16 November 2020

AFME and PwC identify trends and challenges for European ‘investment banks of the future’

The COVID-19 pandemic has accelerated the journey of investment banks’ technology transformation, but both consistent regulation and further investment are needed to ensure banks in Europe can deploy competitive technology ....

... according to a report published  by the Association for Financial Markets in Europe (AFME) and PwC.

The Technology and Innovation in Europe’s Capital Markets report surveyed the largest investment banks in Europe to assess their technological progress over the past two years. Findings reveal that banks have accelerated adoption of emerging technologies and new ways of working. However, insufficient IT investment, complex legacy systems and increasing regulatory requirements, remain some of the key barriers for further progress.

Among the key findings from the report:

• 50% of respondents believe that investment allocated to technology transformation is sufficient, up from 28% in 2018.
• 63% of investment banks are now implementing cloud computing, up from 33% in 2018.
• However, only 17% of respondents believe the benefits of new technologies are being realised across their organisation.
• 61% of investment banks see operational resilience as one of the top priorities for their technology transformation.
• 90% of respondents believe the COVID-19 pandemic will be a catalyst for future technology and operations change. 

 

James Kemp, AFME’s Managing Director, said:

“Capital markets demonstrated significant resilience through the COVID-19 pandemic, adjusting to extensive remote working and high market volatility without major disruption. Innovation is crucial for banks to continue serving their clients, though it’s clear that the emerging regulatory framework also needs to adapt to support, not limit, innovation at this critical period of change.

“New regulatory initiatives need to remain technology-agnostic, risk and principles based, globally consistent, and follow the principle of ‘same activity, same risk, same regulation’. This will allow the industry to continue harnessing the benefits of new technologies whilst minimising risks.”

Mark Leaver, Partner at PwC, said:

“The capital markets industry in the UK and Europe is at a critical juncture with continued pressure on revenues and costs, and the opportunity that technology provides.  Since our initial report was published in 2018, progress has been made in areas such as cloud computing, and the response to the pandemic has demonstrated the resilience of operations and systems.  However, it is clear that much work remains.

“The industry needs to step up its commitment to automation, technology simplification and leveraging the opportunities of new technology.  Culture change, collaboration and building new ecosystems will be critical to meet the pace of adoption required.  Regulators will play a part here as a new framework emerges that will help shape the industry over the coming years.”

The report predicts a shift to a longer-term transformation strategy across the investment banking industry.  AFME and PwC have identified five calls to action which the industry should adopt in the next two-three years. These are:

1. Prioritise investment in a long-term and clear change agenda
2. Accelerate the convergence of business and IT capabilities for increased agility
3. Create an incentive structure for investment banks and third parties to collaborate
4. Build an organisational culture for innovation
5. Ensure collaboration for a new regulatory framework

Full report

© AFME