The Broker Club Conference 2024 - Report Preview
The Future of Broking
On 2 May, 2024, GreySpark Partners attended The Broker Club’s third annual conference, The Future of Broking.
The Broker Club is an active community for brokers operating within financial/capital markets. It focuses on providing insight, knowledge and education around market regulations, standards of best practices in compliance, conduct and culture, as well as technology and market innovation.
The event saw industry participants across the buyside, sellside and digital assets ecosystems gather to share expert advice and opinions on the most pressing technological and regulatory issues currently facing the capital markets industry.
Below is a preview of our Broker Club 2024 report, which will be available here on Substack and our website in due course.
It is no exaggeration to say the past year has been one of the most tumultuous that global capital markets have ever seen: inflation has stubbornly persisted in the post-Covid era against a background of rising geopolitical tensions, soaring business costs, and supply chain bottlenecks. Conflict has extended beyond the Russia-Ukraine border and into the Middle East, with the Israel-Hamas war continuing to send jitters through global markets. Inevitably, sticky inflation has necessitated ‘higher for longer’ interest rate policies from central banks, creating significant credit risks, hampering demand from borrowers, and leading to drastic cost-cutting measures across the world’s largest financial firms.
More stringent, risk-averse regulatory agendas are now prevalent across several jurisdictions. For example, financial firms in the EU are currently gearing up for the Digital Operational Resilience Act (DORA), effective in January 2025, with regulators demanding more robust IT risk management, incident reporting, and resilience testing measures from financial institutions in the face of growing economic shocks. In addition, financial institutions, globally, are preparing for the requirements of the Basel III regulations, which will require larger liquidity and capital reserve commitments for banks across 27 jurisdictions to boost stability and reduce systemic risk. The EU has an implementation date of January 2025, with the UK and US following in July 2025. The expected reduction in global liquidity levels, coupled with the rapid reduction in the Federal Reserve’s balance sheet after its post-Covid firefighting measures, could potentially affect broker activity and create a need to diversify into other assets or drive economies of scale to remain competitive.
At the same time, regulatory agendas are evolving at breakneck speed as legislators seek ways to bring proliferating technology developments, such as generative artificial intelligence (GenAI) and cryptoassets, into line without stifling innovation and creating confusion. On both fronts, the EU has been trailblazing the regulatory landscape, coming up with the first comprehensive regulatory regimes for both sectors. The EU AI Act gives an early indication of how AI regulations will be directed towards protecting consumers, while the EU Markets in Cryptoassets Act takes effect in December 2024 to regulate the issuance and trading of cryptoassets.
From a structural standpoint, disruptive technologies, including AI and crypto, are challenging brokers who must now carefully consider to how they can use and integrate these technologies into their workflows, not only to ensure efficiency but also to stay relevant to the changing demands of their clients. In particular, the rise of large language model-based (LLM) GenAIs like ChatGPT has opened a new world of possibilities in terms of data extraction and analysis, although biases and ethical concerns must be addressed before the institutional use of GenAI really takes flight.
In terms of crypto, brokers should consider to what extent they extend themselves into the crypto space in terms of providing crypto liquidity and the degree to which blockchain technology, which is of course native to the crypto industry, should be used to facilitate traditional finance workflows such as trade settlement and custody.
At the heart of all these challenges – whether technology- or regulation-based – lies the perennial problem of data. What data is gathered, in what format, from which sources, how it is used, and how clean and accurate the data is are ongoing concerns, but they grow ever more pertinent as regulatory reporting requirements increase. Already this year, JP Morgan’s $350 million penalty charge for deficiencies in its monitoring of trade data has served as a reminder to the rest of the industry of the importance of having data management frameworks in place. The extent to which a broker can (or should) use cloud-based solutions or legacy infrastructure for its data results in a balancing act between cost, security, and usability.
Looking ahead, capital markets participants are faced with the prospect of pressing on in a state of flux: the transition to a new T+1 trade settlement period in the US promises widespread operational and structural makeovers, with the mitigation of counterparty risks very much the order of the day. Alongside this, the unstoppable integration of digital assets such as cryptocurrencies and tokenised securities will continue to revolutionise capital markets infrastructure and bolster efficiency.
On top of these issues, roughly half of the world’s voters are going to the polls this year, creating uncertainty, heightened volatility, and the prospect of fresh regulatory and market developments.
We look forward to the release of the full report.