Oracle, a leading provider to the financial services industry, invited HSBC to explain how technology is helping the bank evolve its transfer agency business to create a truly global offering for clients.
Reports of the death of the transfer agent (TA) have been greatly exaggerated, at least in the eyes of HSBC, which has spent much of the last decade evolving a global TA offering.
HSBC has been a TA for more than 20 years and now operates in 13 countries, servicing a diverse range of asset managers, shareholders and distributors. In that time, there has been much speculation about the durability of back-office activities such as transfer agency, custody and fund administration, especially as digital and distributed ledger technology continues to develop.
However, HSBC has found that larger asset managers with an international footprint are actually looking to depend more on their TA, especially if it can provide a truly global service. Market conditions in recent years have dampened returns, particularly for active managers that face competition from low-cost passive funds and increased regulatory scrutiny against a backdrop of political and economic uncertainty.
This has led firms to consolidate and to expand globally in search of new sources of returns and to outsource more of their back-office activity. And it is these trends that have driven HSBC’s advancement of a global TA platform.
The work on the platform has focused on three areas of development within HSBC’s TA business, says Sooraj Sreenivasan (pictured left), Global Head of Transfer Agency Product at HSBC. Firstly, the firm is looking to enhance its digital services; secondly, it is expanding into more retail investment markets, such as the UK. And finally, it has consolidated the number of different platforms it uses as it expands geographically, especially into Asia.
HSBC now has two core TA platforms working on a global basis – one for long-only funds and one for alternative assets. “Our main objective was to enhance the client experience,” says Steven Caluwaerts (pictured below), Director GDTA Product at HSBC. “Asset managers are rethinking their own models and are expanding into new domiciles and they want consistent services across multiple markets. They want a partner that is in sync with that.
“We are also focused on the shareholder experience and making it as seamless and agnostic as possible. So, even if a fund manager or distributor is outsourcing parts of their service to third parties, we want to ensure that client onboarding and any KYC reporting is as efficient as possible with no one forced to duplicate processes and clients can access the TA platform, regardless of domicile.”
Historically, the TA role has been seen through the lens of the product and has focused on single markets and cross-border funds centres like Luxembourg, Ireland and Singapore. This approach has left many TAs with a different platform for every domicile, says Sreenivasan. However, as the industry has consolidated and asset managers have got bigger in size and geography, so has its service expectations expanded. “Clients want a globally consistent approach,” says Caluwaerts.
“What really matters is providing a single reference for the customer regardless of domicile and to develop a global standard for fund distribution and any associated compliance issues.”
Systems need to offer deep levels of business rules enabling flexibility for operations and client Servicing as well as handling multi-jurisdictional capabilities such as currency; time zone and language) in order to offer a global TA service. There has also been a change in shareholder habits, says Sreenivasan. “Previously they would go through an adviser to get access to a fund, but now they want direct access and they want instant servicing.”
This has led to a gradual decrease in the number of intermediaries between a fund manager and their end investor, which in turn has changed the role of the TA, which had always been focused on servicing the asset manager. While this still remains the major focus for TAs and other service providers, there is also the need to connect directly to retail investors in certain markets, such as the UK, says Caluwaerts.
It has been a gradual transformation, says Sreenivasan. “When we started the project, we had many platforms providing multiple services in numerous jurisdictions. Consolidating all those systems into a single global platform has been an important and incremental process,” he says.
Nor has it been simply a case of consolidating systems. HSBC is moving away from end-of-day batch services to more intra-day and real-time services. It is also investing further to develop digital channels and mobile apps for asset managers, distributors and shareholders.
Developments in technology have of course helped, not least the emergence of application programming interfaces (APIs), which has helped HSBC to replace the old technology that was used to wire its numerous TA platforms together. The APIs are still in the testing phase but once they are rolled out, it will enable the TA to develop a full-service capability for shareholders, distributors and fund managers.
It has also helped that most of HSBC’s partners in the asset management world are also using technology better served to a global operating model. For example, some of the distribution networks have adopted new technology and promoted the use of global processing and messaging standards, such as those developed by banking cooperative Swift. “Their global ambitions and the use of global standards have really helped promote the need for a TA and for a global TA platform,” says Caluwaerts.
Different markets are developing at different rates, says Sreenivasan. “Some markets are becoming more direct in terms of the relationship between investors and asset managers, whereas others are still very bank-driven when it comes to fund distribution. It is part of our role as a TA to shield asset managers from all of the different dynamics in different markets and the operational implications of these differences.”
HSBC is also realistic about the longer-term future of the TA. “I do not think the TA is dead, nor do I expect it to disappear from the value chain,” says Caluwaerts. “But the role of the TA is constantly changing.” Some are choosing to focus on providing ‘value-added’ or premium services such as data, or providing an interface across multiple markets, or acting as a distribution agent for managers.
“The role will continue to diversify and the focus will shift, but what will remain constant is the connectivity between the TA and asset managers, distributors and shareholders,” says Caluwaerts.
© 2020 funds europe