European banks' $77 billion budget for technology this year is outmatched by US banks' plans to spend $105 billion, Celent says. European banks are expected to spend less than a quarter of funding on new tech, focusing instead on patching old systems.
Criminals are finding innovative ways to use technology to target banks, said Colin Bell, chief compliance officer at HSBC Holdings. "We see innovation on the criminal side at a tremendous pace, and there is no question they are using technology against us, and they are doing it in a way that isn't hampered or harnessed by privacy legislation, cross-border legislation and so on," he said.
Former Federal Reserve Chairman Paul Volcker has told Chairman Jerome Powell a proposal that would ease restrictions on banks' stakes in private equity funds and hedge funds and that would narrow banks' trading limits would weaken the Volcker rule's core concepts. "The new rule amplifies risk in the financial system, increases moral hazard and erodes protections against conflicts of interest that were so glaringly on display during the last crisis," Volcker says in a letter to Powell.
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Upcoming Financial Conduct Authority disclosure rules will further increase compliance costs and exert margin pressure on active fund managers and small firms. "Critically, where a performance fee is specified in the prospectus, it must be calculated based on the plan's performance after deduction of all other fees," writes Bloomberg's Sarah Jane Mahmud.
Buy-side firms in Europe will be required to pursue sustainable strategies under proposed regulations likely to take effect as soon as next year. This will mean a change in procedures for firms and continued growth in demand for products that meet environmental, social and governance metrics.
Corporate treasury departments have felt the pullback of bank support services even as risk exposures for many companies have risen. Treasury departments meanwhile have struggled to incorporate labor-saving technology, instead managing operational activities by hand.
The recent market rotation from growth stocks to those with lower valuations has been particularly painful for hedge funds. Long-short hedge fund exposure to growth stocks has reached a three-year high at a time when company valuations have declined, according to Goldman Sachs data.
JPMorgan Chase has been reviewing contingency plans in the event of an interest-rate decrease to zero or lower, CEO Jamie Dimon says. Dimon says that he does not expect this to happen but that internal discussions have occurred on which fees and charges could be revised.
UBS has been working with trading technology and communications specialist Cloud9 to deploy artificial intelligence to automate front-office functions and provide real-time transcriptions of conversations between traders and customers.
Research by the Bank of England finds that the impact of news spreads at different speeds among professionals, consumers, market participants and policy makers. This means the impact of sentiment varies.
Though Facebook's libra and other cryptocurrencies might be based outside the US, they must comply with US rules that combat money laundering, says Sigal Mandelker, undersecretary of terrorism and financial intelligence at the Treasury Department. "Whether it's bitcoin, ethereum, libra, our message is the same to all of these companies: Anti-money laundering and combating the financing of terrorism has to be built into your design from the get-go," Mandelker says.
US mutual funds' significant increase in holdings of illiquid assets during the past 10 years has raised concerns about how the funds would respond to a crisis, according to a Federal Reserve study. The funds have increased borrowing in response to rising redemptions, a trend that "could further reinforce fire sale dynamics" during economic stress, the study says.
A European Securities and Markets Authority trends report indicates that the asset management sector faces a liquidity risk which is causing the risk outlook to deteriorate. ESMA said the declining quality of outstanding corporate debt and a rise in leveraged and collateralised loan obligations is cause for attention from public authorities.
Duke University law professor Steven L. Schwarcz argues that financial firms that act as "financial guarantors" are incentivized to underestimate risk, and thus fail at a comparatively high rate. "We need to better understand financial guarantor risk-taking because of the immense size and impact of the financial guarantee industry," he writes.