While Energy firms have boldly gone and explored the final frontier of new tech, Capital Markets institutions have been more reluctant, risking their competitiveness. Join us on this mission to examine the need for modernization, highlighting the advantages of cloud-native platforms and a phased approach to transformation.
Legacy
The Energy and Capital Markets sectors, though often seen as interconnected, operate in fundamentally different ways. Take the impact of the Russia-Ukraine war. For Energy firms and trading desks, the resulting volatility in oil and agricultural prices presented an opportunity to capitalize on fluctuations and increase profits. In contrast, for Capital Markets desks and corporations, the same conflict introduced significant risks that required careful mitigation.
Despite their differences, both sectors face a common problem: they use outdated trading and risk management systems developed in the 1980s and 1990s in response to the birth of modern risk management and trading techniques that date back to the 1970s. It is about time something changed.
Energy firms have been quicker to adopt new technologies, spurred by price volatility and the green energy transition. They recognize that the long-term benefits of innovation can outweigh the initial costs. On the other hand, Capital Markets firms, bogged down by extensive decision-making and long RFP processes, often struggle to make similar strides. The complexity of their operations, combined with a cautious approach to risk, has slowed the adoption of cloud-native solutions. Despite increasing tech budgets, a failure to adapt leaves many Capital Markets firms reliant on obsolete technology.
This paper looks at the differences in technology adoption between Energy and Capital Markets firms and underscores the need for both sectors to modernize. Without a strategic shift towards cloud-native, microservices-based platforms, these organizations will face operational inefficiencies and missed opportunities.
Risk is Our Business
Energy firms are known for a proactive approach to adopting new technologies, recognizing the strategic benefits of staying on the cutting edge. They have consistently partnered with both established technology providers and innovative start-ups, which has allowed them to adapt quickly to market changes. Even so, the dominance of legacy systems—due to industry consolidation—has meant that innovation has stagnated, with only a few firms offering truly new solutions.
While the financial sector has been quick to embrace new technology, Capital Markets firms have a more cautious and fragmented approach to Treasury and Risk Management System (TRMS) adoption. The presence of multiple viable alternatives from various vendors added complexity to their decision-making process, with many players from the first wave of Fintechs still dominant. This, combined with a conservative mindset focused on risk mitigation and compliance, has led to prolonged evaluation periods and slower adoption of potentially transformative solutions. While Energy firms have moved more swiftly to embrace new technologies, even within a constrained market, Capital Markets firms remain more deliberative, risking further entrenchment in now outdated systems and practices.
A Matter of Perspective
A significant factor driving the divergence in technology adoption between the two sectors lies in how trading desks are structured. In the Energy sector, trading desks frequently operate as profit centers. They are directly tied to the company’s bottom line and are incentivized to invest in new technology to improve performance. For instance, firms like Shell or BP might purchase multiple trading systems to experiment with different solutions, knowing that even small improvements can lead to significant gains in profitability. Although not always ‘fast’ per se, the super majors in Energy are known to move more quickly than a large portion of their Capital Markets counterparts.
Capital Markets desks, on the other hand, often operate as cost centers, with a focus on managing risk and ensuring compliance rather than driving profits. Capital Markets firms often face stricter regulatory scrutiny and have a deeper dependency on ensuring system security and reliability. To put it bluntly, a major Capital Markets system failing is more likely to have systemic consequences. This makes their procurement processes far more risk averse. Investments in new systems are questioned intensely, and the process involves multiple layers of approvals. This adds time and complexity, and often results in firms choosing safer, incremental updates rather than disruptive innovations. Even trading desks that operate as profit centers tend to be constrained by the inherent bureaucracy of large financial institutions with a long history.
The Enemy Within
The reliance on legacy TRMS has created inertia within Capital Markets firms, making the transition to modern solutions difficult. Many of these systems are decades old and embedded into the fabric of daily operations. This has resulted in a situation where any proposed change is seen as disruptive and risky, further reinforcing the cycle of underinvestment in technology.
