Bank of England launches task force to tackle outdated post-trade systems

The report from the UK central bank found that financial firms are spending upwards of $20 billion a year on post-trade processing systems alone.

The Bank of England has made moves to establish a new task force aimed at identifying and tackling outdated post-trade technologies.

In a new report from the UK central bank, it found that financial firms are spending upwards of $20 billion a year on post-trade processing systems alone, and less than a third of FinTech investment is spent on the middle and back-office.

“The pressure of technological change is pertinent to the post‑trade system where industry‑wide our capabilities are likely lagging our potential. There are obvious cost benefits in simplifying. But if you look at the kinds of innovation the sector has seen since it built the systems on which it runs, it is clear that there are also opportunities to take advantage of the benefits of new technologies and functions,” said Dave Ramsden, deputy governor for markets and banking at the Bank of England.

The Bank of England’s Post-Trade Technology Market Practitioner Panel was set up last year, after former Governor Mark Carney set out the central bank’s priorities to use new technologies to improve the resiliency of the overall financial system.

The panel consisted of senior post-trade leaders from firms such as BlackRock, Goldman Sachs, JP Morgan, State Street, and others, which analysed the current pinch points in the trade processing and their causes, and explored three use cases for potential reform.

These included standardising client onboarding and data collection for onboarding; streamlining margin processes for uncleared products; and improving non-economic data. To encourage the rollout of these standards, the Bank of England has created a new task force that will explore further review the post-trade industry.

“The panel has decided to launch a Post-Trade Task Force to explore the scope for moving from discussion to action, including a review of the co-ordination mechanisms available to implement next steps for the industry,” said Andrew Hauser, executive director for markets at the Bank of England and chair of the panel in the report.

The report also explained how COVID-19 has underlined the importance of technology in ensuring the continued functioning of markets. Last month, the UK Financial Conduct Authority (FCA) stated in its Business Plan 2020/21 that the Coronavirus crisis has accelerated its digitalisation agenda and plans to introduce a new digital regulatory reporting platform.

“Slow or incompatible systems can pose real risks to operational resilience: an issue of great importance to firms and regulators, as we have been so vividly reminded in recent months,” Hauser added.

The crisis has highlighted the benefits of end-to-end automation and the digitalisation for post-trade processes, and regulators may take a more active approach for digitalisation to take off.