Part 2: What the WFE sees in the future
What is the potential and interest for new technologies (AI, ML, DLT)?
One of the things that characterises a lot of these new technologies is the necessity for collaboration. The market infrastructures that will be most successful in the future are the ones that take a strategic approach, and see technology as enabling their business strategies rather than as a ‘buzzword’ without a use case.
What WFE offers is a platform to discuss technological developments and standards, and – in our statistics-publishing capacity – we get members aligned so that we have common ways of speaking about the industry.
A lot of our focus is not so much on new technologies per se, but on the ever-present issues and how new technologies might be innovative solutions to improve their efficiency. This is the classic role of new technologies.
For example, the question of outsourcing is always raised by regulators. There is already a framework principle which is that you can outsource functions, but you cannot outsource responsibility. In order to make it real in practice, we need to have the ability for clients of technology vendors to understand how those technology vendors work, to audit them, and be able to satisfy regulators that they have done the due diligence. Take the cloud, for instance – this is outside the perimeter of the financial supervisors, but increasingly these regulators are questioning whether they should have more insight into cloud firms because they may be intrinsic in the stability of the financial system. This something we can expect to hear more about – how technology firms that are outside the traditional perimeter of financial regulators will be accountable.
For financial market infrastructures like payment systems and clearing houses, there must be continuity of access to these services and technologies. This means redundant systems, but also if we had a failing clearing house, we would need the core technology and services to continue operating so it could be transferred to another operator, under a resolution authority. The continuity of access to FMI (Financial Market Infrastructure) services is another example where there has been great regulatory interest at the international level. Of course, we do not want to see the resolution of a CCP (Central Counterparty Clearing House) – this would be the worst-case scenario for all involved.
DLT and crypto assets are important developments that exchanges are getting involved with. We look on in horror when some commentators describe some of these crypto asset trading platforms as ‘exchanges’ – these are not exchanges, they don’t have the market integrity and investor protection. In a number of areas, precisely because this is becoming a more important source of risk, we see our members stepping in – offering derivatives on crypto currencies and developing platforms for the custody of digital assets. This is innovation. Ignoring regulation and the principles of regulated markets is not. We need to understand where digital assets sit in the regulatory parameter. Are they currencies, commodities or securities? I think that the core mission and added value of exchanges around market integrity needs to remain the same – if the technology differs, the solutions will differ. But at the end of the day, our members remain focused on ensuring investor protection and that their markets are transparent.
In terms of AI and Machine learning, I think there is an exciting use case in surveillance – how can surveillance be improved with these technologies?
Looking forward over the next 5 to 10 years, where do you expect most changes to occur in the market infrastructure world? And why?
I see technology driving innovation and efficiency, especially around regulatory compliance. We have seen access to finance change over recent years and a shift from public markets to private equity. This is a matter of concern to policy makers. And now ICOs have overtaken venture capital in terms of funding new companies. The extent to which this is a fad that does not benefit the end investor, is an open question. But technology-enabled efficiencies will continue to drive change in the industry.
At the WFE we are focusing on ensuring that the financial sector meets the needs of the end user. That is the pensioner who relies on the financial sector to manage their savings, the corporate treasurer who relies on being able to manage their risks and get products that are cost effective, priced in a transparent manner. Our focus is to ensure that we are delivering value for the real economy.
Data analytics is a growing area for exchanges because this is an area of growing importance within the investment community. Exchanges are focused on integrity of their products, having appropriate governance of their solutions, and they are trusted brands. We will continue to encourage policymakers to ensure that the regulatory framework be designed in a way that transparency is supported, that lit markets are supported and that investors can trust what is happening with their money. This is how we will continue to succeed.