FMIs and their current operating environment

Thought Leadership

The Covid-19 pandemic has rapidly developed into a generation-defining crisis, with profound impacts on public health and global economies. Financial markets have experienced the highest volatility on record. The turbulence seen in the oil sub-sector is a powerful illustration of Covid-19’s capacity to lead markets into uncharted territory. No one can confidently predict the duration of the Covid-19 crisis but it is clear there will be no quick fix. Governments, businesses and societies at large have been forced to adapt and there is broad acknowledgement that some of these adaptations may be here to stay.

Focus on FMIs

As our financial markets and the foundations of our economies undergo this rigorous examination, the spotlight inevitably falls onto FMIs. FMIs sit at the very heart of our capital markets and play a pivotal role in ensuring that they continue to operate effectively. How well (or badly) FMIs respond and adapt to this crisis will have major implications for the financial markets, for the real economy, their reputations and continuing success.

The past ten years have been transformational for FMIs. This was driven by the regulatory response to the 2008 financial crisis and the deeper integration of European capital markets through multi-year programmes such as T2S. These initiatives have increased competition, with new entrants at each level of the value chain. In response to this increased competition for their core businesses, incumbents have sought to diversify their revenue streams, driving a cycle of merger and acquisition.

Since 2008, the FMI sub-sector has consistently outperformed broader financial services. The regulatory push towards on-exchange, central clearing and the increased appeal of capital markets in an environment of persistently low-interest rates, have created favourable market conditions. It is reasonable to expect that FMIs will also suffer less short-term financial impact than banks and other financial institutions as a result of Covid-19. However, they are not immune to the impacts of a significant economic downturn, nor the threat posed to their core business by new entrants.

How have FMIs responded?

In these turbulent times, FMI’s highest priorities will be to ensure business continuity and to protect the well-being of their staff. They will be mindful of the human impact of the crisis, with working parents balancing their competing professional and domestic duties and all workers experiencing disruption and uncertainty. FMIs have coped well so far, demonstrating their preparedness and the resilience of their technology and their people. The significant regulatory focus on business continuity over the past decade, has proven its value in the current circumstances.

This prioritisation of business continuity is likely to come at a cost; namely, reduced capacity to deliver change. This is likely to be compounded by the lower efficiency of mass remote-working and increased pressure to control costs, in this uncertain economic environment.

FMIs have experienced a significant regulatory burden over the past decade and that is unlikely to diminish in the near term. Regulatory deadlines are likely to be extended in some cases, due to the impact of Covid-19, but those delays may be needed to ensure timely compliance and will not release significant internal capacity. Halting discretionary change and focusing only on compliance initiatives may be tempting, but to do so would be short-sighted. Investing in product and service development, agile transformation, operational efficiency or other business initiatives, while meeting compliance obligations, is a balance that all FMIs must strike to remain competitive and continue to deliver value to their shareholders.

Our predictions

In the current climate, obtaining budget for discretionary initiatives will be harder than ever. Furthermore, there will be heightened intolerance of cost overrun and/or unsatisfactory benefits realisation. FMIs must identify the initiatives that will deliver the most value, build robust business cases to secure funding, and manage programmes well to ensure that expected benefits are realised and costs are controlled.

At Projective we have a wealth of FMI experience and are trusted by our clients to tackle these complex challenges. We’re helping them to build or optimise their programme management functions, leveraging our methodology expertise and significant practical experience. We’re working with them to construct and prioritise their change portfolios, ensuring alignment with corporate strategy and focusing on creating value for their business. Not least, our seasoned project and programme managers are working with our clients to define and deliver successful change across business-led and regulatory initiatives. If you’d like to hear more about our experiences and the value we can bring, don’t hesitate to connect.