Fund industry automation: From practice to reality

Showing tangible benefits will hasten automation of the investment management industry.

"The funds business historically has not had the same focus on automation and straight through processing compared to the traditional securities industry," noted one of the panelists at the Sibos session entitled "Automating your European and Asian fund distribution business. A bottom line benefit or nice to have?". But panelists agreed that this attitude is changing as the fund industry faces new pressures.

Michele De Boe, programme manager for SWIFTNet Funds, securities industry division, noted that in an informal board room survey at the Fund Forum conference in Monaco this year, 93% of participants said they would opt for immediate automation of their fund distribution.

"This means that the benefits of automating fund distribution are now discussed at all levels in fund houses, distributors, companies and service providers," said de Boe.

Moving automation from theory into practice has a lot to do with delivering tangible benefits to the fund industry. "The benefits of automation are articulated around three main axes," explained De Boe.

The first area of benefit is cost reduction. Investment managers can achieve cost reductions of between 50% and 75% from automation says De Boe.

The new ISO XML standards allow a number of processes to be automated across the funds distribution life cycle including price reporting, cash flow reporting, transfers, account opening/maintenance, statements, commission reporting and static data as well as orders confirmations and statements.

"The ISO20022 is now recognized by the market as the single basis for a global standard for fund distribution and that is a major achievement for the fund industry going forward," says De Boe.

Early adopters in Asia include Citigroup, Bermuda Trust and Dexia Trust in Singapore; Far Eastern Bank, Cathay United Bank, Taishin Bank in and Fidelity TW in Taiwan. Fund managers adopting the system include INVESCO Asia, Jardine Fleming, Merrill Lynch Investment Managers Schroders Asia and Fidelity Asia Pacific. Fund providers include HSBC Trustee in Hong Kong and Singapore and Credit Agricole in Singapore.

Industry representatives on the panel backed that assessment of bottom line impact. "When we first said we should look at this application we really did not know the kind of value it can add. When you start using it, all those figures you put before management about how it could save you a lot of money in the long-run, turn out to be true," enthused Tony Renouf, SWIFT network manager at custodian CITCO.

Cost reductions from automation are also derived from cutting the administrative burden. "Resources can be used in an efficient way and are not being used to do manual work that can be done by a computer," said Paola de Antoni, head of network management at Unicredito Italiano.

Costs associated with systemic and operations risks are also reduced by automation. "If several departments are sending or receiving communications internally or externally it can cause high risk to the institution," says de Antoni.

The second area of benefits of automation comes from scalability. Previously, adding new business or new counterparties meant escalating costs but the scalability of automated fund processes means that distributors and fund houses can quickly and cost effectively add new counterparties or channels of distribution.

The third key benefit is service level. Offering a secure environment, developing brand loyalty and strengthening trust have become vital following corporate and fund trading scandals. Investment managers must also keep up with a raft of new regulatory initiatives. Automation allows for the rapid adoption of new ISO market standards in areas such as account management, orders and transfers and reporting.

While message standards are tailored to the fund industry they are also able to provide a flexible offering for clients. This allows investment managers to meet the reporting requirements of different clients and to meet their additional requests for data. "I think a key issue is the building up of a database," says de Antoni.

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