THE FUTURE OF ROBO-ADVISOR SERVICES IN JAPAN

Technology and New Business Frontiers

Megabanks, startups, and dedicated online brokers are all jockeying to leverage their strengths in a way that accords them the most advantageous position possible. The latest iteration in the ongoing battle to be first, to move early, and to outdo the competition is unfolding around robo-advisor services and technology with a key point being which customer categories to target.

Historically, the asset management business in Japan has revolved around the relatively lower-hanging fruit: customers that have both assets and financial literacy. Moving forward, that will change. It will be important for players to expand the market’s reach to include customer segments in the stage of asset creation, namely younger generations in the midst of becoming financially literate and the senior demographic of customers with little experience with technology. Early robo-advisor movers pushing the boundaries of the market and acquiring new customers will be crucial if robo-advisory services are to gain traction and not become a fleeting phenomenon. Many progressive global examples of companies and markets are responding to diverse investment and technology needs and, in doing so, helping to boost financial literacy across the market.

The robo-advisor initiatives that have hit the market in Japan so far largely appear tailored to support the sales of mutual funds. As easy-to-use, non-face-to-face channels, they are garnering interest from investors with a level of comfort with IT and a degree of financial literacy. Moving forward, further advancements that draw on both the asset management facet and technology are expected in the following areas.

  • Diversity of products: Expanding offerings from general, publicly offered mutual funds to multi-asset classes.
  • Diversity of services: Online onboarding, portfolio management, reports, and alerts. Operation support that is a hybrid approach harnessing both existing contact centers and face-to-face channels.
  • Automation: Automated reinvestment and rebalancing. Supporting small-value and high-frequency trading.
  • Accommodating B2B: Pro-level sales support tools developed to offer the advanced features professionals want. Vendor-supplied cloud services and financial institution-supplied white-label service offerings for other financial institutions.

 

Sell Side Business Model

Overcoming the first obstacle presupposes a shift in the competition among firms marketing mutual funds. This would entail a move from the conventional model, under which they vie for short-term sales commissions, to a longer-term model in which revenue is generated from discretionary investment fees. Already, the number of wrap accounts is growing quickly as major players migrate rapidly to a wrap-account approach premised not on sales commissions but on discretionary investment fees (for investment services offered on a contractual discretionary basis that include investment choices, actual purchase or sale, and regular reports).

FIG 4: Surge in Wrap Accounts

robo4

This surge in wrap accounts has spurred debate. Observers point to issues in products, service content, and management performance; in concrete terms, this means the fee structure (major firms say that they typically charge a total of around 3% for mutual fund advisory fees, transaction and management fees, and fees related to mutual funds), minimum contract amounts (major players accept contracts from 3 million yen in increments of 10,000 yen), and investment types (wrap account-dedicated mutual funds, programs combining actively managed funds, programs combining index-managed funds, etc.). Celent would like to believe that the proliferation of robo-advisors will enhance product offerings and advice across the investment cycle overall. The advent of mutual fund sales professionals (major banks and securities brokers) adopting robo-advisory technology can be expected to be the dawn of a new technological era not solely for wrap accounts, but also more broadly for the mutual fund business and the asset management business.

Celent believes that Japan’s asset management business sector currently faces two challenges that must be addressed particularly on the sell side.

  • Information imbalance: This refers to an imbalance or asymmetry in the quantity, quality, or use of information related to investment products or services. The market is flooded with investment information. However, there is a shortage of information and advice to cut through the noise to aid in reaching investment goals and to help prospective investors select products that match their risk appetites among the vast array of investment choices.
  • Know-how imbalance: This refers to an imbalance in recommending appropriate investment products and services as well as know-how related to investor management and development. The market is awash in investment know-how. Nevertheless, there is a shortfall of accurate understanding of investor orientation and experience. This is coupled with a lack of help for investors to optimize their portfolio holdings, subsequent follow-up, and advice to achieve investment objectives.

 

Just published the new Celent reports:

Fintech and Robo Advisors: Booming in Japan

 

END DESTINATION OF THE BOOM

Robo-Advisor Services: The Road Ahead

The fundamental essence of financial system services will remain, but with innovation, the inconvenient and irrational elements of the industry will be eliminated, falling by the wayside. The first touchstone for this will likely be the battle among robo-advisor services. With Japan’s highly integrated industry, mutual funds have from the beginning grown in the context of a modular (or unbundled) business structure. In the future, the insurance industry is expected to experience a similar change. It is only natural that bancassurance accelerates such structural change.

