Eric Huttman is CEO of MillTechFX.
What were the key theme(s) for your business in 2022?
The biggest theme across the FX industry this year has been risk management.
The FX challenges for CFOs have intensified with the rising threat of currency movements negatively impacting their bottom lines. As a result, FX has become a strategic priority for senior-finance decision makers at corporates and fund managers across the globe. However, many still utilise manual process and lack the necessary tools to mitigate this risk.
They still rely on email, phone calls and having to send or upload files when trading currencies. All of this internal, manual and siloed communication can be extremely inefficient. And this is just for one, single trade. Many organisations execute tens or hundreds of trades every month with different products and mechanics. This entire process can be a huge drain on time and resources.
Are these risks expected to persist into 2023?
After years of relative calm, FX markets sprang into action in 2022 and with interest rate hikes and geopolitical tensions set to roll into next year, we would expect volatility to continue well into 2023.
As a result, we expect FX to become even more of a strategic priority. CFOs will be working to implement the right processes and seek alternative technology-driven solutions that can help them achieve best execution and protect their business during these turbulent times.
What are your expectations for 2023?
Rising currency volatility has made FX a strategic priority for fund managers across the globe. Against this backdrop, I expect to see three main areas of focus for the sector in 2023.
Automation
FX processes are often manual, cumbersome and time-consuming. Despite it taking fund managers on average nine months to set up their FX execution infrastructure, only 15% believe that their set up is best in class.
As a result, they are increasingly exploring simple, tech enabled solutions that digitalise these processes, with 84% of senior finance decision makers looking into new technology and platforms to automate their FX operations.
Moving away from traditional providers and legacy processes towards more automated digital infrastructure is likely to be a prominent trend in the coming year.
Outsourcing
Outsourcing has emerged as common practice across the financial services industry, and it is set to gain more traction in FX in the year ahead.
There are still some barriers towards outsourcing, such as a perceived lack of transparency and the administrative burden of integration. However, the growing recognition that outsourcing – when done with the right partner – does not necessarily lead to a loss of quality or control which means we can expect more firms to harness third-party services in 2023.
ESG
Environmental, Social and Governance (ESG) criteria has begun to play an increasingly important role in the FX industry. 58% of fund managers believe that their FX counterparties must have strong ESG credentials while 36% see it as an important consideration.
However, much of the emphasis to date has been on the first two letters of the acronym – ‘E’ (environmental) and ‘S’ (social), with ‘G’ (governance) often left lagging behind.
Driven by pressure from investors, governments and consumers, ESG and governance in particular will continue to be an important trend in 2023.
