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The Future of Operations Starts Now

SIFMA, through its Operations & Technology committees, provides industry leadership and coordination for market operations, business continuity planning and cybersecurity.

Our members have led the industry during an unprecedented period – both with responsiveness and responsibility to ensure that our markets continued to operate efficiently and effectively no matter what the impediment – and developed the content for the first in-person conference SIFMA has held in 19 months.

On October 4-7, 2021, SIFMA’s president and CEO, Kenneth E. Bentsen, Jr., opened the 48th annual SIFMA Operations Conference & Exhibition in Miami, Florida. While it was different from past conferences, incorporating health and safety measures, the conversations on industry priorities, challenges and opportunities were as timely and crucial as ever.

After the Conference, we sat down with Tom Price, Managing Director of Technology, Operations and Business Continuity. This Q&A highlights the key takeaways and recurring themes from SIFMA Ops 2021: operational resiliency and innovation as well as the talent and firm culture needed to drive the future of operations. Given the incredible pace of change and increased speed to delivery over the last couple of years alone, the future starts now.

Q: Disruption can bring new opportunities. What’s ahead for operations in financial services?

A: At the peak of the pandemic, more than 90% of the financial services industry worked remotely, accelerating digital adoption through intensified focus and transition on priorities evident before the pandemic. Now that we have begun to move beyond COVID-19, industry efforts have shifted to returning to the office and we expect the pace of change to only increase. Here are just a few examples of the developments ahead:

  • E-delivery: As the industry moves toward further shortening the settlement cycle, e-delivery will only become more necessary, and we are engaging with the SEC to make it easier for investors and dealers to make this transition.
  • Digital assets: Digital assets are at a pivotal point in our industry. We expect the increasing consumer and regulatory interest in crypto and digital assets to lead to new products, rules and requirements for broker-dealers, banks, and asset managers.
  • Using SOFR in the cash and derivatives markets: On January 1, 2022, U.S. banks will no longer be permitted to use Libor for new contracts. On that same day, non-USD LIBOR tenors will cease publication and legacy contracts will have to move to fallback rates. And Libor will end for USD legacy contracts on June 30, 2023.
  • Moving away from legacy systems and manual processes: Financial services firms are embracing the cloud and other digital platforms to go paperless, increase operational efficiencies and speed to delivery.
  • Transforming the customer experience: New capabilities are needed to anticipate customer expectations and better serve clients as they demand a more personal, immediate experience.

Q: Continued resiliency of the markets is a critical priority. How is the industry strengthening market operations?

A: With a renewed focus on enhancing market structure and reducing operational risk, one of the ways the industry is working to ensure the ongoing resiliency of the capital markets is through its plans to move the securities settlement cycle from T+2 to T+1.

Removing 24 hours from the current settlement cycle comes with obstacles and challenges, but the result of a T+1 settlement cycle will mitigate risk well beyond what was achieved under T+2. An accelerated settlement will also increase the overall efficiency of the securities markets, reduce trade friction, create better use of capital especially during periods of high volatility, and promote financial stability.

The Industry Settlement Cycle Panel made it clear that shortening the settlement cycle to T+1 will be a significant undertaking. The panel noted that there are over 20 different areas affected by the settlement cycle – including international investors – and all activity is interconnected. Collaboration is essential.

As the industry completes the analysis phase and starts to develop the plan outlining the necessary steps and timeframes to accelerate the settlement cycle, the Ops panel recommended that firms get their budgets and resources lined up over the next 12 months to have the capabilities in place for when the industry moves to T+1.

For information on how SIFMA, DTCC and ICI are collaborating and leading efforts on T+1:

Q: Cybersecurity and operational resiliency are more important than ever. What impact has the pandemic had on how firms plan and protect?

A: The pandemic has changed the way we work and put technology at the forefront of the financial services industry – transforming the way firms, advisors, clients, managers, and employees interact and access information. However, new risks and vulnerabilities have emerged from accelerating digital transformation and we expect plans for defense, resiliency, and recovery efforts to evolve every year. Cyber-attacks did not stop for Covid; in fact, they increased.

Starting with the Operations Leadership session on Day 1 through to the “Making Yourself a Difficult Target for Cyber Criminals” and “Data Privacy Exposure” sessions later in the program, one of the key messages at SIFMA Ops was that employees have a key role in cybersecurity and data protection in addition to the framework implemented by firms. Based on the 2020 Verizon “Data Breach Investigations Report”, more than 80% of hacking-related breaches used stolen credentials. While already challenging and complex, there is a shift in cybersecurity practices to further protect the hybrid office environment and expand employee education across the firm.

As the industry’s operational resiliency efforts continue to evolve, two upcoming exercises will test industry participants: the October 23rd industry-wide business continuity test and, later this year, our sixth biannual industry cybersecurity exercise in the Quantum Dawn series with a focus on ransomware recovery plans.

By working together, we can continue to build a stronger and more integrated network of cyber protections that maintain public trust and confidence in our financial markets, while bringing greater privacy and data protection to our increasingly interconnected and digital world.

Q: What skill sets do we need to drive capital markets innovation and operations now and into the future?

A: Talent is the lifeline of the financial services industry and, as digital transformation continues to accelerate and reshape operations, new skill sets and roles such as data scientists and AI engineers – in addition to upskilling – will be needed to drive innovation forward in an increasingly complex financial services ecosystem.

But this change is not limited to the expertise needed to implement new technologies and infrastructure, more sophisticated cybersecurity, or new products and business models to simplify capital markets processes, create operational efficiencies and be more agile. Skills are also needed to lean into the customer experience.

Your customer’s interaction and engagement with highly personalized experiences today – Amazon and Netflix, for example – are changing their expectations of financial services. And although the investor is becoming more tech-savvy, human connection remains just as important. Over the past year, there has been unprecedented growth in retail investing with many being first-time investors. Lower trading costs and greater access to investing opportunities, especially through digital tools, has led to a drop in the median age of investors.

As investor demographics and needs continue to change, it is imperative to build and sustain diversity, equity and inclusion (DEI) in our firms to recruit talent – that is diverse in background, thought and experiences – and to reflect the diversity of the clients and communities we serve.

For the latest developments in operations and to stay engaged on industry issues:

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Tom Price is a managing director and head of technology, operations, and business continuity for SIFMA.

 

 

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