“As electronic trading matures and commissions compress, domestic, standardized-flow brokers are losing market share to digital platforms with cross-border, multi-asset products and extended trading hours,” Fitch said.
These challenges are only expected to mount due to both ongoing product innovation and rising demand for cross-market asset allocation.
“We believe technology-backed internet brokers and digital financial platforms, both offering diversified product suites with global market access, are better placed to capture evolving investor demand,” it said.
At the same time, securities firms that are affiliated with banks “may also benefit” from these trends — as banks, with greater resources to invest in digital products and infrastructure, deepen their participation in the digital asset sector.
Conversely, firms that are largely focused on their domestic markets, and on commoditized products, will be “more challenged” by the rise of fintech, it suggested.
Ultimately, the significance of this shift, and its pace, will be dependent on regulatory advances and the development of market infrastructure, the report said.
Fitch said that it expects greater regulatory clarity in major markets, “to open doors to digital assets and broaden the investable asset universe.”
“Harmonized standards on asset classification, provider licensing, custody and segregation, and reserve and disclosure rules for digital assets should accelerate the adoption of tokenized real-world assets and programmable securities,” it said.
In turn, Fitch said that it expects these trends to help drive revenue growth and income diversification for securities firms, “albeit at the expense of legacy businesses in certain cases.”
To succeed in this environment, “Sustained investment and balance-sheet flexibility will be important amid AI adoption and product development,” the report said. “Strong capital and liquidity are key to funding infrastructure build-out and innovation, absorbing higher potential risk and bridging distribution gaps.”
Additionally, the development of increasingly sophisticated risk tools “to monitor and manage exposures, mitigate volatility and limit regulatory risk will be a critical credit consideration as complexity increases,” it said, along with tougher cybersecurity defences.