The financial services industry is going through tremendous change – market dynamics are being shaped by a tough economic environment, a competitive landscape, and the acceleration of new technology. In the current climate, firms face multiple risk management and business challenges. To succeed they need to invest in the latest technologies that provide a holistic view of risk, help reduce costs, improve operating efficiency, and enable insights to better serve clients.
This survey was carried out at Quantifi’s annual trading and risk conference in London. Over 100 individuals from across the financial services industry were invited to take part in the survey.
What do you think will have the greatest impact on the markets in the next 12 months?
Macroeconomic and geopolitical risks have soared since Russia’s invasion of Ukraine and have delivered a sharp shock to business sentiment, which had slowly been recovering as COVID-19 lockdown measures eased. This survey found that inflation (49 percent) tops the list of developments likely to have the greatest market impact over the next 12 months. Others cited rate rises (19 percent), the war in Ukraine (16 percent) and recession (16 percent).
According to the International Monetary Fund(1), global growth is forecast to slow from 6.0 percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023. This is the weakest growth profile since 2001 except for the global financial crisis and the acute phase of the COVID-19 pandemic.
In an environment where firms are increasingly concerned about return on capital, cost, and business flexibility, they need to increase their focus on risk management. A firm’s risk technology must be capable of tackling today’s complex challenges while remaining flexible and scalable enough to keep up with future market changes.
Which areas are you increasing technology spend to enhance risk management?
As firms revisit their trading and risk infrastructures, the case for an external technology provider who can act as a partner and provide a sophisticated, robust and scalable solution that remains relevant becomes more compelling. The challenge for providers is the ability to meet the required level of sophistication and stay ahead of the rapid pace of change. This is an environment in which Quantifi’s strengths shine. Quantifi has a proven track record of delivering sophisticated and intuitive solutions that enhance clients’ risk management techniques, reduce operational costs and increase business flexibility.
The growth of fintech, big data, cloud computing and other related technologies has developed rapidly. According to Gartner, banks and investment firms will spend $623 billion on technology products and services in 2022. As technology innovation accelerates, firms need new ways to better understand, predict and protect against both traditional and emerging risks.
Evolving technology and advanced analytics are enabling new products, services, and risk-management techniques to help firms make better trading and risk choices, spot market opportunities and improve their bottom line. The financial services industry generates and uses huge amounts of information. Most firms (34 percent) are increasing their spend on data science with a view to improving trading strategies, portfolio management, regulatory reporting and client targeting.
Cloud (23 percent) is another focus of significant risk tech investments. The adoption of cloud has fast-tracked in recent years with firms seeing the benefits of cloud in terms of greater business resilience and agility to respond to market demands by implementing new functionality faster. Firms that have traditionally operated in a siloed manner are re-evaluating their solution strategies for pricing and risk management not only from bottom-up/top-down but also from front-to-back perspectives for market data, modelled prices, and risk measures. An additional 23 percent of respondents are raising spending on integrated risk management solutions.
Firms are increasingly turning to trusted fintech providers, like Quantifi, to drive technology innovation as they have proved to be agile, nimble, iterative, and unconstrained by old technology. These providers offer a low-cost (compared to internal build), low-risk and faster route to innovation. Quantifi offers a fully integrated data science-enabled solution that comes with comprehensive and robust cross-asset analytics, real-time risk management, data management and reporting.
Which approaches are you using to reduce the cost of operations?
As we emerge from the pandemic and face a real risk of national and possibly global recession, firms are confronted by a landscape that looks very different from before. This new environment has increased the cost agenda to a higher level of importance. Firms now must intensify and accelerate their cost transformation programmes.
Forty percent of firms automate processes to help reduce the cost of operations. Automation of business processes helps firms rapidly scale up, improve process quality and accuracy, reduce cycle times, and improve compliance. Over the past couple of years, automation technology has become more embedded within financial services as employees have shifted to remote working. This has resulted in the acceleration of firms’ digital transformation, especially regarding cloud, machine learning and data science.
With companies becoming more mindful of the need to replace laborious, manual processes with new technology, they are utilising a variety of innovative technologies to change the way they do business. Techniques such as machine learning and analysing big data have become increasingly commonplace as firms hunt for an edge in trading markets. Of those surveyed, 34 percent are using new technology to reduce the cost of operations. Technology providers like Quantifi, which adapts and leverages these technologies, can help clients solve their most pressing risk management and operational challenges.
Quantifi remains at the forefront of technology innovation. By heavily investing in data science, microservices, artificial intelligence and the cloud, Quantifi has helped clients automate processes, reduce costs and enhance flexibility.
Which do you consider to be the best application of data science?
Over the past few years, data in financial markets has grown at a huge rate and big data technologies have emerged to help firms handle it. One of the key technological transformations designed to deal with big data is data science. The drivers for employing big data technologies include a shift in trading strategies, increasing complexities of processes, transparency, and the need to handle and manipulate data at speed.
The evolution of data science and advanced analytics has given rise to a range of applications designed to provide real-time intelligence and allow firms to detect threats such as credit, market and operational risk, and take early action. Survey respondents consider performance analysis and reporting (27 percent) and risk management (27 percent) to be the areas where data science can be best applied. Data science adoption also enables firms to develop and test trading strategies (16 percent), automate processes (16 percent) and run highly complex calculations for pricing (14 percent).
Quantifi’s data science platform gives clients the ability to do complex data analysis and flexible reporting using Python, Jupyter Notebook and other popular data science tools. Integrated with Quantifi’s proven risk management solution and advanced model library, users benefit from complex client-driven analysis, strategy back-testing and ad hoc portfolio what-if analysis – all using mixed data sets from diverse sources. Find out more about Quantifi’s data science platform.
To what extent do you agree with the following statement “data science is a key area of focus for my business”?
Financial services firms have been enthusiastic adopters of data science and have helped push the art and science of the discipline to the leading edge. Seventy-six percent of respondents stated that data science is a key area of focus for their business and only three percent stated it was not.
Buy- and sell-side firms, as well as technology providers like Quantifi, ingest large volumes of data across thousands of data points to build models and report functionality. As a result, there has been an upsurge in data science tools, technologies, and processes.
The use of data science is moving from a leading-edge option to a core capability. Over the past year, Quantifi has onboarded several clients to its data science platform. Data science is gaining traction because it allows firms to focus their resources efficiently, make smarter decisions and improve performance.