One of the sentiments of our introductory blog was to note that we are living through what can only be described as tumultuous, yet momentous times. The COVID-19 pandemic, ensuing lockdowns and market turbulence has transformed the world in ways many would not have dared to predict. Despite the uncertainty of 2020, one thing has been certain – the norm has been subverted, with society being forced to evolve and adapt. It is against this backdrop that we posit the transformation of operating models, technology and more broadly, the future of work.

Prior to reviewing the key market changing forces, we believe there are multiple scenarios that could yet play out over the coming months (and years):

  • The Passing Storm – relatively successful management means that pre-pandemic norms return in many areas, although not without lasting repercussions. These disproportionately affect lower and middle income individuals and communities.
  • Good Company – the role of large corporations and of the wholesale financial services industry in supporting the public response accelerates developments towards more socially engaged ‘stakeholder capitalism’. The financial services industry adopts a heightened responsibility post crisis, both economically and socially. 
  • Lone Wolves – a prolonged pandemic period, with unpredictable bouts of volatility and an extended global recession spurs governments to adopt isolationist policies. This leads to insufficient global coordination.
  • Sunrise in the East – a more effective response and better recovery trajectory accelerates a long term increase in the relative importance and influence of East Asian nations including China. Western recovery is based on lessons learned from the earlier recovery observed in the East.

Across all potential scenarios, there are underlying industry forces which we believe will drive impacts across capital markets institutions. In this post, we will explore the rapid change of operating models and technology. In particular, we will explore the following forces, likely implications and key challenges that capital markets institutions may face under each relevant scenario:

1. Rapid technology change will accelerate, challenging institutions to navigate amidst disruption

Leading observations

  • Amidst the uncertainties heightened by COVID-19, investment in technology continues to be critical to sustaining and growing revenues as well as improving margins across all asset classes.
  • The use of collaboration, communication platforms and remote-working technology has increased significantly. Investment Banking and Advisory teams have increasingly adopted technology for virtual roadshows and sales-pitches.
  • 50% of the workforce are now Gen Y & Gen Z and expect a seamless experience across multiple channels/platforms (e.g. faster onboarding) and self-service capabilities for transaction initiation, managing payments etc.
  • To initiate these seamless experiences, technology such as AI, enhanced NLP (e.g. GPT-3) and quantum computing need to be at the forefront of capital markets businesses.
  • Whilst the use of algorithmic and AI driven trading has been common place across equity markets for some time, these technologies are now starting to be used in the trading of less liquid assets, such as bonds and derivatives, which are increasingly traded over electronic platforms, rather than traditional means.

Key implications under the most significantly impacted scenarios: Sunrise in the East and Good Company:

  • Digital channels and tools that have formed the heart of effective client interaction and strategy through COVID-19 will continue to be used in tandem with more traditional client interactions.
  • Capital markets institutions that invest in better technology can be expected to gain an edge over their competitors by providing seamless service and better value to their clients.
  • The COVID-19 pandemic has accelerated the shift towards electronic execution of orders in global bond markets. However, Investment Banks and broker dealers will continue to play a significant role in these non-equity markets, ultimately leading to the creation of hybrid forms of marketplace.

Key implications under the less significantly impacted scenarios: The Passing Storm and Lone Wolves:

  • Regulators will take an increasing interest in the role of AI technologies and already expect financial institutions to have strong systems and controls as well as ultimate human oversight and effective governance over such systems.

We see the following key questions facing capital markets institutions:

  • Will institutions who do not adapt to/adopt new technologies fall behind and eventually be consumed by larger financial institutions?
  • How will the shift to digital channels, virtual roadshows, virtual listing change Investment Banking – will this be a permanent or temporary shift?

2. Systemic stability and infrastructure modernization initiatives will accelerate to enhance future resilience

Leading observations

  • Within capital markets, banks with a robust infrastructure that support high trading volumes without significant manual intervention have had a more comfortable ride through the pandemic.
  • Processes and controls which relied on four-eye checks and multiple manual hand-offs became even less efficient with full remote working, highlighting where sticking plasters have been applied to processes which could be automated.
  • Technology solutions in capital markets will continue to evolve to improve operational resilience and reduce costs, and have the potential to lead to fundamental changes in operating models.
  • It is unlikely that challenges posed by low interest rates, fee compression and increased regulation will dissipate with the COVID-19 pandemic. Financial institutions will therefore move sooner rather than later to upgrade their infrastructure to enhance robustness and secure future resilience.

