How history will influence the future of the financial services
When you look at the financial services, there is a tendency to think that the past and yesterday are interchangeable. It is not really the case. The financial services move forward through hundreds of incremental improvements every day, coupled with the occasional seismic change that is often mandated by a scandal, a regulator or even a pandemic. What we had before the Covid-induced lockdowns was totally different to what was in place a decade ago. The interesting thing though is that what comes next is likely to be influenced by what has gone before.
If you were a trader in any of the world’s major financial centres in 1990s, the weather might change but your working environment would have been remarkably constant. Your skill and value was based on your network, your understanding of the interaction between basic maths and the news cycle, and your ability to think fast and spot a turn. A healthy dose of testosterone and a mild addiction to adrenaline also helped. You’d spend your days dividing your focus between a Reuters Equities 2000 screen and a phone, and your nights swigging champagne and playing spoof to try and get some else to pay for the next round.
Spoof is a simple game where each player has to guess the total number of coins their fellow players have in their hands (generally up to three). Each player makes a guess at the total number of coins being held and the person that guesses correctly wins and doesn’t need to participate in the next round. The last person left in has to get drinks for everyone.
Apologise later
Ten years later and professionalism, advanced maths and computer modelling had started to take over. Trading desks were shrinking as technology automated first the back-office, then the mid-office and finally the trading itself. By the end of the new millennium’s first decade, headcount in the financial services had been quietly whittled down, the city bars were being replaced by sandwich and sushi shops, and spoof was played so rarely that people were having to consult their phones to remind themselves of the rules. The financial crash of 2008 accelerated the change.
Old traders retired (or were retired) to their suburban bolt-holes where they divided their time between parent/teacher meetings and a multiscreen set-up in the study. As time has gone on, they have tended focused more on trading crypto than equites and FX. Different game, same rules.
Returning from the wilderness (AKA suburbia)
These days, if you look closely at the most innovative organisations in the crypto sector, many of the leadership teams are actually comprised of people that used to belong to a financial services organisation.
Twenty years ago, these people would have had a clear career path through the financial services: do their time on a trading desk, have an innovative idea, take it up the leadership chain for their buy-in, either set up a desk within the organisation or spin something out with the parent company’s blessing and reap a percentage of the rewards.
The modern paradigm has these people setting up or joining innovative crypto companies. This means that crypto organisations in the financial services sector are set up completely separately to the banks but have leadership teams that potentially know how to innovate their way around their established competitors. This could have a significant impact on the way that the sector develops over the next few years.
Spoof: the next generation
This plays into the fascinating stand-off between the crypto sector, banks and regulators.
The crypto sector thinks it has an innovative new way to create and manage wealth using distributed ledger technology (DLT) but is aware that engaging with regulators could constrain its ability to innovate. The banks fear that DLT could make the playing field less even, that crypto organisations are unconstrained by the regulatory expectations that the banks have to adhere to and as a result crypto is starting to eat into their profit without having to act with the same level of responsibility. The regulators meanwhile, are concerned that the crypto sector is potentially rife with the types of risky and possibly even outright corrupt practices that they like to think they have all but wiped out of the traditional financial services sector.
The pandemic has given people a lot of time to think, and we are about to witness a significant acceleration in the wave of DLT-based innovation that was already coming from the crypto space. All three sides need to sit down in good faith and develop a fair framework that works for innovators, incumbent businesses, regulators and ultimately the taxpayer so that we can all enjoy the benefits that crypto could be offering.
Of course, just to complicate matters, several of the regulators are in subtle competition with each other as they strive to encourage business to come into their spheres of influence (as we discussed in my last article on special purpose acquisition companies (SPACs) [LINK]). This means that the regulators as well as the banks and the crypto innovators are in healthy competition with themselves as well as each other.
Several sides sitting down and trying come to the best agreement while simultaneously guessing what the other has in their hand? It turns out that the traditions of the game of spoof live on.
About Marco Quacken
Marco has a passion for business development that helps projects succeed and businesses flourish. With a global network of contacts, he brings teams together, matching expertise to requirements and implementing strategies that help good ideas grow into sustainable businesses. He has experience across a range of sectors including finance, real estate, technology, advertisement, automotive, consumer goods, energy, retail, sports and telecommunications.
