Capital Markets FinTech: Beyond the hype
The panellists discussed in two separate sessions about the automation in financial advice (the so-called “robo advisors”) and the application of the distributed ledger technology to the trading and post-trading space, respectively.
Robo-advisers have already stormed the market, but are mostly based on exchange-traded funds (ETFs). Contrary to a popular belief, the field is populated with “hybrid” models, combining the algorithm-based investment techniques with the traditional human professional advice. The impact of automated financial advice is likely to have a stronger impact on retail investors compared to institutional investors and high-net worth individuals, as latter will still require a higher degree of sophistication. Reduced cost, increasing access to advice, and better product choice were mentioned amongst the potential benefits. Nonetheless, flaws in the algorithms, mis-selling risks and privacy and data protection concerns could negatively impact the take up of automated financial advice.
The distributed ledger technology presents 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 going forward. 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 mentioned that a number of supervisory authority in Europe (e.g. UK, BE, CH) have put in place regulatory “sandboxes”, by 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.