The decade ahead: unthinkable (but not impossible) forecasts: Market Structure & Regulation

June 22 2020

Phil LloydHead of Market Structure & Regulatory Customer Engagement

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Phil Lloyd Q&A

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If the coronavirus crisis taught us anything, it would be that the future of the world can turn on a dime and anything is possible. Phil Lloyd gives us his takeaways from recent months and in his wildest imagination, what might lie ahead for the next decade. 

How has the coronavirus crisis disrupted the market infrastructure?

The way that the banking and investment industry has responded, adapted and performed during the coronavirus crisis has been surprisingly positive. To have almost everyone work from home across the entire world, whilst navigating the most unparalleled market conditions we’ve ever seen, really is a big feat. In fact, markets have been functioning really well. The path of electronification we are already on has probably been accelerated because of the virus, and this will lead to greater tech-enabled business and automation in our industry.

What about the regulatory agenda?

Many regulatory milestones had already been pushed out including Margin and MIFID II[1] consolations/lobbying, among others, and some for different reasons entirely. However, you can’t give more time at the cost of the market not moving forward, so therefore each regulation is being taken on a case by case basis. A go-live date for a regulation can be flexed, but the end states for market reforms like LIBOR[2] and Brexit seem to be staying on track, though some of their shorter milestones have been delayed. And then on a broader level, we’ve seen a de-regulation of sorts for the coronavirus crisis. The leverage ratio has been altered to enable banks to lend, for example. 

Why aren’t the deadlines for LIBOR changing?

For market-driven transactions like LIBOR, the regulators aren’t really in a position to flex those deadlines. It could open up a Pandora’s Box of sorts, because the reform has a global eco-system of its own and involves an education process for the entire industry, so a deadline shift could risk market disruption. It’s a fine balancing act. Specific technicalities such as fall back rates being priced in now means that the deadline can’t easily be moved for fear of unintended consequences. Moving away from LIBOR is absolutely the right thing to do because it is not fit for purpose. It might be more complicated now because of coronavirus with some perhaps having less time to transition, however the greater good is still to keep to the deadline.

Will we ever go back to ‘normal’? What is ‘normal?’

Normal is to service our clients so that they can serve their customers and society — and this will stay as it is. But of course, some things will change. On the surface there will be more trust, such as working from home and taking an hour here to there to drop kids off at football or cook lunch. But we’ll all be required to demonstrate how and when we’re working at different times. What that looks like we’ll have to figure out (I’ve got some ideas!).

Deeper down, there will be other more fundamental changes that will shape our new normal. On the one hand, we could see a different approach with regulation. If it loosens, we will have to see increased transparency and margin compression to offset the balance. On the other hand, operational changes are likely to take place too. Lots of CEOs have been announcing that they don’t need big offices any more, but IT and technology costs might increase to enable remote and flexible working. And we can’t forget this now quite well-established emphasis banks have on morally doing the ‘right thing’ – be it best execution or fronting costs to reform the market –  but now at a wider level, serving society has become even more important during the coronavirus crisis. Surely this will bring about a cultural shift and a new moral compass. The onion is still an onion, but when you peel it back there will some different coloured layers post-crisis. In some respects this links nicely to the focus on our organisation being ‘Purpose’ led.


[1] The Markets in Financial Instruments Directive

[2] The London Interbank Offered Rate

So do you think that the aftermath of the coronavirus crisis brings a new dawn for banks especially?

Is it totally wacky to think that with rising populism over the last decade, we could get to a point where society is ready for a full socialist agenda having had nationalist priorities accelerated by the coronavirus crisis? I wonder whether this would see more services become nationalised — ending up in an entirely state-run society where previously important things like profiteering are no longer a driving force.

The coronavirus crisis may also step banks into a new dawn. An acceleration of tech savviness, automation and machine learning could pave the way for evolved relationships with regulators. Whilst banks may not become entirely deregulated, we could genuinely see looser regulation with the role that banks play shifting over the next decade. I’d like banks to eventually be recognised as a working partner alongside the regulator to support society. The way that banks have been able to help provide funds to society and bolster the economy during the coronavirus crisis demonstrates just how much of a partner they can be when operating in the right way.