This inertia is often rooted in past failures. Technology implementations that overran their budgets, missed deadlines, or failed to deliver on their promises have fostered a deep skepticism towards future projects. Two out of three large programs regularly exceed initial budgets, miss schedule estimates, and under-deliver against business objectives. When benefits are delayed or obscured, it becomes easier for decision-makers to conclude that upgrading systems is not worth the risk. This perception then reinforces underinvestment, leaving firms reliant on aging systems that are expensive to maintain and increasingly difficult to integrate with newer, more efficient technologies.
As a result, these firms fall further behind the technology curve. The longer they wait to modernize, the harder it becomes to upgrade, exacerbating operational inefficiencies and leaving them vulnerable to external shocks. Over time, this entrenched reliance on legacy systems becomes more costly—not just financially, but in terms of lost competitiveness and ability to respond to market changes. In effect, they become ‘stuck’.
Tomorrow is Yesterday
The limitations of legacy TRMS are becoming ever more apparent, especially as Capital Markets firms face growing pressure to improve scalability and adaptability in response to market changes. These systems, once foundational, now act as barriers to growth. While smaller treasuries and corporations have access to newer, cloud-native solutions, no modern replacement has yet emerged for the large-scale TRMS from that first wave of Fintech.
Maintaining these legacy systems is now costly and stifles innovation. The rigidity of these systems makes it difficult to integrate new technologies, leading to operational inefficiencies and missed opportunities for growth. Cloud-native platforms, by contrast, provide a clear path to cost savings, offering reduced maintenance expenses and the ability to quickly adopt new technologies that improve security and performance. Capital Markets firms that fail to make the shift will find themselves at an increasing disadvantage compared to those who embrace modern solutions.
The Next Phase
Rather than undertaking a full-scale overhaul, which can be daunting and fraught with risk, a phased approach offers a more manageable path to modernization. By breaking the process into smaller, targeted projects, Capital Markets firms can address high-impact areas—such as P&L reporting or VaR and PFE calculations—without overwhelming their operations. This strategy allows firms to see early returns on investment and gain confidence in the new system. Furthermore, smaller projects can serve as proof of concept, helping to secure the buy-in needed for larger-scale transformations.
Importantly, this approach allows firms to learn as they go, refining their strategies and mitigating risks incrementally instead of all at once. Each phase provides an opportunity to realize quick wins that justify further investment. The incremental nature of the process also makes it more difficult to abandon mid-way, as each completed phase builds momentum towards the overall goal of modernization.
The Way to Eden
Modernizing legacy TRMS will be the next strategic step for many Capital Markets institutions. While the Energy sector is taking more pronounced steps towards leveraging cloud-native platforms and agile technologies, Capital Markets firms remain more hesitant and constrained by a conservative approach to procurement, risk mitigation, and regulatory demands. This inertia, while understandable, is costly, not just in terms of operational inefficiencies but also in the lost opportunity to capitalize on market shifts and emerging technologies.
A phased approach to modernization presents the most viable path forward, offering the ability to make incremental, manageable improvements while limiting disruption. This strategy allows firms to focus on high-impact areas, such as risk management, P&L reporting, or exposure management, providing tangible benefits early in the process. The lessons learned from past implementations can serve as a foundation for future success, transforming previous challenges into opportunities for growth and improvement.
Capital Markets firms must now overcome their reliance on legacy systems and break the cycle of underinvestment. With the right partner, the journey toward a future-ready TRMS can be navigated smoothly, delivering both short-term gains and long-term competitive advantages. If your firm is ready to explore the first steps toward transforming your technology infrastructure, a comprehensive system review could identify the critical areas where modernization can have the most immediate impact. Do not wait for external shocks to force modernization; reach out today to begin a tailored transformation plan that keeps your firm competitive and future-ready.
