Fund efficiency gap between Ireland and Luxembourg closes

ConnectingThe gap between Luxembourg and Ireland for automating fund orders through transfer agents has closed with Luxembourg gaining on Ireland.

Luxembourg increased its automation rate to reach 74.9% in the second quarter (Q2) of this year – a 1.2% rise since the end of 2012. Ireland’s rate of automation fell from 85.3% to 83.9%.

Ireland’s fall is explained by an increase in manual processes, which went up from 14.7% in Q4 2012 to 16.1% in Q2 2013.

Fund automation and standardisation are crucial to fund processing efficiencies in Ireland and Luxembourg – the two main domiciles for European cross-border funds, though the transfer agent providers in each location are largely the same firms.

The automation figures are from the European Fund and Asset Management Association (Efama), a trade body, and Swift, a banking network, which are campaigning to increase the rate of automation in the funds industry and bring down costs.

Bernard Delbecque, director of economics and research at Efama, cautions against reading too much into the closing gap, saying the Irish figure could have been swayed by a “bundle of orders” received by a transfer agent that were manually processed.

“It is hard to say if [the closing gap] means we are reaching an upper threshold.”

However, he points out that the use of ISO standards in Ireland “remains quite low”.

The overall automation rate and the use of ISO standards to standardise fund processes between fund providers and transfer agents in both locations remained stable at 77.8% when comparing the Q2 2013 figure with that of Q4 2012 (77.7%).

The total volume of fund orders received by transfer agents and cross-border fund centres in Luxembourg and Ireland increased by 15% to 14.3 million in the first half of this year, compared to the second half of last year.

Efama and Swift surveyed 32 transfer agents in Ireland and Luxembourg that represent more than 80% of the total incoming third-party investment funds order volumes in both markets.

An overall rate of standardisation by 2.6 percentage points reflects a fall in the use of proprietary file transfer Protocol (FTP) formats, Efama and Swift’s mid-year report says.

Still, the percentage of automated orders based on the ISO messaging standards increased to 23.5%.

Peter De Proft, director general at Efama, says increased automation and standardisation is good news for the industry as it leads to improved cost-efficiency.

“Looking forward, reaching a total automation rate of 80% supported by a 50% ISO standardisation rate should remain a medium term goal,” De Proft adds.

Noting that although there has been little movements towards automation in the last six months, Fabian Vandenreydt, head of securities markets and core business development at Swift, says it is crucial to pursue the quest towards more automation, and to decrease the level of manually processed orders.

Vandenreydt says a revamp of a large-scale “kill the fax” programme could deliver tangible results.

©2013 funds europe