Proposals to try and streamline operational processes in UK fund distribution, after what some see as 20 years of thwarted efforts, are being assessed.
The UK Fund Trading and Settlement (FTS) project, an initiative backed by several industry bodies, has completed an information request ahead of seeking proposals for commercial solutions next month.
Potential suppliers and other parties that responded to the request for information (RFI) were asked to consider how to better automate the UK’s £870 billion (€1 trillion) mutual fund industry, which over the last 20 years has been held back by manual processes and a lack of common standards, according to FTS.
A request for commercial proposals is expected to be launched in September following an open discussion in August with trade bodies and suppliers, according to the FTS timetable.
Charles McCready, who has coordinated the RFI process and is a director at the Tax Incentivised Savings Association (Tisa), said FTS had a “very good” response from service providers and received broad support for the project’s objectives.
He said there was recognition that further opportunities exist to reduce costs and risks, and to increase efficiencies and consumer benefits.
According to FTS, there are 200 fund managers and 300 distributors in the UK. Solutions to increased automation might include: net settlement models to reduce money flows between participants; better asset reporting between firms; and integration of fund trading and settlement.
Paul Wilkinson, head of client services and transfer agency in Europe, Middle East and Africa at Legal & General Investment Management, told Funds Europe that industry automation levels in the UK for retail funds order placement now exceed 95%.
“This is positive, but of course we would always like to improve further.”
He added: “Ten years ago, automation levels across the industry were woefully low and costs of automation were high.”
But since then, competition has driven change. LGIM has worked with Calastone and Euroclear to achieve an automation level that now exceeds 97% for retail fund orders, Wilkinson said.
“This is reflective across the industry, which works for the benefit of all.”
There has emerged a broader range of automation services in recent years, covering traditionally difficult areas like settlement and reconciliations.
But Wilkinson added: “Often the challenge to driving benefit from these solutions is coverage, which requires much wider adoption within the industry.”
Jon Willis, chief commercial officer at Calastone, a financial technology vendor, said the UK funds industry has the highest level of automation in Europe, with straight-through processing (STP) rates typically exceeding 95% in order routing for institutional investors.
“This has not always been the case. Looking back to 2007, equivalent STP rates sat at circa 30%, the reason for this being limitations in the market infrastructure available at that time and the technical, resource and cost challenges faced in conforming to the defined single standard.”
What’s changed in this period has been competition between vendors, said Willis.
However, he added: “There are other areas where opportunity remains to drive further efficiency [such as] when looking at settlements, for example, where manual pain-points in paying on a gross basis and managing reconciliations commonly exist.”
There has been growing momentum for net settlement, Willis said. The value of settlement payments can be reduced by up to about 53% with net processes, according to Calastone estimates.
Back at Tisa, McCready says FTS has grown over recent months as more parties became involved.
He confirmed that the RFI process has closed for responses and “these are currently being reviewed to understand the range of potential options that are being proposed”.
McCready said FTS, of which Tisa is a member along with bodies such as The Investment Association, expects wider industry engagement during September and will share findings more broadly at the end of next month.
©2016 funds europe