A Capital Markets Industry Perspective: COVID 19

Capital Markets Perspective on COVID-19: Navigating the human and business impact April 2020 COVID-19: What to do Now, What to do Next NOW NEXT 1

The COVID-19 pandemic is a profound health and humanitarian crisis that massively challenges the financial and operational resilience of the global capital markets industry. The outbreak has initiated a call to action for leaders worldwide to rapidly assess the fast-changing developments, and to mitigate the ensuing impact on their people, their customers and their organizations. Drawing on our insights from working with firms across all sectors of capital markets around the globe, we believe this unprecedented set of challenges should be addressed in three phases: stabilization, reconfiguration and recovery. 2

Stabilization: what to do now The global capital markets As we learned from prior systemic shocks, the global capital markets industry is a highly interconnected have continued to function and sometimes fragile ecosystem. Working with regulators, governments and trade bodies, industry well through the current players must collectively identify points of dislocation and react accordingly to prevent economic contagion and dangerous “beggar thy neighbor” behavior. The industry should be providing funding period of significant market and liquidity to ensure that the global markets, specifically the credit markets, continue to function. volatility, interest rate cuts One might want to call this “achieving ecosystem resiliency”. and diverse global stimulus Each underlying segment of the global capital markets industry, from investment banks and wealth managers to asset managers, will have to play a critical role as a systemic stabilizer for their customers, packages. The immediate their employees and their economies at large. priority now, however, is to Institutional and private investors have complex investment portfolios with multiple participants, many prevent the public health of whom will experience simultaneous stress. Consequently, the industry needs a holistic view on crisis from becoming an potential weak points to avoid spreading that stress to other market participants. enduring financial crisis. In our view, how the industry deals with delinquency and credit impairment within these portfolios will be important for the unfolding, larger economic effects. If they try to sell assets too quickly, this could lead to further economic shocks. While those institutional and private investors will have to stabilize their impacted portfolios, they will also need to quickly develop and implement cost optimization strategies to protect their franchises. More broadly, we feel the industry also needs to ensure that the fundamental tenets of crisis management are in place: being clear about intent, starting the mission, allowing flexibility to revise the plan and adjusting as necessary. This approach should bring to life the even more agile ways of working that many firms have already adopted in recent years. 3

Reconfiguration: what to do next We believe industry players should focus on three key areas: As a second step, the industry will need to adapt to dramatically changed priorities and will have to reallocate resources accordingly. While it remains to be seen whether these developments will be temporary or structural in 1. Operational resilience, nature, the core of this reconfiguration phase will require a clear focus on delivered at scale execution and implementation. A core challenge will be the pivot from a period of sustained growth to a world where credit and market risk management, cost optimization and digital engagement will dominate as the global economy lurches into recession. The capital markets industry will be called upon to innovate, develop and 2. Leadership resilience, implement immediately accessible solutions for liquidity and efficient spread throughout the firm functioning of markets. Simultaneously, firms need to ensure that their core business models survive and thrive beyond this market crisis. 3. Bending the cost curve, enabling the firm of tomorrow 4

Operational resilience, delivered at scale The global capital markets infrastructure has been tested throughout this crisis with unprecedented volumes, the move to fully electronic trading floors, remote trading operations and the need to keep markets orderly and liquid. Up to now, the industry has performed across the board and stepped Business will not likely return to the way it was pre-pandemic. Leaders up to be part of the solutions required to mitigate financial impacts, across wealth and asset management and investment banking are now maximize access to credit and capital and keep our world’s realizing that electronic, remote and digital connected ways of economies functioning. working can be successful. This crisis will, however, further accelerate the industry’s need to We believe this will change the notions of large trading floors, base change and adapt. To thrive tomorrow, we believe firms need to move assumptions of infrastructure requirements and lead to a redesign of to the technology architectures of the future. This call to action will operating models and business flows. For example, one firm we know separate the truly agile from those who might continue to suffer from an has activated its “continuous improvement team” to document all its ever-increasing legacy technology burden that will likely limit growth. operational processes during this time of crisis to immediately identify opportunities for re-engineering later. There is clearly an opportunity The market infrastructure providers are already among today’s winners to learn from this experience and prepare for unforeseen obstacles. because of, not in spite of, their hulking legacy mainframes that are able to maintain business as usual. However, we assume the winners in the next period will likely include investment banks, wealth and asset managers, software providers and major service suppliers who are investing to modernize. 5

