Over the past eight years, the Top 10 Challenges for Investment Banks series has documented the dominant issues and priorities that have captured the attention of leadership teams in investment banks. Because the launch of this series coincided with the start of the 2008 financial crisis, much of our discussion to date has revolved around the industry’s response to regulation, compliance and capital adequacy.
In researching this year’s series, we noticed a distinct shift in focus and priorities among industry leadership. Notably, half of the challenges address the general impact of digital technology and the specific implications of financial technology (FinTech) innovation. Topics such as blockchain technology and distributed ledgers, which seemed esoteric and marginal last year, have moved to the top of management agendas as their potential for far-reaching economic benefits has been revealed, and the threat of disruption or even disintermediation has grown.
Investment banks are also increasingly aware of what is happening outside their industry. When we wrote about digital technology last year, it was in response to the industry’s desire to shape the client experience rather than developments in the broader ecosystem.1 The topic of utilities, which remains of great interest today, was perhaps the first instance of firms recognizing the importance of innovation beyond the “four walls” of an investment bank.2 The idea that the external marketplace is a source of potential solutions and threats has gathered momentum this year and found its way into multiple challenges.
While regulation, compliance and capital optimization continue to be critical issues for investment banks, management teams are approaching them in new ways. Once treated as episodic issues requiring project-based responses, they are now widely considered “disciplines” that need to be embedded in business, operations and technology functions. At the same time, many investment banks still find that they have substantive cost issues. In addition to posing a fiscal burden—as much as $20 billion for the largest investment banks collectively—these legacy environments limit firms’ ability to redirect investment to emerging innovations.
In speaking with executives, we noted three major factors driving this overall shift in interest and realized that digital technology, FinTech and the ecosystem emerging outside investment banking need to be front and center in management minds: