With the financial services industry set to embrace re-registration of assets across platforms by 2013, what are the challenges over the next two years and can technology make the transfer process easier to implement?
The current re-registration process is a complex and time-consuming one, and one that I know from personal experience can be extremely frustrating. This frustration can often be increased further with a number of providers not transferring investments in-specie; instead, they may insist investors sell their investments and transfer cash to new providers, meaning they are exposed to some degree of out-of-market risk.
There are a range of complications and challenges linked to industry collaboration. These include setting and defining a commonly understood set of implementation systems and procedures, centring on cost effective solutions for market participants. The Tax Incentivised Savings Association (TISA) re-registration project has already co-ordinated industry approval for electronic re-registration to be based on IS020022 format, allowing for flexibility of means of delivering the standard format messages. Work also continues on the legal side with a contract club now being considered by all parties.
Software interoperability presents another challenge. It is vital that products and systems link to re-registration messaging interfaces smoothly. This avoids disruption to the re-registration process, leading to further investor frustration – an experience we all want to avoid.
The introduction of ‘Factory Gate’ share classes (wholesale pricing models) as a result of the Retail Distribution Review (RDR), is likely to complicate the process of in-specie transfers in situations where assets are being transferred from a legacy (pre-RDR) share class with the ceding platform, to a different (factory gate) share class at the acquiring platform. If strategies are not devised to address this then we are likely to see a reduction to in-specie transfers and a corresponding increase in cash transfers.
It has been argued that the Financial Services Authority’s proposed ban on platform cash rebates could result in a proliferation of platform specific share classes which could exacerbate the Factory Gate share class issue or even derail the whole re-registration process. The feedback that we have received from our clients suggests that they are not considering launching platform specific share classes as an alternative to unit rebates, and we therefore do not anticipate that the cash rebate ban will have any direct impact on platform-to-platform in-specie re-registration.
How can technology help?
Technology can play a major part in meeting these challenges and the key motivations for the industry are clear:
- Greater efficiency – improved scalability of operations and reduced costs, resulting in greater profitability for the players involved, with lower costs to investors
- Reduced operational risk – through the elimination and replacement of manual re-keying of orders and other data by straight-through processing
- Enhanced service – through improved response times and standardised interfaces.
Leading technology solutions will enable the implementation of a cross-industry solution for the transfer of a broad range of assets and wrappers. This will provide the industry with a common system for re-registration and in-specie transfers, resulting in meeting of the 11-day Service Level Agreement (SLA) turn-around set out by TISA. Whilst the SLAs do not state that an automated platform is essential, an automated solution will mean re-registration times of less than twenty four hours.
In addition, solution testing is an important element with a number of participants already engaged in programs. Systems need to be formally tested in a production scenario to ensure they will intercommunicate as advertised, supporting message formats, delivery mechanisms, processes/procedures and appropriate timescales.
This testing can be used to highlight any interoperability issues between system providers. The best use of technology and IP should speed up and reduce complexity of interoperability by reducing variability between components. These are often from different sets of separately developed software products and should facilitate intercommunication more readily.
Automation is key
Faced with the challenges highlighted above, Bravura Solutions recently announced plans to enhance its Babel fund messaging solution to incorporate re-registration capabilities. Designed to complement existing message provider services, Babel will offer fund managers and platforms a fully automated re-registration solution. Integrating messaging delivery with back office systems is vital for achieving true automation. Babel connects message providers with any platform and transfer agency back office system providing ‘last-mile’ connectivity.
The solution is already widely used across the industry for automated messaging and back office integration services and will in the future provide the ability to re-register assets within just one day.
Integrating technology platforms can have multiple benefits. As well as meeting RDR compliance, platforms can expect cost savings, better economies of scale, consolidation of resources and increased efficiency. At the heart of smooth implementation is trusted technology. So, as the re-registration deadline approaches, fund managers and platforms need to make critical decisions now. The technology is here today (ahead of the 2013 deadline). So there is no reason to leave it too late.