Regulation and technology drive change but not always progress

VIDEO | On stage at the official opening for the PostTrade 360° Nordic 2024 conference, there was not a crystal ball in sight, only a panel of post trade experts. Nevertheless, the session had an ambitious undertaking: to predict the forces that will shape post trade through 2025 and beyond. The hour-long discussion identified regulation and technology as the two main drivers of change – which might not always be in the direction of progress.

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A well-intentioned obstacle

Despite well-meaning intentions, “constant change put out by the regulators is a constant drag on our ability to move our businesses forward,” declared Philip Brown. The CEO of Clearstream Banking SA explained his criticism, saying, “Regulation is an immovable object. It’s there, it has a date; you have to deliver to that date, and everything else has to sit behind it in terms of priorities.”

Undeservingly, the post trade space currently appears to be a “target of governments around the world”. “I don’t think we’ve failed in any way that would lead us to need more regulation,” Brown said. “Post trade has proven its resilience. We have not had an FTX-type situation like they’ve had in crypto.”

He suggested a “period of stability” to give the industry breathing room to explore its development and to “focus on clients and on the markets that we serve, rather than on meeting the needs of a variety of different regulators”.

Philippe Laurensy, Euroclear’s global head of group strategy, was of the opinion that establishing harmonisation at the regulatory level might make following the rules easier. “The number of regulations that contradict one another is quite difficult to manage,” he pointed out. “I agree that we need stability, but maybe what’s more important is to make sure that the different regulatory environments talk to one another so that they all go in the same direction.”

Carefully optimistic

Besides regulations, the panellists agreed that the other major influence on the post trade landscape is technology, in particular, DLT and AI – even if the pace and scale of adoption have been more subdued than expected.

Brown described the initial uptake of digital securities as being based on the “fear of missing out”. “Everybody was diving in and doing all kinds of work, but it wasn’t really with any end in sight.” Today, however, “we are starting to see digital securities come to market… and there’s a logic to where we are.” Consequently, he expects DLT to “prove to be valuable”, but “it won’t be the gamechanger that we all expected and certainly not at the pace we expected.”

Likewise, AI isn’t expected to be a game changer. It does, however, have “enormous upside potential”. Brown named two areas where he believes AI could make a real difference. “One is in customer experience; the ability to simply give customers what they need in a more sensible way, quicker, and in their own language, rather than having them forced down a pipe that you’ve designed that’s of only your shape. The second is simply efficiency at the level of the individual employee within our organisations.”

Thierry Chilosi, SWIFT’s chief business officer, believes that a successful transition could hinge on being strategic in adopting new technology. “From where we sit, it is about how you can be a clever adopter. When is the right time to adopt, and for which processes? Most importantly, do not underestimate the learning that needs to come with the adoption.”

What’s to come

In a panel about the future of post trade, a discussion of the sector’s then and now formed a natural precursor. Göran Fors, the session’s moderator, had opened the dialogue with a question about the changing definitions of post trade. The panellists agree: the role of the sector has broadened significantly over the years. No longer responsible for only settlement and custody, it now includes clearing, CCP services, and, as Brown mentioned, “the data services that flow off the back of that”.

“We keep hearing about our industry moving to be more of a data industry and less of a processing industry. I don’t think it’s an accident that you’ve got Google partnering in long-term contracts with CME Group and with Deutsche Börse and Microsoft partnering with LSEG,” he says. “Large post-trade or pre-trade businesses aligning with organisations that really know how to manipulate and manage data – this, I think is a big change now… These partnerships are probably the most important things that have happened in the last three or four years in terms of advancing the industry.”

Despite being “more of a data industry”, Chilosi is clear that post trade players should never have ambitions to take over the tech sector. “We need to know what we are good at… Spending time to really understand our data, making sure it is clean to be used, is probably our biggest difference. The technology players will come with the technology; we are the experts that should know what type of data will bring value.”

No matter what the future might look like for post trade, Brown believes that the industry will remain in good stead as long as it stays true to itself. “I think we need to go back to why we are here… Our role is twofold: to create trust so that the money will keep flowing and people will have faith in the system. Second, is to remove the complexity of doing that – and that’s really what this industry does. It acts as a complexity dissolver for investors, and I don’t think that’s going away… I think the terms of what we do may change, but the fundamentals of what we do are still there, and it’s still going to be necessary.”

Panellists:
Philip Brown, CEO, Clearstream Banking SA
Philippe Laurensy, Global Head of Group Strategy, Euroclear
Thierry Chilosi, Chief Business Officer, Swift

Moderator:
Göran Fors, Deputy Head of Investor Services, SEB

• The consolidated PostTrade 360° Nordic conference, in Stockholm on 4–5 September 2024, came to host 1,200+ delegates and featured 70 sessions.
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