Choppy regulatory waters and unprecedented political volatility will result in a more pragmatic approach from capital markets firms in 2017, even as they innovate into robo capabilities, automation and blockchain.

Here are my predictions for capital markets in 2017:

Embrace Volatility

With elections in France, Germany and the Netherlands, Europe will be braced for more political change. From the perspective of capital markets, this is likely to drive activity around European currency and debt markets. Margins are likely to be higher reflecting the increased volatility over these periods, making efficient collateral management and real-time analytics a big story in 2017.

Focus on Return

Investment banks will continue to break away from asset classes that are not profitable, selling off these parts of the business. Furthermore this will be influenced by the prevailing direction of regulations from Europe and the US. 

Rise of the Robo-Bank

Banks will develop their own ‘robo’ capabilities targeted at providing assisted advice to the employee, in order to better service customers. This will raise the level of complexity, challenging fintech vendors, which are targeting the lower end of the market. The ensuing performance pressure will be a key driver for the development and progression of machine learning and artificial intelligence.

Reinvent your Business

Brokers and banks will become increasingly technology driven with many spinning off businesses and reinventing their focus, following the lead of ICAP in its sale of the voice business to focus on technology-led trading as NEX Group.

Reality Bites Blockchain

Gartner will be proven right as distributed ledger technology will rapidly go through the “peak of inflated expectations” and head towards the “trough of disillusionment” in 2017. However, this necessary shakeout will result in a couple of strong and real Blockchain deployments by the end of 2017. In addition, banks will retrench and move away from supporting multiple consortia such as R3 as seen with the Goldman Sachs recent withdrawal from it.

More or Less Regulation

The US has been promised simpler, but more linear, regulation with the repeal of Dodd-Frank and reinstatement of Glass-Steagall. If it is delivered (some election-trail promises have been softened), it would favor broker-dealer models over universal bank models, as the ring-fencing proposals in Europe also promise to do. If the G20-agreed mandates of 2009 were undone in the US, a question mark would then hang over global derivatives market structure, as equivalence would need to be revisited.

Ongoing uncertainty and mixed messages regarding the Brexit process and the new Trump administration throw several previously held certainties into the air. Continued weak profits and high costs combined with that uncertainty will drive many businesses to more adventurous innovation.

I see 2017 as a springboard for another 10 years of further radical change in capital markets – more than we have seen in a generation - due to advances in technology coupled with unprecedented political risk in the US and Europe.

It will be an interesting year.