Capital markets firms were once at the forefront of technology innovation—but now face being left behind by innovations from other industries.
Incremental adoption of public cloud solutions could enable firms to keep pace, while also providing cost, revenue and agility benefits.
To realize these benefits, firms should scale up from discrete, targeted cloud use cases and create a foundational enterprise-wide cloud layer.
Cloud’s scale, resiliency and continuous innovation mean it will likely form a critical part of every future business and technology roadmap.
Capital markets at a crossroads
The capital markets are the lynchpin of the global financial system, enabling governments, financial institutions, companies and investors to trade assets and raise and access capital. This makes them fundamental to economic stability and growth.
At their core, capital markets firms have long been digital businesses. But once at the forefront of innovation, they’re now at a crossroads in their technology journey.
The industry has largely coped well with the impacts of COVID-19. But the pandemic has highlighted that it’s in danger of being left behind by innovations from other sectors.
Today, a lot of technical innovation is delivered or enabled by public cloud-based technology. The result? Many capital markets firms believe they’re at a defining moment—and need to become as "cloud enabled" as possible to increase agility, efficiency and revenue streams, manage risk and security, and secure their future competitiveness and relevance.
Today, most technical innovation is delivered or enabled by public cloud-based technology.
The state of cloud in capital markets today
A lot of cloud adoption to date in capital markets has focused on individual use cases rather than mass migrations. We estimate that today only between 5% and 10% of the industry’s technology solutions are truly public cloud-based.
Some initial use cases have delivered significant benefits and innovation opportunities—especially those involving migrating compute, data-intensive and regulatory reporting workloads to IaaS and PaaS, and operational activities to SaaS. Momentum is building in migrating portions of core trading, risk management and post-trade processing applications onto public cloud in a targeted manner.
There are many activities on the critical path for scaled adoption of public cloud—and we see a pressing need for investment in a foundational layer to handle these. But many firms have not yet planned or budgeted for this investment, which has left some business teams disengaged and frustrated with the slow progress towards cloud.
Why should capital markets firms move to cloud?
Capital markets participants adopting cloud are united in one key aim—to gain competitive advantage through four benefits:
New revenue streams
Cloud can align business propositions and products closer to clients’ needs and shorten time to market.
Improved customer, client and employee experiences
Cloud’s speed, agility and responsiveness help employees collaborate and innovate, and improve the experience and service for clients.
Cloud can significantly optimize spend on infrastructure, maintenance, licensing and software, while allowing scaling up and down to meet demand.
Cloud facilitates easier integration of third-party applications and services, enabling streamlining of systems and more integrated client services.
Within these overall goals, the various market participants have different—yet targeted—value opportunities:
Sell side – While cost reduction remains a priority, many sell-side firms are viewing cloud as a way to “reboot” their business and transform into more digital, data-driven and innovation-led enterprises. They’re also using cloud to support new ways of working post COVID-19, reduce the ecological impacts of stand-alone data centers, and handle the data-intensive nature of upcoming regulations like the Fundamental Review of the Trading Book (FRTB).
Buy side – Drivers for cloud adoption include competition from “born-in-the-cloud” challengers and growing customer demand for hyper-personalized digital experience. Buy side firms are using cloud’s massive compute power to become data-led in their search for the next alpha, and switching to SaaS and PaaS based services for non-differentiated operational functions.
Market infrastructure – Firms in this segment are continuing to actively pursue cost reduction while simultaneously seeking to diversify their revenue streams. Cloud helps them to do both by unlocking value from their data and launching additional digital services.
Assessing time to value for cloud adoption
Capital markets firms can draw up a roadmap for cloud adoption based on complexity, business value and cloud consumption. Less complex workloads like data services, pricing and risk calculations could deliver value to the business relatively quickly, but this may be lower over the long term.
The most complex workloads to be migrated tend to be core pre- and post-trade transactional processing applications. Each firm should therefore develop its five to 10-year roadmap for complex workloads to inform its overall cloud strategy.
Estimated time to value for cloud architectural patterns and use cases
Source: Accenture Research
Accenture is investing $3 billion over the next three years to enable our clients to rapidly become CLOUD FIRST businesses.
Barriers to overcome
While a cloud transformation offers a once-in-an-IT-generation opportunity to completely redesign a capital markets firm, incremental adoption is likely to be more achievable.
With initial use cases for cloud often targeted at solving specific challenges, many firms are struggling to scale and move large parts of their mission-critical business services or technology onto public cloud.
Our research among capital markets firms reveals some common challenges across key themes—led by security and business complexity. Equally, there are mitigation strategies firms can adopt for each theme.
Cloud transformation top challenges
Source: Accenture Research; percentages refer to barriers cited within the top 3 challenges
For example, to help address security and risk compliance, a firm can lay out an end-to-end control transition roadmap partnering with risk managers and regulators from each jurisdiction and apply a “security first” approach throughout each stage.
Steps to take
Technology transformation using cloud is only feasible if an organization can pivot its skills, capabilities and means of delivery. Key focus areas for the journey include:
Governance, drive and investment funding
Keeping the focus on the overall goal and strategy despite any short-term conflicts between priorities.
Security and compliance
Confirming these are major considerations in everything from architecture to engineering to operations.
Training and culture
Focusing on training existing resources, augmented with specialized skills from partners at initial or critical stages of the journey, and applying agile ways of working.
Architecture and engineering
Integrating cloud services into existing processes and technology stacks, from core application build to underlying guard rails for cloud usage.
While focusing on these priority areas, firms should bear some important considerations in mind. These include:
Align cloud adoption to business plans
Start simple and increase during maturity
Engage the business through some early flagship big wins
Automate where possible, but be pragmatic
Create new services for cloud if more appropriate than porting/interfacing to existing ones
Apply a “secure by design” mindset
Define the “route to live” for all applications
Support bi-modal cloud operations to accelerate adoption
Phase adoption to minimize risk for new releases
Engage with regulators early in all relevant jurisdictions
One thing remains clear: the scale and resiliency offered by the cloud are unmatched—and, as the industry continues to evolve, it will likely form a critical part of every future business and technology roadmap. The time to start the journey? Today.
Accenture, as a leading integration partner of all major cloud service providers and with dedicated industry services and specialists, is uniquely positioned to support all capital markets organizations with their business, operations and technology journeys to cloud.
Request a meeting and one of our subject matter experts will contact you to discuss your cloud strategy in more depth.
About the Authors
Global Metaverse Co-Lead and Technology Incubation Group Lead