In our latest 60-second interview, Shoosmiths partner Sam Tyfield shares his views and predictions when it comes to the key challenges facing the Financial Services sector in the next few years.
In your experience, what are the key areas that FS firms have relied on external support over the past year?
The key areas have been the impact on staff and business of WFH and relationships with clients. The first covers a multitude of issue, including but not limited to: who should be at work (i.e. in the office (and which office) and how to keep those individuals Covid-safe); compliance/surveillance; new technologies (i.e. staff and clients using new media to remain in contact and/or give and receive instructions); operational resilience; supervision of staff; relationships with staff generally; and staff mental health. The second covers, mainly, clients which are struggling. There have been other concerns, particularly early-on during lockdown, where market volatility or the (temporary) collapse of established correlations left market participants with huge margin calls or with monitoring systems which had to deal with so much “white noise” that it became next to impossible to identify suspicious from legitimate orders and transactions. A few examples among many were (a) the simultaneous fall in both Gilts/Treasurys and cash equities (which previously had had an equal and opposite correlation), (b) the negative price for oil futures as a result of falls in demand for physical commodities and lack of storage, (c) the rise of “memestocks” and retail market participation (which, some say, arose from people at home having little or nothing else to do), (d) the noted fall of suspicious transactions and order reports to the FCA during the first quarter of 2020 and (e) a couple of high-profile insolvencies. Firms were expected by regulators to conduct post mortems of their response to the pandemic during the pandemic.
What will be the most pressing issues facing FS firms in the next 3-5 years?
There is a slew of discussion papers, consultations and rule changes in the pipeline. Some of these relate to the events of the last year, but most have arisen from the emergence of new technology (in the supervisory, financial and regulatory spaces). The paradigm is shifting; not just because of the UK leaving the EU, which of course will have an enormous impact), and firms will need to adjust to the new paradigm (whatever that may look like). As is obvious from recent news stories, there are moves among G7 countries to review or amend international tax treaties as well. The ways in which firms interact with each other and with their clients will change beyond recognition, also: clients increasingly will feel that they are more “sophisticated” in their use of financial services based on publicly available information (such as YouTube seminars and investor messageboards) but regulators and politicians will increase their focus on the “naivety” of clients. It is not that regulators and politicians are wrong in that; it is more that they are moving a greater portion of the risk of interactions with clients to financial services firms. The FCA published recently its proposals for a “duty of care” to retail clients which placed an almost impossible burden on firms: at all times, provide a product or service to clients which is suitable for them individually taking into account each client’s behavioural bias and circumstances. Financial promotion rules are changing also. These may be incompatible with the way that clients wish to receive communications from FS firms. The foregoing leads to FS firms having to wrestle with a gap in trust from both regulators/politicians and clients. Finally, but by no means least, will be firms’ relationships with their current and future staff. Will working in the office full time ever be a “thing” again? How does a firm manage that? What about vaccinations or tests for staff?
What key changes do you foresee to the FS regulatory landscape in the coming year?
None in particular, by which I mean I do not see the regulatory landscape “settling down” to the extent one may identify a “change”: it will remain in flux. The one thing to which FS firms must get used however is the “fundamental connectedness of all things”: a firm’s “culture” (on which regulators all over the world are focusing) encompasses everything. The development of AI will accelerate, also, but firms should be wary of there being a “first mover advantage” in innovative use of AI or ML products and services; perhaps it would be better to consider early adoption as “sticking ones head above the parapet”. Firms also will need to get to grips with more powerful (and intrusive) regulators.
What impact has the pandemic had on the trading industry?
In the long term, perhaps little. If there is one thing at which the trading industry is adept it is adapting to change; of course, sharp market moves, volatility or correlation shifts may adversely affect participants in the short term, but long term, I think the trading industry will be fine. Some exceedingly clever people are involved in the trading industry for a reason. The real impact is coming (and will come) from increased retail participation in the markets and consolidation of market participants.
What is your big prediction for the FS sector?
Wholesale market participants will find themselves squeezed further into the “retail” rulebook as the lines between wholesale and retail markets blur and/or disappear. I predict some pushback.
Tell us 2 truths and 1 lie about you in any order.
- I was in Why Don’t You…?
- I have not worn long trousers in 15 months.
- I believe in reincarnation
Tell us 3 things that are on your bucket list.
- Travel overland to Samarkand
- Tavel in the footsteps of Charles Masson
- Be exhibited in the National Gallery
What would be the title of your autobiography and why?
Curry: an autobiography. With many apologies to Elizabeth Collingham, I can map my life out in memorable South Asian and Southeast Asian curries.