On the demand side, robo-advisor offerings are expected to play a supporting role in particular with retail investor asset management in terms of the (PDCA) cycle (which in this context refers to setting fund management goals, selecting and purchasing products or services, post-purchase review “checks,” and ongoing action). On the supply side, expectations are high that robo-advisors will yield benefits in B2B via functions that enable support tools geared toward professionals in the asset management arena. Moreover, observers have even loftier expectations that robo-advisors can play a role in enabling the asset management market to evolve into a sounder and more cyclically sustainable market.

Celent expect that robo-advisors in Japan’s market will work to supplement investment literacy on the demand side, heighten accuracy and transparency related to information (including price, quality, and risk) about asset management products and services, and supply technology that will help to solve the incentive problems that interfere with efficient business transactions on the supply side (and the oligopoly of the value chain).

From a technical perspective, there are three important points that would make the robo-advisor initiatives become widely accepted and profitable:

  • Use of refined smartphones with easy operability and robust security, providing a high-quality user experience.
  • Ability to provide diversity of products and services, low-value and high-frequency trading support, and automation.
  • Ability to (conduct / carry out) traceability and rebalancing, where assets are vigilantly monitored, and plans can be reviewed and revised accordingly.

FIG 7: Expectations for Robo-Advisors

robo7

 

Shift to the Modular Structure

It is incumbent upon the financial industry as a whole to shift to a modular demand structure to meet new demand spawned by new digital technologies and new demand in the digital industry. Institutions should ease their dependence on vertically integrated, direct sales — that is to say, keiretsu sales channels — to establish more dynamic and open delivery models. The demands and challenges of omnichannel transcend choosing an open or closed channel; rather, these demands proffer an ideal opportunity for companies to review and reconsider the optimal delivery model for their needs. Moreover, this means that financial institutions can collaborate with a wide range of non-financial sector entities including startups to broaden access to and the scope of the market that they can potentially claim as their own.

Financial institutions should strive to become trailblazing purveyors of financial services that leverage digital technology. In the financial services value chain, areas coexist where firms can and should go it alone to generate their unique in-house high-value-added services and products as well as other areas where they stand to benefit by collaborating with other firms to thoroughly drive down costs. Also, if firms thoroughly consider economies of scale and economies of scope, they can possibly parlay their cost centers into new profit centers and play a role in the industry infrastructure by collaborating with other firms. In the actual operation, after deliberating and implementing such initiatives, big-data analytics and automation of all processes will prove key. Here as well, a shift to a modular supply structure will be required, and a critical factor in determining the success of financial institution management will be alliances — namely how adroitly they select and choose to partner with other entities.

Fintech is much more than the application of novel technology in the sphere of financial services. Rather, it portends nothing less than a wholesale structural overhaul of the financial services industry that is an opportunity to envisage anew and redefine the industry’s future. There can be no doubt that Fintech transcends the mere establishment of a digital channel. Instead, it will clearly affect products, services, IT units, and sourcing models and, in so doing, provide the financial service providers of the future a chance to seriously consider exactly what kind of companies they would like to be and the corporate cultures they would like to foster.

FIG 8: Key Transformative Points in the Financial Services Industry

robo8

 

Just published the new Celent reports:

Fintech and Robo Advisors: Booming in Japan

 


JAPAN’S WEALTH MANAGEMENT MARKET

Japan’s wealth management market differs significantly from the global market in a number of ways.

Individual financial assets are managed with an emphasis on security and primarily allocated toward deposits, while potentially highly profitable securities — in particular, equity — are not typically preferred. The asset management emphasis toward savings deposits has persisted through the nation’s deflationary phase, but with the introduction of inflation targets and drastic monetary easing, this approach increasingly makes less sense. This leaves one wondering when the tide will change and who or what will trigger a change.

In January 2014, the government introduced a new initiative to encourage a shift in behavior from saving to investing. Called the Nippon Individual Saving Account (NISA) the program is designed to support the stable growth of household assets while boosting the availability of capital available for economic growth. While a combination of macroeconomic factors — including changes in exchange rates, a rebound in stock prices, and an upturn in the economic environment — seems to have the market headed in a more positive direction, Japan’s investment market still differs significantly from Europe’s and North America’s, particularly in areas such as the diversity of the composition of individual asset holdings, the investment environment for individual investors, and investment literacy.

