must strengthen their organizations’ capabilities and resiliency by learning from the challenges highlighted during the pandemic, and by focusing on the underlying root causes. Firms should ensure that they conduct a thorough review of the successes and challenges that were experienced. Many of the challenges are not new but have been further exposed through the pandemic. Leading IBs will emerge from this crisis with a refined business strategy focused on data and digital transformation enabling organizational flexibility and agility, increasingly digital-first business models and client solutions, streamlined transactions lifecycles and a digitally enabled workforce.