Global developments, costly regulations and fintechs are disrupting today’s markets The near-term outlook for the global financial system is positive, even though global events, technologies and new players are disrupting the industry. This is the overall impression made by speakers during The Future of Finance Summit 2017 – Markets Disrupted Track held last June 8th-9th at Singapore. Stepping up amidst a receding US role in global economy Donald Trump’s victory in the US presidential elections late last year have resulted in what some experts say a slow and partial withdrawal of US from the global economy. He has since suggested major shifts in national policies, abandoning the Trans-Pacific Partnership (TPP), pushing for a renegotiation of the North American Free Trade Agreement (NAFTA), and proposing a number of “America first” rules that would protect US-made goods. Many analysts believe these protectionist policies threaten global economic growth, while impending the recovery of markets hit by the 2008/09 financial crisis. However, the increase in protectionism is not a US-isolated case, said Michael Syn, executive vice president and head of derivatives at the Singapore Exchange. He believes that President Trump is not the only political voice challenging the current environment. “There is a protest against economic establishments,” he stated, referring to a series of events that have been disrupting global economies. Indeed, there has been persistent rise in policy uncertainty, geopolitical risks or renewed financial market turbulence that could derail incipient recovery of global markets. Still, Geofrey Heenan, Singapore resident representative for the International Monetary Fund, believes “other countries are stepping up to take their place in this multipolar financial system”, and that a US-pull back from its global economic role would not really affect the entire system? “The fact is that if countries retreat from globalisation, they still have to deal with technological change, so then you need these supportive policies even in an isolationist world,” he explained. Dealing with complex and costly regulations Banks have also been facing heavy pressure to comply with complex and costly regulations. For example, the Basel Committee on Banking Supervision released the fundamental review of the trading book (FRTB) rule early this year. FRTB overhauls the way banks treat the risk of the bonds, stocks, commodities and other assets they hold in the short term so they can facilitate clients’ trading. Banks have to spend much more to comply with such requirement, aside from other existing rules that include the standardised approach for counter credit risk (SA-CCR) and margin requirements for non-centrally cleared derivatives. Valerian Crasto, chief operating officer and managing director of treasury and markets at DBS, pointed out the need to re-calibrate the regulations. “There's no one size fits all in regulations,” Crasto emphasised. Each location has its own distinct experience that requires specific and tailored rules thus the need for some re-calibration of rules. While existing regulations have good intentions, serving as a traffic enforcer in a crowded financial market, these could have unintended consequences that regulators should be aware of, particularly on the cost-side of financial institutions. Leveraging on blockchain and cryptocurrencies An important aspect in today’s changing financial landscape is the rise of new technologies, particularly blockhain. Non-banks have been constantly working on new financial technologies, such as distributed ledger technologies, becoming somehow a threat to banks. "It has the potential to disrupt market infrastructure. It has also created a new asset class, which is increasingly questioning the existence of banks and intermediaries,” said Ganesh Iyer, senior vice president for product development, HSBC Securities Services. However, Iyer emphasised that the real question is how well can these new asset classes be integrated with the existing system? This is a particular reason why banks are conducting several experiments through labs and collaborations on digital linear tape (DLT) usage. R Vivekanand, vice president and co-head of TCS Financial Solutions, likewise believes that there will be “massive co-existence between existing platforms, existing systems, and specific applications which will go on blockchain.” Coexistence, integration and interoperability are three key principles are need to ensure that financial services reach the true potential of blockchain. Cyptocurrencies have really gained much popularity as a number of institutions move towards adopting bitcoins, ethereum, and other forms of cryptocurrency. In June, the Monetary Authority of Singapore completed the first phase of a project involving the development of a tokenised version of the Singapore dollar (SGD) on an ethereum-based blockchain. “The potential of cryptocurrency, which is the tokenisation version of the blockchain, is tremendous and we're just in the beginning,” Mike Kayamori, co-founder and chief executive officer of Quoine Corporation said. “When you look into future there is going to be time when cyrptocurrency will not touch fiat,” he added. Indeed, digital currency as well as other technologies could open up a lot of possibilities within the financial services industry. There will be a time that the industry will reach a conversion point where those who are innovative and adaptive will strive, and those who not will be left behind by the so called “market disruptors”.