FIG 2: Individual Financial Asset Breakdown: Japan-US Comparison
robo2

 

Growth in the Mutual Funds Market

Against this backdrop, the growth in funds allocated to publicly offered mutual funds has been particularly prominent. In May 2015, total assets under management topped 100 trillion yen for the first time, driven by an influx of money into open-ended mutual funds. As of the end of September 2015, this had reached 75 trillion yen, up 60% from 2012. This rise has been spurred not only by market value factors (a rise in asset prices) driven by increasing stock prices and a weaker yen, but also by trade-related factors — that is, new inflow of capital. Open-ended mutual funds turned positive in the first half of 2014, and in the second half of 2015, they returned to levels seen prior to the 2008 collapse of Lehman Brothers.

Two core factors are behind the growth in the mutual funds market: increases in channels and products. Channel growth principally signifies a diversification of intermediaries and intermediary types for bringing together mutual fund management firms and investors. The market was opened to banks in December 1998. After an eventful subsequent period, the formidable growth of the banking channel has put it nearly on par with the securities firm channel. As of the end of 2015, banks’ mutual fund sales, including private placements, had reached 64 trillion yen, accounting for 46% of the market; moreover, at the same time, the banking channel has similarly diversified its collective product lineup, including the following areas:

  • General mutual funds: Typical mutual fund sales through traditional channels
  • ETFs: Brokering analogous to listed securities brokering
  • Discretionary investment mutual funds (wrap account): Brokering for discretionary investment services
  • Dedicated DC (defined contribution pension) mutual funds: Dedicated sales for defined contributions to pensions

 

Wrap Accounts

Among these, the inflow of funds into discretionary investment mutual funds wrap accounts has been particularly prominent. Following 2012, the sector saw an influx of 1.4 trillion yen in the second half of 2014, and more than 1.2 trillion yen in the first half of 2015. This flood of funds has been fueled not only by the growth of products that meet consumer needs and more channels offering greater convenience, but also due to a shift in emphasis in sell side strategy from stressing sales commissions to one putting more weight on asset management balance and performance.

Until now, retail investors in Japan have exhibited a preference for major brands and the stability associated with them, resulting in investors becoming comfortable with an investment environment with a high degree of reliance on the sell side, namely the strategies of major financial groups. Further fueling the current surge in low-cost investing, which can expect high if unstable returns, will require raising investor financial literacy, providing novel products and services, and forging new sales channels that harness technology. There is vast “blue ocean” potential here for robo-advisory services to gain a foothold and thrive in the Japanese market.

 

Just published the new Celent reports:

Fintech and Robo Advisors: Booming in Japan

 

GLOBAL TRENDS IN WEALTH MANAGEMENT

The year 2016 proved a watershed for Fintech. It saw Fintech move from discussion and concept to implementation in the real world. Below are four key global trends in wealth management, the central theme of this post.

  • Fragmentation of retail services: There has been increasing diversification among purveyors of asset management services including major securities firms, discount brokers, and independent asset management companies. These include a rich variety of services and technologies that span online and self-service services as well as technology-based advisory services.
  • Emergence of next-generation investors: So-called Generation X individuals (those born between 1961 and 1981) are comfortable with technology and have adopted an investment style that accommodates schedules with steep time constraints. Meanwhile, millennials (people entering the workforce in 2000 or later, in the US, primarily those born from 1980 to 2000) are gradually becoming the core investment demographic, with more than 80 million individuals of the so-called digital native generation emerging as next-generation investors.
  • A shift to passive investing: There is a broad market shift afoot to index-driven investing from active asset management, which has peaked and is declining. Exchange traded funds (ETFs) are emerging as the next stage of passive investing.
  • Digitalization: Investors, brokers, and asset management companies are demanding applications with greater mobility and automated processes. Key issues here include investor-broker communication, social media, social trading, and crowdsourcing.

In addition, fragmentation is occurring in the asset management sectors of mature markets. Robo-advisor-driven services are gathering greater attention as a technologically advanced, low-cost means of automated asset management in a market that is increasingly crowded with players including traditional brokers (such as banks with domestic and international networks and comprehensive securities firms), independent investment advisory firms, and online securities companies.

 

Automated Advice

The definition of a robo-advisor can be slippery, differing by service provider and analyst. For the purposes of this report, Celent defines robo-advisors as new services from financial institutions that possess the following characteristics.

