Despite much talk about the cost and efficiency benefits of digitalisation and clients moving very quickly to adopt it, some parts of the fund sector still rely on manual processing. Some in the sector are calling for regulators to play an increased role in setting standards.
A panel entitled “Trends in fund distribution as investors have become more digital than ever - Is the fund industry ready?” discussed the current situation as part of ALFI’s recent Digi Pulse Amsterdam virtual event.
Smarter and faster
Louis Wright, the sales director for Benelux, France and the Nordics at London-based Calastone, a global funds transaction network, said that the industry must deliver “smarter and faster services” in order to meet investor demands. “We’re all led to focus on cost control, the use of technology, create efficient processes and systems and enable our service teams to support our clients properly.”
Calastone, according to Wright, connects more than 2500 asset managers, fund distributors and asset services in 47 countries. The company has made blockchain technology a key part of its strategy.
Same tool
Edward Wierenga, who heads the business implementation team at NN Investment Partners (NNIP) in The Hague explains how his firm has significantly moved away from the old ways of having different applications for each asset class. The firm now has one system across its operations.
Wright presented elements of his firm’s survey on transfers. The top issues were lack of standardisation, particularly for cross-border transfers and low levels of counterparty coverage for those that are automated, he explained.
Wide variation
Levels of automation vary widely across Europe, the survey showed. “In the UK where pension transfers are now mandated to take no more than five days, four in five respondents were fully automated for domestic transfers, yet almost 50% noted that cross-border transfers remain problematic,” said Wright. “In Italy, more than two thirds of the firms lacked automation and all noted challenges with cross-border transfers in major fund markets,” he went on to say: “In Luxembourg, a quarter of firms said they relied on manual processes.”
Wierenga pointed out that manual processes such as faxes “weren’t very cost efficient” and were also error-prone and subject to timing issues. He explained how Calastone had helped NNIP to automate both the outbound and the more complex inbound transfer agent workflow.
Discussion turned to the pandemic and whether firms made operational gains during 2020. “The pandemic has been the biggest accelerant in our industry for technology change,” noted Wright of Calastone. “Things have been achieved in weeks that would have normally taken years.”
Technical improvements
Wierenga stated that issues that still required going to the office instead of meeting online at the outset of the pandemic can now mostly be dealt with electronically via Zoom or Teams “and it works quite well.”
However, Wierenga pointed out that “we miss the accidental meets at the coffee machine, where we come across each other and where we discuss improvements.” He said that being at the office still had operational benefits than a purely virtual interaction.
Discussing how making further improvements to procedures might happen, for example in the area of onboarding, Wright asked Wierenga whether it would be done more through using new partners or “overlaying tools that you have in place?”
Choosing partners
“We try to link up with parties who would do things better or in a more clever way”, he said, or more efficiently or effectively,” replied Wierenga. He pointed out that while as a regulated industry “we most often go to the bigger parties because they are well established. “ However, he admitted “the real innovation sometimes comes from smaller parties.”
In the area of regulation, after acknowledging there has been a lot of new legislation affecting the fund industry of late, he pointed to the fact that the regulator is asking for more and more data. “That is, I think, a trend which will continue,” he said. “And we can see that as a threat, where we need to disclose all the data, there’s no place to hide.” He continued the thought. “We can also see it as an opportunity, because that’s that hunger for data is not only driven by the regulator, it’s also needed by our clients, they want to have insight into our costs and our performance.”
Setting standards
Conceding that internally, his business was interested in data as a way to improve itself, he expressed the view that “where I think that the regulator could really help is setting and defining the standards.” As an example he pointed to the discussion of ESG at earlier sessions, “where different ESG attributes are required or are expected to be reported, where at the same time, the definitions are not always that clear and definitely not clear beforehand.”
He called for the regulator to spend time creating a level playing field. “It would be really helpful if the regulator would be able and would spend time on defining the data attributes defining what’s meant by the different things that we need to report and as such create a level playing field for all of us.”