The last weeks of 2017 were significant for the pan-European wholesale financial markets industry. Two major pieces of regulation reached their final stages. The first was the global agreement of the final Basel 3 package of proposals, effectively marking the end of the post-crisis overhaul of the regulatory framework.

At the same time, banks were also putting finishing touches to their preparations for the implementation of the Markets in Financial Instruments Directive (MiFID II/MiFIR) which went live on 3rd January. This far-reaching regulation – while rightly improving trading transparency in certain areas – has been costly and complex for all types of market participants. While further adjustments will inevitably be appropriate, the near-term focus will be on the collection and transmission of significant new reporting data, so authorities and participants can evaluate its impact.

With an extensive pause in regulation now in prospect for 2018 we are moving into a new phase which will focus on the implementation of agreed rules and a comprehensive assessment of what has gone before. So, in many ways 2017 marked an important milestone for the industry. Through the collaborative efforts of regulators, rule makers, supervisors and the industry itself we now have substantially stronger banks, greatly improved market infrastructures and a highly resilient financial system capable of absorbing shocks greater than those that we saw ten years ago.

2017 also ended with positive news on Brexit as the negotiators agreed that discussions on transition could commence in the New Year and the UK Prudential Regulatory Authority provided clear and helpful guidance on the treatment of third country branches and subsidiaries post-Brexit. The wholesale banking industry and its clients now have the chance to address the forthcoming challenges in a considered, strategic way, without having to rush key decisions.

Brexit will of course continue to be a key focus for the coming year, but another major challenge will be to raise the average levels of European wholesale banks’ profitability so that it consistently and materially exceeds their cost of equity. The industry will continue to experience some downward pressure on returns as agreed regulation is implemented and it will need to focus on how it compensates for this and other competitive and macro pressures, including through embracing both the revenue and cost potential benefits of digitalisation and financial technology.

Certainly, digitalisation is already beginning to transform the landscape of wholesale financial markets. The ubiquity of Cloud-based technologies, for example, is making more efficient and flexible data management an essential tool for banks, which also offers extensive cost-reduction benefits for both retail and wholesale markets participants. This will enable the industry to address common challenges which, in turn, will encourage investors to see banking as an attractive sector.

Digitalisation can also play an important role in one of Europe’s major ongoing projects: the Capital Markets Union, where European Commission officials are already working with some smaller Member States on using new technology to open up and expand their local capital markets’ activity to boost economic growth. This includes, for example, the use of crowdfunding and other alternative funding tools, and the future use of block chain technologies in post-trading.

Digitalisation will of course bring challenges, which will need appropriate investor and consumer protection as new changes are introduced. A first important regulatory hurdle for 2018 will see the implementation of the General Data Protection Regulation (GDPR) across Europe, which will have implications for current and future technology. However, one of the main challenges facing the industry will be the growing threat and severity posed by Cybersecurity, as our digital connectivity continues to increase.

Therefore, ten years after the Financial Crisis, 2018 will be the first year of relative regulatory stability for some time, in which the industry can continue its focus on innovation on behalf of its customers while tackling the technological and structural challenges which will drive the long-term success of the sector. Banks will further embrace the benefits of technology to deliver real benefits for customers, shareholders and businesses throughout Europe.

This piece was originally published in The Telegraph on 6 January 2018