  • Key features seen in 2015: The three primary features are automation of onboarding and analysis, portfolio management, and reporting. Gradually, in addition to online assistance, human customer response initiatives, such as call centers, are beginning to appear. While in principle a non-face-to-face approach, automated initiatives are increasingly being expanded and coupled with manned support and full-line support a la those conducted by traditional operators.
  • Non-human advisors: Algorithms are used to support investment and portfolio-building based on the risk appetite of customers including tax optimization, all based on a customer profile developed from an online questionnaire.
  • Easy to understand: The process is streamlined to reduce customer anxiety and give customers peace of mind by using simple, typically three-stage processes that support investors from application stage to portfolio creation.
  • Small-value, low-cost options: Caters to small-value amounts in the range of $5,000 to $25,000 with investment (automated robo-advisor) fees in the neighborhood of 0.3%. These small-value, low-cost investments are customized services but automated and do not involve any manual (human) attention.

Robo-advisor services are evolving at a rapid clip, particularly at the cutting-edge of the industry, and much of the effort in this area is being concentrated in the three areas below.

  • Easy-to-use non-face-to-face channels: Eliminate the tradeoff between price and convenience, offering services that are both low in price and highly convenient.
  • Full service investment support from onboarding to reports: Automating services will enable greater processing efficiency that allows industry players to break through existing limits in their capacity to handle small value investments.
  • Hybrid operation support catering to diverse needs and levels of literacy: Online self-help services combined seamlessly with existing contact centers and face-to-face channels.

 

Segment Targeted by Robo-advisors

Initially, the demographic segment targeted by robo-advisors was a fragmented portion of the retail investor market, but this has changed. As noted above, in North America robo-advisor services are most embraced by traditional and active retail investors (individuals around age 50 located somewhere in the mass to low-mass affluent demographic).

However, this demographic is not static. With age, experience, and increases in investable assets, the need for investment advice rises. In addition, advancements in technology and investment literacy are blazing a trail to undeveloped market areas for robo-advisor services. Indeed, investor segments such as seniors and the affluent, which have until now been largely untouched by robo-advisor developments, can be expected to increasingly hop on the robo-advisory services bandwagon.

FIG 1: Automation of Advice Market Segmentation (US)

robo1

 

Just published a new Celent report:

 

TradeTech Asia 2016

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Every year with the most influential buy-side Heads of Equities Trading and Heads of Trading Technology all under one roof at one time, this is our opportunity to benchmark our business with those that are best adapting to the new financial landscape.

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Blueprints for the Next-Gen Zengin, Part 4

It is here that Celent would like to put forth a conceptual system as an open innovation platform to realize a platform layer (rules formulated under the new framework) and innovation layers (creation of new services within the new framework). The expectation is that the conceptual system could fulfill the role of application programming interface (API) provider in the era of the API economy.

This is a theoretical blueprint envisioning a situation in which financial institutions share an infrastructure with industry—sectors including manufacturing, retail, and logistics. This will transcend B2B (business to business) to include B2C (business to consumer) such that information and data related to the daily lives of consumers will be combined through API with financial institution information, with the goal to bring technology—and through it, financial services—seamlessly into the everyday lives of consumers.

Historically, the flow of commerce and lives of consumers have been far from seamlessly connected. Moving forward, these technology and payment developments can be expected to bridge this gap by bringing the flow of money between the two closer together.

When envisioning the financial services of the future, one must ostensibly imagine services that transcend the traditional confines of financial services and that are more intimately intertwined with corporations and their activities as well as the lives of consumers. The advent of fintech continues to raise the expectations of financial services customers.

Indeed, the key to competition in financial services may lie outside the financial industry, coming from services and businesses that specialize in knowing the customer such as YouTube and Ritz-Carlton, customer behavior prediction such as Google and Amazon, or even referencing how social networking services (SNS) seek to clearly iterate their services and realize simple interactions. In short, meeting these needs and expectations can be seen as a compass that points toward the financial landscape of the future.

 

Figure 4: Open Innovation Platform

Zengin_FIG4  Source: Financial System Council, Celent

 

Just published a new report:

Payments Systems Trends in Japan, Part III: Blueprints for the Next-Generation Zengin System

 

Blueprints for the Next-Gen Zengin, Part 3

The global financial market has changed dramatically since the 6th Generation Zengin System launched in 2011. Digital advancements have been followed by additional across-the-board digital advancements, so much so that customers are no longer even slightly interested in non-electronic financial transactions. The millennial generation, weaned on the Internet and things digital, and refusing to suffer the inconvenience of anything too analog, is fueling this trend. The Arab Spring, Occupy Wall Street, and the Umbrella Revolution protest movement in Hong Kong made all too clear that financial inclusion is no longer a theme limited to emerging economies. Acute and rapid changes in digital and financial literacy are spurring fragmentation in the financial market, and centralized architecture is clearly reaching its limit if not its breaking point.

