In many of the above cases, the potential for cost reduction on the respective func- tions can be significant (greater than 50%). However, the transformation should start from the ground up, with the infrastructure layer, to avoid leaving fundamen- tal IT architecture problems unresolved. Furthermore, to become credible as a viable substitute, fintechs must offer high standards of service and reliability. To be sure, a major challenge in adopting inno- vative solutions today is building trust. The potential for regulatory accreditation can quickly raise fintech credibility. Fintechs must offer Overall, up to 75% of sell-side IT costs are nondifferentiating, according to Expand high standards of Research. A large proportion could be externalized to fintechs over the next 15 service and reliability. years, leaving the remaining 25% to be built and managed internally as a competi- tive asset—such as by developing systems that provide pricing sophistication, client analytics, and execution. Optimizing Regulatory Compliance. Regulations have been a huge burden for investment banks since the 2007–2008 financial crisis. In investment-banking technology functions alone, around $3 billion is spent annually on regulatory and compliance IT, which includes only officially reported regulatory projects. So-called regtech firms, which have received about $200 million in funding, have stepped up to help banks navigate the evolving regulatory maze. Currently, there are more than 400 sources of regulatory information, with many regulatory tasks (such as KYC and trade surveillance) requiring extensive manual efforts. Regtech companies, deploy- ing technologies such as natural-language processing and machine learning, prom- ise to automate these processes while reducing duplications caused by regulatory requirements that overlap across jurisdictions. In addition, behavioral technologies, such as Behavox, can analyze employee actions and provide risk warnings for possible noncompliance, helping banks proactively deal with any conduct issues that could cause incidents. Implicit in the efficient use of any regtech tool is maintaining a certain level of data standards. Regulatory harmonization and convergence require international coordi- nation between the private sector and the official sector. The regulatory goal of de- veloping a more robust financial system must involve developing and adopting data standards, such as the Financial Industry Business Ontology common language, and finding ways to nurture the regtech ecosystem. Four Factors Are Critical to Getting the Most Out of Fintechs The value that can be delivered by CM fintechs is often diluted by certain industry barriers that need to be understood and overcome. These barriers exist in areas such as simplifying IT architecture, developing industry standards, improving collaboration among industry players, and mitigating the risks of working with vendors. Simplifying IT Architecture. Over a period of years, many banks have been adding IT infrastructure without consolidation, resulting in excessive complexity. That complexity, in turn, has required banks to deploy middleware to provide interfaces among their fragmented applications. In addition, dealing with a large number of 12 Fintech in Capital Markets