Leadershipresilience As capital markets firms are working to further stabilize their businesses, it is more essential than ever for leaders to communicate with their people and their clients in an authentically compassionate, caring and confident way. Nearly all companies are still thinking through how to change their ways For the first time, colleagues are seeing true glimpses inside others’ of working for the future. However, waiting to have all the answers before personal lives—including children, pets or even taste in art. Some of communicating leaves people uncertain and afraid. our clients have shared that they have seen conversations Leaders who regularly and candidly communicate to their employees, becoming much more honest, making a genuine connection, when someone asks how they’re doing today. regarding what they know and don’t know, highlight authentic vulnerability that—by and large—resonates with all employees. This This human touch in today’s virtual world continues to highlight and display of vulnerability is further exposed through the current new ways illustrate the radical changes across the pervasive digital of working and communicating, most often over video chat. engagement environment. 6

Spread throughoutthe firm Wealth managers, in particular, need to emphasize the human element in this crisis and function as true and trusted advisers to their clients. This requires firms to provide authentic digital engagement, the likely redeployment and retraining of staff at scale, while also ensuring that firms self-assess and meet their fraud, KYC and other compliance priorities. The wealth management sector should appreciate the financial inclusion Radical changes like the new pervasive digital engagement model, and financial literacy components of current actions to ensure equity internally and externally, call for bottom-up adoption with a top-down across all client segments. Nonetheless, the very nature of wealth strategic articulation of the future, with a focus on tomorrow. management (safeguarding client assets) remains unchanged and is For example, new pricing models (e.g. subscription-based wealth perhaps even more critical in today’s environment—players should not advice) and new offerings (e.g. robo-advisory offerings) demand firm- lose sight of their core mission. wide coordination and adoption. Leaders cast shadows and they Successful leaders will leverage this time of instability to not just return ultimately shape tomorrow’s digital and personal engagement models to business as usual but also seize the opportunity for experimentation for clients and employees alike. and innovation. As both clients and employees are anxious and vulnerable, think of offering them something more purposeful to work towards and new solutions. Underpinning this is leadership—part personal, part professional, part a new leadership paradigm—that is balancing today’s planning, tomorrow’s execution and a personal touch. 7

Bending the cost curve It is critical to note that surviving and thriving means being reflective There’s no denying that and open to treating the crisis as an opportunity, including: many companies will struggle through these times, and many players Creating a within the global capital Serving customers Delivering products competitive cost and partners in and services that and operating markets industry will face new ways. drive market advantage from significant revenue and differentiation. challenging cost challenges. situations. This is a real opportunity to innovate your business operating model and to fundamentally bend the cost curve to emerge stronger, faster and better than before. Capital markets are inherently flexible, dynamic and resilient, and firms can be too. What we are seeing is something beyond separating noise from signal. It is the very nature of signal itself. Loud and resounding, it reinforces the pervasive nature of digital engagement, advanced technology and analytics, and it delivers a simplified and cost-effective core operating model. 8

Enablingthe firm of tomorrow With restricted travel and social distancing in place, companies will now have to revisit sales You may be asking: “what models and interactions with clients and investors. Omnichannel and ecosystem strategies that should I experiment with?” are more prevalent in retail and commercial banking will rapidly become embedded within the Leaders could leverage new capital markets sector. These models are likely to shape a future playbook that optimizes the real technologies—including estate footprint and mitigates sales and travel expenses, while maintaining the client experience. applied analytics, artificial One result is an even stronger focus on the value of central bank digital currency and distributed ledger technology, and their respective abilities to drive both efficiency gains and new products and intelligence, machine learning markets in our industry. This brings significant opportunities to differentiate in a post-pandemic and distributed ledger landscape across multiple industry pieces: technology—in very different ways to drive efficiencies, Digital versus Digital assets Inherent security enhance productivity and payment of creating fully and transparency tokenized assets digital markets, with the potential improve resilience and versus tokenized with an ability to to redesign AML competitiveness. cash to simplify better manage and KYC functions. trading flows. collateral. This is already playing out in many of our client discussions, as US dollar availability is strained globally due to the pandemic. Many recognize the potential in future scenarios where a central bank digital currency, a “digital dollar”, could more easily be moved cross-border and fulfill demand. 9