Key implications under the most significantly impacted scenarios: Good Company and Lone Wolves:

  • Even after the requirement for social distancing is reduced in banks around the globe, digital channels and tools will continue to be used in tandem with more traditional client interactions.
  • Trading volumes earlier in the pandemic highlighted where market infrastructure could be made more efficient e.g. settlement and clearing platforms. Regulators will continue to push FMIs to innovate new services
  • Going forward, financial institutions will outsource more of their processing to providers who combine financial and technical benefits and leverage network effects to increase resilience and reduce costs

Key implications under the less significantly impacted scenarios: The Passing Storm and Sunrise in the East:

  • Despite the cost constrained environment ensuing from this pandemic, there is an expectation that there will be a resurgence of regulatory, technology and transformation spend in order to improve resilience and implement effective controls
  • Digitisation of post-trade activities will continue to increase with the crisis accelerating the movement towards FinTech-enabled post trade activities, leveraging improvements in technology and infrastructure. Institutions which do not keep up with the technology improvements will lose competitive advantage.

We see the following key questions facing capital markets institutions:

  • How will the pandemic permanently alter and subvert existing capital markets business models?
  • Despite the cost constrained environment resulting from COVID-19, will financial institutions make the choice to enhance infrastructure and technology resilience to withstand future ‘black swan events?’
  • What will regulators see as priorities for capital markets institutions e.g. operational resilience?

3. The future operating model will need to be refined for a rapidly deployed hybrid workforce across client service, talent management, delivery models, controls and resilience, and technology

Leading observations

  • As the world experiences what may be described as ‘second spike’ across a number of countries, financial institutions continue to make strategic decisions around workforce planning and remote working options. It is unlikely that 100% remote working will be the ‘new normal’ even as we move into a different phase of the pandemic and beyond.
  • Most are likely to adopt a mixed model with more remote working than was permitted previously but not moving to a fully remote model. This may be further nuanced by function and workforce category.
  • Banks have experienced an increased pace of change through the COVID-19 pandemic and are evaluating how the increased pace can be embedded into working models through refined governance (delayering) and improved prioritisation.
  • Unsurprisingly, COVID-19 was not well catered for in most outsourcing contracts. The pandemic highlighted the benefits of insourced arrangements, or outsourcing where there was a true “partnership” ethos and where teams leaned-in to make things work in extraordinary circumstances. Banks are examining where outsourcing failed (or nearly failed) and are taking steps to make outsourced functions more resilient – through bringing back in house and automating, or through updated SLA requirements.

Key implications under the most significantly impacted scenarios: The Passing Storm and Good Company:

  • Creating the right ‘moments that matter’ for the a truly flexible workforce including logistics of aligning on-site presence for teams to benefit from the collaboration and connectivity is a complex undertaking that financial institutions will need to work through.
  • Employee experience has really come to the fore through the pandemic; whether it be wellbeing, training, technology and/or flexibility – these are now integral components for talent retention and acquisition. Employees will value flexibility and this will move from being a differentiator to a requirement for financial institutions to stay competitive in the talent market.

Key implications under the less significantly impacted scenario(s): Sunrise in the East and Lone Wolves:

  • With increased remote working and a heightened pressure on financial institutions to limit spend, many institutions are taking a closer look at their real estate footprint and future of work strategy.

We see the following key questions facing capital markets institutions:

  • What will the future of the office look like in 5 years? Will institutions be forced to downgrade their city offices due to reduced footfall?
  • How will institutions motivate and retain their staff virtually for a prolonged period?
  • Does a rebalance of the amount of offshoring happening need to be conducted?


We note that the extent of the implications outlined above will undoubtedly depend on the severity of each scenario as well as the role of governments, financial institutions and society as a whole. It would be but a tall order to predict what the coming months and years will bring. Despite this, we look forward to hearing your thoughts on how COVID-19 could reshape future operating models, future of technology and the need for resiliency.

In our next blog, we will look at business models and how performance expectations must adapt to new realities within capital markets.

If you would like to discuss any of the implications articulated above, please reach out to one of the authors who can connect you with the appropriate expert.