Capital Markets FinTech: Beyond the hype
Robo-advisers have already stormed the market, but are mostly based on exchange-traded funds (ETFs). Contrary to popular belief, the field is populated with ‘hybrid’ models, combining algorithm-based investment techniques with traditional human professional advice. The impact of automated financial advice is likely to be greater for retail investors than for institutional investors and high-net-worth individuals, as the latter will still require a higher degree of sophistication. Reduced cost, increasing access to advice, and better product choice were mentioned as being among the potential benefits of automated advice. Nevertheless, flaws in the algorithms, mis-selling risks and privacy and data protection concerns could negatively impact the take-up of automated financial advice.
Distributed ledger technology offers multiple opportunities to improve operational processes in the financial services industry, provided that the different players in the financial ecosystem understand that this is the sustainable alternative from now on. To this end, trading and post-trading infrastructure operators have already started to test such technologies and to integrate them into their business models. Questions around the robustness, governance, supervision, interoperability and cyber-security are yet to be answered. With respect to regulatory approaches on financial innovation, it was mentioned that a number of supervisory authorities in Europe (e.g. the UK, BE, CH) have put in place regulatory ‘sandboxes’, through which they encourage businesses to test innovative products, services, business models and delivery mechanisms without immediately incurring all the normal regulatory consequences of pilot activities.