To what extent is MiFID II affecting BT customer’s day-to-day work?
As we know, the second Markets in Financial Instruments Directive (MiFID II) is an expansive piece of regulation impacting all areas of investment banking, from making sure the interactions between banks and asset managers meet data requirements to ensuring pension fund holders and managers are interacting with the public in order to get the right information to ensure investments are MiFID II compliant.
BT’s focus is on technology’s capacity to improve compliance, whether that is a question of best execution or ensuring people are receiving the right advice.
In terms of MiFID II, BT is working with customers on all elements of the directive, from technology-related issues to questions of where they store their data.
Customers are also required to provide near or real-time recordings of phone calls as they must make sure their client interactions meet MiFID II standards and obligations.
We have also worked with personalising data to help to understand financial products and mitigate selling risks, while at the same time ensuring people have a complete understanding of what they’re buying.
What are some of the current challenges facing BT’s clients right now?
As with many areas of financial markets, Brexit poses a unique set of compliance challenges to our client base. For example, MiFID II was designed in response to the financial crisis to protect individuals across all 28 member states. When the UK leaves the EU in March 2019, the MiFID regime will potentially only cover 27 member states, but our clients and the wider industry want to make sure that those protections remain and that financial markets grow increasingly transparent.
In addition, as time passes, regulators will be able to reassess whether MiFID II has been effective in its aim to improve transparency in the industry. If there is indeed a need to improve transparency still, this push—along with other challenges resulting from Brexit—might lead to the initiation of a MiFID III.
You have a strong knowledge of technology within financial services. What trends are you seeing within asset servicing at the moment, particularly custody and asset administration?
Asset servicing organisations are focused on technology because everybody wants to offer the flexibility that comes hand in hand with new technologies by providing products and services that are easy to use and quick to adopt.
One key example often cited is distributed ledger technology (DLT). While people often associate this with cryptocurrencies, we see it as a key technology for asset servicing and provenance in order to help organisations with securities settlements and to improve middle and back-office functions. We have worked with one organisation that facilitated a set of processes that settle assets using distributed ledgers in order to speed up and improve their record keeping and transaction processing capabilities. The development of DLT will continue to be a key trend in asset servicing due to its ability to support information gathering and because of its robust, built-in security capabilities.
In addition, we will also continue to see firms move away from siloed structures—where the front-office operates completely separately to the back and middle offices—to a much more integrated system. Regulations have helped us achieve this by requiring firms to take a more holistic, unified approach to transactions so that the end-to-end management of each one is more visible and can be more easily audited.
Areas that have less investment, such as the middle office within asset management as well as the banks themselves, are really starting to have a focus on technology to achieve greater insights and scale. Once you’ve got end-to-end control and visibility of your transactions, you’ve got data, and once you’ve got data, you can get more insight.
Once firms improve their data management processes accordingly, they can then start to apply artificial intelligence (AI) and machine learning as well to leverage that data and develop new insights which will have significant commercial benefits.
Has AI caused an upheaval in the financial services industry and its workforce?
There is a certain amount of experimenting around robo-advice in the industry, particularly in asset management. In fact, a recent report from Greenwich Associates found that around 50 percent of all asset managers plan to increase the integration of AI into their investment process, but it’s still too early to tell what the real effects of this will be. I don’t think there are enough examples for this to be a ‘Frankenstein moment’ for asset managers. We are currently at the point where people are starting to use AI to investigate investor behaviours, attract more investors and hopefully uncover cybersecurity risks or fraud.
One risk that the industry thought would be posed by AI was the creation of autonomous advisers to replace human ones. However, in that field, we are seeing one of the largest shifts because asset managers have been closing their robo-advice platforms because they don’t always get the traction they want. This could be attributed to the advice these platforms have given, or maybe it is because people still crave human interaction.
In our call centres at BT, AI is used to improve our customer service but it is augmented with human interaction to mitigate that kind of risk. We are finding that customers who use the technology are getting excellent customer service and so perhaps the augmentation of AI with human interaction will be the way forward within asset servicing as well.
How do you see technology developing in the asset servicing industry over the next five years?
Blockchain, robotisation and automisation are going to play a big part in asset servicing over the next five years. Both human and cognitive structures will also be central, with chatbots also becoming a key part of the process of assessing how cognitive technology works alongside humans. The UK needs to be more productive in this area in particular, especially in a post-Brexit era, as this will help efficiency.
Blockchain has the potential to significantly reduce the volume of paperwork in the asset servicing sphere, an industry where this has become a particular problem. Improving efficiency through end-to-end and cost-effective technology would be a great result for all organisations over the next five years, as well as the improvements that technology can make in provenance and authentication.
Overall though, all roads lead back to data, and the progress of data management and data insights will be key in the years to come.
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