Recovery:what could be ahead As the world emerges from this period of disruption, the capital markets industry will have a critical role to play in enabling the flow of capital to allow a quick rebound once the dust settles. We expect, however, that significant consolidation may continue within and across global industries. Just as the capital markets industry needs to pivot for short-term cost management, it also needs to elastically pivot to support and drive growth. The fact that technology is playing an important role in mitigating the impact of the crisis is also an opportunity for the industry to become more innovative and more efficient. We also expect to see leading firms drive new operating models with differentiation, durability and cost-effectiveness at their core. Aligned to a new environment, players will leverage analytics, intelligence and data to realign sales, coverage and products, and could also look to deliver a compelling customer experience more cost-effectively. How? By leveraging the inherent operational resilience and leadership with a relentless client focus. One side of the coin mandates checking computer and IT infrastructure’s resilience and remaining absolutely vigilant about cyber risk. The other, matching the right technologies with the right cost structure, with an eye on mitigating any future black swans. 10 Copyright © 2020 Accenture. All rights reserved.

Potential changes to business models The industry, as a whole, could actively consider decentralization strategies including core processing, operational customer lifecycle management, and security and identity management. What are the implications Asset managers could consider new opportunities from using advanced analytics and digital engagement to drive for specific capital a distribution advantage while fundamentally lowering their markets segments and operating cost through modern technology platforms. their business models? Wealth managers could investigate how to incorporate How could firms benefit? true financial literacy and wellness into their advice relationships to retain and win new clients. Sell-side firms could look for differentiated potential in data and analytics to enable the trading business of the future. Market infrastructure players could further advance their infrastructure modernization agendas, learning from this period of unprecedented volumes. 11

NOW Looking ahead There is a clear history of asset prices bottoming before the associated defaults, delinquencies and failures start to improve. The inherent resilience in the global markets and the drive to return to normalcy is still very much intact. At the same time, the shift to analytics, data, technology and cost resilience is highlighted even more now. We should take comfort in the resilience of modern economies and the ability to adapt to shocks to consumption and outputs. This is part of a new chapter. It is a story about the art of the possible. NEXT 12

Contacts Michael Spellacy Matt Long Laurie McGraw Nicole Bodack Soichiro Muto Senior Managing Director, Lead – Managing Director, Lead –Capital Managing Director, Lead –Capital Managing Director, Lead –Capital Managing Director, Lead –Capital Global Capital Markets Markets, Europe Markets, North America Markets, Growth Markets Markets, Growth Markets [email protected] [email protected] [email protected] [email protected] [email protected] 13

To help our clients navigate both the human and business impact of COVID-19, we’ve created a hub of all of our latest thinking on a variety of topics. Each topic highlights specific actions which can be taken now, and what to consider next as industries move towards a new normal. From leadership essentials to ensuring productivity for your employees and customer service groups to building supply chain resilience and much more, our hub will be constantly updated. Check back regularly for more insights. VISIT OUR HUB HERE 14

AboutAccenture Accenture is a leading global professional services company, providing a broad range of services and solutions in strategy, consulting, digital, technology and operations. Combining unmatched experience and specialized skills across more than 40 industries and all business functions—underpinned by the world’s largest delivery network— Accenture works at the intersection of business and technology to help clients improve their performance and create sustainable value for their stakeholders. With 509,000 people serving clients in more than 120 countries, Accenture drives innovation to improve the way the world works and lives. Visit us at www.accenture.com DISCLAIMER: This document is intended for general informational purposes only and does not take into account the reader’s specific circumstances, and may not reflect the most current developments. Accenture disclaims, to the fullest extent permitted by applicable law, any and all liability for the accuracy and completeness of the information in this presentation and for any acts or omissions made based on such information. Accenture does not provide legal, regulatory, audit, or tax advice. Readers are responsible for obtaining such advice from their own legal counsel or other licensed professionals. Copyright © 2020 Accenture All rights reserved. Accenture, its logo, and New Applied Now are trademarks of Accenture.