A good example of this potential future state is when European regulators tried to control foreign exchange (FX) spot, despite it being considered an area of the market that, because of its digital operation, didn’t require regulation measures. The industry lobbied back with an argument that put the FX Code of Conduct centre stage as the solution rather than more stick like regulation. So do we move to a space where the right culture and way of doing business is enough to stay between the lines? Most importantly — it is robust and it works. That gives me hope that we could get to a less-regulated state.

You mentioned the new-generation workforce — tell us more about that.

The new-generation workforce coming up through the industry, and those set to join us over the next decade, are very different to the bankers of the pre-2008 era. On the whole, millennials and the generations that follow are driven by quite different priorities and have different skill sets. They tend to prioritise transparency, equal pay, work-life-balance and ESG (environmental, social and governance) principles more. And they are often better skilled in technology, social media and digital systems, for example. This is all contributing to a significant culture shift within not just the banking and investment industry, but the working world — and these qualities have played out especially well in the coronavirus crisis. Lockdown has found new pockets of value and I think you may find certain people coming out of this crisis being valued more, less, or just differently, than they were before lockdown. This could well re-programme our current commercial value system. Could tech skills challenge traditional value factors such as age, experience and the old adage ‘it’s not what you know, but who you know’? I think so.

For instance, I suspect people with skills in electronic trading and digital platform development will be valued even higher when the dust settles post-crisis. Those who are great at content will also shine more in the next decade, I expect. Providing market colour and insights, distributed in different ways, rather than relying entirely on traditional methods such as phone calls, face-to-face meetings and big presentations at conferences, for example, will be of higher value — something that has been really important during this crisis.

How will these changes affect workplace demographics?

As our views on value change over the coming years, we could see a levelling of the playing field for millennials and the generations that follow, especially in in terms of pay, seniority and recognition. For many industries there is a huge discrepancy in pay for younger and newer staff. But the skills gap and new pockets of value emerging from lockdown may accelerate change here. And given younger generations prioritise equal pay and fairness highly, might higher salaries become essential to retain and attract talent? Perhaps we’ll see a shift in wealth, with 20% taken off the most paid and redistributed to those at the bottom who are more skilled on a relative basis.

Those who can’t keep up or aren’t willing to change with the times and upskill are genuinely at risk of being left behind. Maybe a new trend will emerge seeing those finding it hard to keep up move into advisory roles. 45 is probably too unthinkable! But early retirement could become more common place again. It could drive older generations to move out of their industry earlier to spend their 50-70 years doing something that’s more meaningful to society such as teaching life skills — and this would be a great thing.

Is remote working here to stay?

For centuries, large cities have held a concentrated level of intellectual capital and jobs attracting people to relocate or commute for the opportunities and higher salaries. Many city-based jobs like mine require huge amounts of business travel and hotel stays — in fact I was due to be in a different city most weeks this year for client meetings. Will any of that be necessary now that we’re all used to remote working and even more focused on health and ESG? Why can’t I sit in Cornwall operating as I am now? Frankly I’d probably have a better conscience and a better work-life balance too, thanks to my lower carbon footprint and all that sea air…

The crisis has already proved that personnel, real estate and travel costs can be drastically slashed with remote working. The need to ‘convince’ employers of its effectiveness or value-add is gone. The tide has turned for remote working and it will increase, that’s a given. In fact, many companies have already ended leases for large offices spaces in cities in anticipation of their new remote working policy. Cities will always have tourism, but their role as homes to big business and the top jobs? It’s tough to say at this stage whether that will ever go back to pre-crisis levels. Ghost towns? Probably not. But I do expect that cities will become less populated, especially in the next couple of years.

How will existing business infrastructure need to flex in order to support these new cultural and technology shifts?

Remote working will bring greater freedom to employees and employers. It’s likely to help diversify the talent pool, but this could bring different challenges and costs. This shift will very likely require some sort of employee data tracking policy to help monitor productivity, or for some other reason. It’s a concept we will need to get comfortable with. Regardless of the motive, this will ironically, bring about a lot more transparency around what we are doing and could be a great thing for many industries especially in terms of trust and auditing.

Data on the whole will become even more important than ever before. As we spend less time with people in the flesh, metrics on how clients engage or respond to our digital content for example, will become critical to day-to-day business. Data will need to be able to go deeper and offer more insight to help us better target prospects and go beyond vanity metrics such as likes, dwell time and shares. This is another area that is already improving, but the crisis will accelerate its progress.

Decade ahead
Market infrastructure & regulation

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