These dramatic social changes have also completely altered the financial and payment services landscape. In times of confusion and upheaval, a comprehensive conceptual framework that can guide us toward a better future is essential. Toward this end, Celent uses its payments taxonomy and payments value chain frameworks as lenses to examine evolution in the payment sector. Payments innovation is also informed by change in the behavior of payment services users and exists in the context of the payments value chain. Service providers see this field as a blue ocean, a market space ripe for pioneering new payment initiatives.

When viewing the already operational new BOJ-NET and the new Zengin System that will succeed them both from a perspective that sees them as legacy systems, this market space should be seen as red ocean, already home to intense competition. At the same time, despite the maturity and competitiveness in this area, there are challenges that include effectively harnessing the existing robust social infrastructure and continuity related to data, assets, and experience. These issues should be considered in the context of how best to make the legacy system coexist and thrive with the new system.

 

Figure 3: Conceptual Diagram for Financial and IT Network System

Zengin_FIG3  Source: Financial System Council, Celent

 

Just published a new report:

Payments Systems Trends in Japan, Part III: Blueprints for the Next-Generation Zengin System

 

Blueprints for the Next-Gen Zengin, Part 2

The Zengin System is an online data communications system that was launched in 1973. For more than 40 years, both linked entities and transaction volume have increased, and the system has experienced multiple system renewals to accommodate and benefit from advancements in technology. The existing Zengin System, officially known as the 6th Generation Zengin System, began operating in November 2011. In operating the exchange transaction settlement system, the 6th Generation Zengin System plays a crucial role as the central counter party (CCP) and functions as a system platform with an array of key features. The system is a broad-ranging network that covers all of Japan and is defined by consistently advanced levels of security and reliability.

Following the launch of the 6th Generation Zengin System, the BOJ has continued to discuss and search for ways to improve Zengin Net. In December 2014, the JBA and Zengin Net jointly released deliberation results on the Zengin System. The document called for expanded hours of operation, articulated concrete policy, and described the current state of awareness of financial electronic data interchange (EDI) in the financial industry.

Furthermore, in 2015, a working group operating under the Financial Services Agency’s Financial System Council and tasked with improving payment operations compiled the results of two years of discussions in a report entitled “Strategic Initiative for Advancements in Payments and Transaction Banking.” The final version of the document was released in December 2015. The paper contained policy priorities and concrete policy plans regarding the basic direction for the progress in payments, initiatives for the retail sector, the wholesale sector, payment infrastructure reform, and the approach to virtual currency initiatives. In the segment on payment infrastructure, the report put forth five reforms hinging on the Zengin System. It also called for fundamentally enhancing features of the payment infrastructure as well as realizing one common and integrated payment environment that caters seamlessly to both domestic and overseas transactions, and it spelled out a clear deadline for migrating from legacy environments.

 

Figure 2: 6th Generation Zengin System

Zengin_FIG2  Source: BOJ, JBA, Celent

 

Just published a new report:

Payments Systems Trends in Japan, Part III: Blueprints for the Next-Generation Zengin System

 

Blueprints for the Next-Gen Zengin, Part 1

This post series examines initiatives to accelerate the development of Japan’s payment infrastructure through the lens of the Zengin System—the heart of this infrastructure. In addition, this series distills how cutting-edge technology is being applied and imagines the evolution of the financial services landscape as we enter the rapidly evolving, brave new world of fintech, or financial technology.

***

The Zengin System is the network system behind Japan’s payment settlement system, linking domestic financial institutions online and enabling the transfer of money such as remittances between banks, including payroll. Since its launch in 1973, the system has been renewed multiple times and has grown in terms of transaction volume, connections to financial institutions, and accommodating the latest in technological innovation. Put simply, the Zengin System and the Bank of Japan Net system (BOJ-NET) have played instrumental roles in Japan’s financial market infrastructure, made up in part by the interbank payment network and payment and settlement system.

At the heart of Japan’s interbank payment settlement system is the BOJ-NET Funds Transfer System (BOJ-NET). BOJ-NET is used for a broad range of payments including settlement of cash transfers between financial institutions in addition to settlement for transactions of securities such as Japan Government Bonds and derivatives transactions. Settlements for transactions of funds involving current account deposits at the Bank of Japan are processed via BOJ-NET account deposits.

