Open Economy, Closed Borders

The paradox defining today’s financial landscape is perplexing. Financial capital flows freely across borders while regulatory frameworks and trade policies increasingly are getting siloed  along regional lines. As markets remain globally connected, the rules governing them are becoming stubbornly local, impacting banking strategies and investment priorities.

The potential for tariff-driven increases in technology costs, particularly for advanced chips essential to AI and cloud infrastructure, adds another layer of complexity and uncertainty. As these components become more expensive, banks must be smarter about building and deploying technology to drive measurable benefits.

The efficiencies gained through AI and automation may be partially offset by rising infrastructure costs, making architectural decisions even more critical for future-proofing innovation programs.

Global realities reshape banking

The global economic landscape is fragmenting in ways that demand fundamental changes to bank operations. In the US, persistent inflation, wavering consumer confidence, and policy volatility have created market uncertainty, with the S&P down significantly from its February peak.

The “yo-yo tariffs”—on-again, off-again trade policies that recently imposed 25% tariffs on crucial technology components like chips—have intensified this commercial instability and potentially slowed GDP growth worldwide. Meanwhile, Europe and APAC are experiencing increased market confidence due to inflation tapering and stable employment conditions.

This economic divergence is driving a regulatory divergence. The US is shifting toward deregulation in certain areas (notably consumer protection), while Europe maintains and, in some cases, strengthens its regulatory frameworks. As a result of overall volatility in the US, capital flows are following, with some of the largest institutional investors redirecting funds from US investments toward non-US ETFs.

For global banks and financial services enterprises, fragmentation of process, technology infrastructure, and compliance disparity increase operational complexity:

• Settlement timelines are desynchronizing: The US has implemented T+1 settlement, while Europe won’t adopt T+1 until 2027. Additionally, NASDAQ is exploring a 24/7 trading cycle on its exchange. This, in addition to the global investment movement, is bound to lead to more operating costs in trade settlements.
• Regulatory requirements are diverging: Customer data protection rules, in particular, are creating significant operating model challenges regardless of the rigor of enforcement mechanisms. While privacy and control are top concerns for data protection, we expect the cost of managing cross-border customer data to escalate.
• Cross-border service delivery is becoming more complex: Even fundamental activities like ESG reporting now face conflicting requirements across jurisdictions. Higher operating costs will be attributed, a result of increasing complexity in everything from creating customer awareness for cross-border rules to managing accurate asset attribution to reporting.

From hub-and-spoke to regional models

Perhaps the most profound shift is occurring within bank operating models. Maintaining the traditional approach of regional front offices with global shared services for back-office functions is becoming increasingly difficult.

Previously, banks operated with something like a hub-and-spoke model. Regional differences were more in the front office and middle office, and when you converge, the shared services operations are in the back office.

With regulatory divergence between regions (T+1 settlement in the US vs. T+2 in Europe; relaxed rules in some areas vs. stricter oversight in others), the traditional scale advantages of globally centralized operations are diminishing. Banks must now build multiple, different federated environments to manage their operational needs.

Functions that were once centralized for efficiency must now be reconfigured to accommodate regional requirements while still delivering consistent customer experiences.

Adaptable foundations for a fragmented world

With the traditional operating models coming under increased stress, three critical capabilities emerge:

1. AI-powered regional scale

With traditional scale advantages diminishing, banks must leverage AI and automation to create “regional scale”—efficient operations that respect jurisdictional boundaries. The only way to build scale now without reducing margins is through AI.

This means developing region-specific AI agents that can handle processes like regulatory filings—for example, a system of AI agents only for US or EU regulatory compliance. However, there needs to be trust and guardrails before firms commit to leaving humans out of the loop.

2. Composable business and technology architecture

Banks need to replicate successful capabilities across regions while adapting them to local requirements. This demands modular processes and application infrastructures that can be assembled and reassembled for different jurisdictions.

Composability also requires scalability, as the growing volume of transactions will likely only increase as AI continues accelerating.

3. Orchestration as a fabric

Perhaps most critically, banks need sophisticated capabilities that can distinguish between deterministic processes (for example, those mandated by regulation or internal policies) and nondeterministic processes (highly dynamic). This orchestration layer becomes the connective tissue that enables adaptability while maintaining control, oversight, and most important, auditability of decisions and actions.

Adaptiveness at the core

The implications for banking leaders are clear. The age of global operational standardization is giving way to a more complex reality where local requirements drive differentiation, yet consistent customer experiences remain essential.

Success requires adaptiveness and composability to build scale without adding extra overhead and costs. This isn’t simply about technology. The change requires fundamentally rethinking organizational structures, process designs, and governance models.

Banks that recognize this shift early and build the capabilities to thrive in this “open economy, closed borders” world will gain significant competitive advantages. Those who cling to rigid global models risk being unable to adapt quickly enough to regional changes, potentially losing both market share and regulatory compliance.

The transformation won’t be easy, but the direction is clear: banking’s future belongs to those building adaptable, intelligent operations that respect regional boundaries, while delivering seamless customer experiences across a still-interconnected global economy.

For more on this topic, you can watch Sathya Sethuraman, Field CTO at Camunda, and Shane Ernest, Senior Product Marketing Manager at Camunda, discussing the issue in the video below.