3 Emerging Technologies That Broker-Dealers Should Get to Know in 2016

There are breaking technologies in capital markets, such as blockchain, that broker-dealers need to know about as they prepare for 2016.
By Nick Fera ,

It's been said before, but it bears repeating: technology is increasingly critical to running an efficient, competitive broker-dealer business today. Brokerages that have abstained from moving their manual processes into the digital realm have either already fallen victim to industry consolidation, or are dealing with the financial and operational consequences of their tech-aversion.

Due to a combination of factors -- from budgets to compliance and regulatory standards -- broker-dealers have historically been late to embrace new technologies. Case in point: spreadsheets are still a prevalent fixture in the back office, and many firms are only now warming up to the idea of cloud computing, despite its widespread adoption across other sectors.

The pace of technology innovation is fast and speeds up by the day. At a minimum, broker-dealers need to stay on top of new and emerging IT advancements to understand how future tools stand to transform their businesses and the broader industry, for better or for worse.

With 2016 only weeks away, here are three emerging technology trends and tools broker-dealers should get familiar with in the coming year.

1. Vendor management and cybersecurity

Over the last two years, the Securities and Exchange Commission has made cybersecurity a critical part of its enforcement strategy. The Office of Compliance Inspections and Examinations continues to evaluate broker-dealers' cyberattack prevention and response measures, including governance, risk assessment, data privacy and vendor management. While processes for identity access, governance and staff training are all contained within a firm, vendor management demands that broker-dealers establish the right controls with each of their external partners.

The onus falls on brokerages to ensure that any outside vendors or IT providers they engage have robust data protection policies and protocols in place. Firms that rely on back-office technology or store clients' personal information in third-party servers, for example, must guarantee that their contracts with these providers explain what the recourse would be in the event of a breach. Failing to conduct this due diligence could leave your firm liable when a vendor lacks the proper defenses.

2. Industry cloud solutions

Across industries, businesses have implemented cloud solutions for a variety of internal functions, from customer relationship management and employee collaboration to enterprise resource planning. The next wave of cloud adoption, however, will involve industry-specific cloud tools: software and services customized for an individual sector, often managed by vendors with deep subject matter and sector expertise.

For broker-dealers that historically avoided public or private cloud arrangements, these new niche systems could be a secure gateway into using the technology -- as well as a resource for mitigating vendor risk. According to a Tech Pro Research study, increased security and data protection are the top reasons businesses across verticals are beginning to consider industry cloud adoption.

3. Blockchain's potential

In the last few months, blockchain (the decentralized public ledger system that underpins crypotcurrencies like bitcoin) has rocketed into the financial services mainstream. Around the world, industry leaders and innovators are chattering about how the technology could be applied in the capital markets. Nine of the largest banks, including Goldman Sachs, UBS and Credit Suisse, have joined a partnership to explore blockchain's possibilities. In October, Nasdaq unveiled "Linq," a blockchain-powered trading platform that aims to instantly and transparently record the transfer of shares of its privately held companies.

Though full-fledged adoption is still likely years away, blockchain could infuse a new degree of trust and efficiency into the markets. Because trades recorded in a blockchain system are decentralized across a multitude of computers, the data is harder to manipulate. A report released this summer by Santander InnoVentures claimed that blockchain could save lenders up to $20 billion per year in cross-border payment, regulatory and settlement fees.

These are just a sampling of the technologies that stand to reshape the capital markets and broker-dealers' businesses in the coming months and years. Depending on a firm's size, budget and client profiles, some of these IT needs may be more pressing than others. No matter where your organization falls, resolving to stay on top of tech trends in the new year is a smart move.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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