Meanwhile, the Domestic Fund Transfer System provides centralized settlement of funds between participating financial institutions for domestic exchange transactions including payments. The transactions are processed by the Zengin Data Telecommunication System (Zengin System), under the management of the Japanese Banks’ Payment Clearing Network (Zengin Net), which was established by the Japanese Bankers Association (JBA). Net differences in payments among participants are settled via the BOJ-NET FTS. In other words, the Zengin System, in addition to undertaking settlement of funds transfers between financial institutions via BOJ-NET, also serves as the hub system, sending, receiving, sorting, and aggregating fund transfer messages—the backbone of the payment services underpinning the nation’s financial system.

 

Figure 1: Japan’s Payments System

Zengin_FIG1 Source: BOJ, Celent

 

Just published a new report:

Payments Systems Trends in Japan, Part III: Blueprints for the Next-Generation Zengin System

Looking Beyond Brexit: In Today’s Connected World, There is No True ‘Exit ’

Brexit-1 Source: Nikkei

A storm of momentous scale hit financial markets as it became clear that UK voters had decided to leave the EU. This certainty drove investors to seek lower-risk assets and triggered a spike in yen buying. The yen surged more than 7 yen against the dollar—as the currency marked the most volatile day in its history. Indeed, the initial impact from the UK vote was greater in Tokyo than the immediate shock following the collapse of Lehman Brothers. In around a three-minute span a bit past 11:40 AM on June 24, the yen jumped from 103 yen to 99 yen versus the dollar; likewise, over a few hours the yen skyrocketed nearly 20% versus the pound, moving from 160 yen to 135 yen.

The “Brexit shock” first jolted the Asian markets, sending the Nikkei average down nearly 8%, the largest drop in 16 years. Markets in Europe followed suit, with Germany and France’s key indices tanking 7% and 8%, respectively, and exchanges in Italy and Spain also reeling. The ensuing sell-off in the UK sent the nation’s FTSE100 (Financial Times Stock Exchange 100 Index) down more than 8% at one point before it settled down 3% on the day after investors began buying back into the market later in the day. The US market was the last major market to feel the initial impact of the referendum, which sent the Dow average tumbling 610.32 points, or 3.4%, to sink to a three-month low.

Brexit-2 Source: Reuters

In short, the vote set off a chain reaction sell-off that rippled across and disappointed capital markets the world. This all prompts the question: What exactly were we expecting?

As one of my esteemed colleagues has already written, we were expecting individual markets integrated into one larger, global market. This vote diverges from that view. The vote will impact the pending merger between Deutsche Börse and the London Stock Exchange Group, and has sent an important message to policymakers that could have implications for the T2S (Target 2 Securities) platform of the European Central Bank and MiFID II (Markets in Financial Instruments Directive), which provides for harmonized regulation of investment services across EU member states. In addition, Europe has been at the forefront in terms of shortening and streamlining settlement cycles, namely with T+1 (transaction day plus one day) in bond markets and T+2 in securities markets. Likewise, London has been at the vanguard in fintech, with its Level39 a very visible and noteworthy pioneering presence. The initiative has continually focused on how to devise innovative business models that fueled by the latest technology and know-how. This has been a debate on innovation divorced from the remain-leave issue and rather presupposing ongoing integration. As the events of June 24 aptly demonstrated, markets are inexorably linked globally, and when it comes to commerce and the flow of capital there is ultimately no out, no real “exit.”

From Monday, jockeying in global markets effectively changed from a focus on low-latency market competition, taking on a new dimension expand the geopolitical strategy discussion over resource allocation. A majority of Japanese companies have their European headquarters in the UK and have positioned the bulk of their regional corporate resources in the suburbs of London. The background to this was a presumption not only that the EU would be a single market, but also that it enabled the companies to be “in” the global market. It is more than likely that companies in addition to HSBC will be re-examining whether they also should “remain” or “leave.”

Across the realms of politics, economics, and currency, information technology has fused together markets across the world. The recent referendum can be said to fly in the face of this historical trend. In either case, it prompts the question whether this is a crisis or an opportunity. Of course, it may be incumbent upon politicians to respond to the excesses of capitalism. However, when it comes to financial services, consumers the world over seek modernization, digitalization, and innovation, not a return to the past.

Do follow our Brexit posts from the insurance team as well.