Dan Latimore is chief research officer of The FR, providing ongoing research and insights on how financial services companies are transforming operations through innovative technologies, including through a recognition program called Most Impactful.

The capital markets industry has long been an aggressive technology adopter as firms seek to gain an edge through faster analysis or execution, differentiated algorithms or research, and superior client service. AI adoption will raise the bar for firms aiming to grow market share and improve their competitive positioning.

Through our new research initiative, Most Impactful, we are launching our latest analysis of North American capital markets firms’ AI rollouts. Based on publicly available data, Most Impactful Capital Markets: AI recognizes companies that are making a difference through their use of traditional and generative artificial intelligence. The industry is no stranger to technological innovation; the advent of generative AI has only accelerated the process. 

Companies are learning from prior mistakes. Leaders are beginning with robust, firm-wide governance programs that reduce duplicative efforts and ensure that lessons are propagated across the organization. Executive leadership sets the tone, and executives are mindful of regulators’ interests. While the work of implementing AI is challenging, the rewards can be transformative.

Capital markets firms are exploring use cases across the value chain, using AI to analyze vast amounts of trading data or research; generate personalized financial recommendations; and improve productivity of knowledge workers by reducing time spent on low-value but heretofore necessary tasks.

Where it’s being used

Companies highlighted three areas of AI implementation: analysis, generation and questioning. 

Most Impactful firms use generative AI to ingest large amounts of proprietary and publicly-available data and identify where humans should spend more time looking for information. Generative AI is also being used to identify fraudulent transactions and to gain a more holistic view of a firm’s risk profile and exposures. 

AI can also help knowledge professionals produce better work products faster, from research reports to financial plans. Of course, as with all AI projects, a human in the loop is needed to oversee and evaluate the work. Regulators have been working to understand how companies are using AI and the governance mechanisms they’re using. Generation also extends to coding, where developers are able to write programs more quickly and automate rote tasks, including modernizing systems by rewriting code from obsolete programming languages.

Finally, AI allows non-technical people to run natural language queries on larger datasets. Querying is being used both by customers and employees. 

Stages of development

We divided our 100 honorees into four categories — Titans, Champions, Trailblazers and Digital First — to account for the resource differences among firms of different sizes. While AI impact roughly correlates with size, not all big firms are aggressively adopting the technology. Conversely, many smaller firms punch above their weight and recognize that AI can improve their competitive positions. 

1. AI Titans

These are large firms that have made substantial public commitments to AI. They lead with strong executive support, dedicated internal resources and multiple publicly-announced pilots and implementations. They’re distinguished by patents and a willingness to push the boundaries of AI capabilities.

2. AI Champions

These large and medium-sized firms are experimenting with many use cases, many of which address the specific needs of their business. These include assessing credit risk faster and more comprehensively and developing portfolio recommendations. They are making major efforts to ensure AI initiatives will offer a clear ROI, while limiting risks. They’re implementing AI in areas including market intelligence, automated trading strategies, and improved decision-making based on an analysis of larger data sets.

3. AI Trailblazers

Members of our largest category, AI Trailblazers are typically smaller firms investing in their future by publicly implementing AI in a few focused areas such as backtesting trading strategies or producing more accurate and comprehensive risk assessments. Instead of experimenting with dozens of initiatives, they focus on implementing a handful of projects that offer clear business value. By building a foundation for future uses of this evolving technology, they're setting themselves up for ongoing success. 

4. Digital First

Typically newer firms, these companies are extremely comfortable with technology and unencumbered by legacy systems. Using new data architectures, they are equipped to use AI across an expansive range of use cases, including the delivery of financial advice to mass affluent and underserved markets at lower price points.

Criteria

We recognized Most Impactful honorees by analyzing publicly available data on the capital markets industry in North America and narrowing the list down to the top 100 firms. 

We assessed six dimensions: 

1. AI spending

2. Initiatives in production

3. Vendor relationships

4. Patents 

5. Executive commitment

6. Human capital

Unlike many other recognition programs, we didn’t invite submissions. Instead, we did the legwork to see which firms stood out from the pack. Our assessment is as objective as possible because it’s based on publicly available information, thereby avoiding the subjectivity of judging panels.

For more information on this research, we invite you to download the executive summary of the report.