Digital Transformation Required: But not Necessarily Supported: Study

A new study published by Crisil Coalition Greenwich and Xceptor finds that while digital transformation is seen by interviewees as critical to operation efficiency, the majority of them are facing resistance from within their own firm.

The report, Operational Efficiency is Driving Digital Transformation in Capital Markets, is based upon a survey of more than 70 leaders from capital markets firms globally, and finds that firms across the landscape are rethinking their operational strategies in response to growing complexity, rising trade volumes, and evolving regulatory demands. While nearly 90% of respondents believe digital transformation will enhance operational efficiency, however, just 28% say it is broadly supported within their organisations, and one in 10 indicated no support from their organisation. 

“Despite several benefits of digital transformation to improve workflow efficiency, many participants are taking more time to invest in these resources and legacy practices prevail,” says Audrey Costabile, senior analyst, Crisil Coalition Greenwich. “Our study uncovers hard dollar costs to holding out on adoption, which are set to increase as data volumes continue to grow and market uncertainty persists.”

As well as costs, legacy systems (57%) and manual data entry (39%) were also often cited as obstacles, the firms add. On a more positive note, the study finds that 57% of firms are planning to invest in workflow automation within the next year, and 58% of firms have already done so in the past 12 months. 

The study also finds that manual processes remain prevalent throughout the industry, on both buy- and sell-side and that multiple tools lead to siloed systems, with up to five different platforms used to cover asset classes, and 95% of respondents saying that no single platform can cover them all. This leads to disjointed workflows and data silos, the study observes. Manual intervention is heaviest in regulatory reporting (80%), client onboarding (79%), and trade reconciliation (77%).

It adds that most exceptions take hours – or even a full day – to resolve. Nearly 60% of respondents acknowledged the financial burden of exception handling, citing the need to put up to 5% of annual capital aside to cover remediation costs each year.

“As trade volumes continue to rise and regulatory demands such as T+1 and the EU Faster Initiative intensify, firms are under pressure to modernise or risk falling behind,” says Michiel Verhoeven, CEO of Xceptor. “The Crisil Coalition Greenwich report confirms what we continue to witness firsthand in the industry – getting data right through automation and AI is a top priority for all industry participants.

The study also explored the state of AI adoption in the industry, finding that while 60% see it as important to their transformation strategy, nearly one-quarter believe it is not important. Despite growing awareness of AI’s potential, adoption remains cautious, the study finds, noting that currently, only one-third of firms report already using AI. Equally, 43% plan to adopt AI in the next two years, and nearly 23% have no plans to do so.

“AI has the potential to revolutionise how firms manage and transform data and workflows,” says Dan Reid, CTO and co-founder of Xceptor. “To unlock this potential, adoption must be part of a strategic approach to data automation. Automating high-risk, manual processes can enable firms to reduce operational risk and improve regulatory compliance when implemented with effective controls in place.”