The Australian funds community took an important step forward as HSBC Securities Services, RBC Dexia Investor Services and Vanguard Investments Australia Ltd. are now 'live' with automated funds transaction processing over Swift.
Additional local industry participants are expected to adopt SWIFT's transaction automation standards for funds as part of a global move toward risk reduction and cost efficiencies. Automated funds transactions replace faxes and other manual processes used for financial information exchange.
"Just as automation has benefited the equity and debt markets in Australia, we see industry adoption of SWIFT's transaction automation standard as a crucial step in the growth of Australia as a financial hub capable of leading the region in terms of standards and efficiency," says Mr. Peter Snodgrass, Head of Securities Services, HSBC Bank Australia.
Significant structural cost savings for the industry in Australia
Global investment management consulting and IT services company Morse Consulting believes the cost savings created through funds transaction automation could be even higher than industry assessments.
"Experience suggests paper-based transactions can often cost funds managers as much as A$40 each for simple processes," says Mr Tim Worner, a principal with Morse Consulting, "and complex transactions can cost even more."
"Adopting automated processes can significantly reduce these costs. Also, paper-based transactions increase the risk for human error. Automating the dealing and reconciliation processes reduces that risk and at the same time promotes improved customer service," he adds.
An integral factor in each institution's global strategy
The processes automated so far by HSBC Securities Services, RBC Dexia Investor Services and Vanguard Investments include applications, redemptions, confirmations, status reports and reporting, which are sent using SWIFT Funds ISO20022-compliant messages across the SWIFT network. SWIFT connects more than 8500 institutions in over 200 countries around the world.
Gordon Little, Head, Operations & Fund Services for RBC Dexia Investor Services, observes:s: "The deployment of this service to the Australian market is a natural extension of our global operations. For Australia we have deployed our global unit registry system, which already had the SWIFT capability, and which we deployed in Europe over seven years ago as a pilot member of the SWIFT modelling committee. We are delighted to be part of introducing this technology in Australia, where we play a leading role in funds processing. We are key supporters of automation globally, with our next initiative in Asia due to enter testing with distributors shortly."
According to Mr. Roger Leahy, Head of Investor Services, Vanguard Investments Australia Ltd., the SWIFT initiative is part of an effort to create best practices in the funds management industry. "The SWIFT Funds solution enables Vanguard to efficiently and cost effectively process clients transactions. STP is now a reality for Australian fund managers through the use of the standard protocol and the SWIFT network. It enables all participants in the institutional funds management industry to interact in the same manner, handling scale without increasing risk."
Mr. Peter Snodgrass, Head of Securities Services, HSBC Bank Australia, remarks: "Demand among investors for seamless communication between the client and the investment point is increasing. As well as providing transparency of the transaction lifecycle, SWIFT's transaction automation standard reduces transaction times, increases capacity and, perhaps most importantly, reduces processing risk for our clients.
"In today's environment, HSBC considers it critical that we continue to invest in initiatives like this that will benefit our clients and industry in the long term - in Australia as well as internationally."
Since going live, HSBC now uses SWIFT to send orders (applications and redemptions) electronically from its custody system to the registry system of the products administered by both RBC Dexia Investor Services and Vanguard Investments. HSBC then receives an instant SWIFT response acknowledging each order and once the confirmation is sent by the registry system, the information is automatically interfaced into the HSBC custody system, with all of the executed trade details being updated on a STP basis therefore without any human intervention in the end to end settlement process.
A community comes together to establish market practice
Tim Hamer, SWIFT Securities Commercial Manager for Australia & New Zealand, says the go-live of the three companies followed a two-year project involving market practice work and a pilot to establish local market practice rules for the use of the standards to automate local investment fund transactions.
"There were two distinct activities with different participants," he explains. The market practice group, whose programme commenced in March 2007, comprised ABN AMRO Asset Management (now Fortis Investment Management), ANZ Custodian Services, Ausmaq, Barclays Global Investors, BNP Paribas Securities Services, BT Financial Group (Wrap platform), Colonial First State, HSBC Securities Services, JPMorgan Chase Bank (WSS), Macquarie Bank (Wrap platform), National Custodian Services, RBC Dexia Investor Services, State Street Investor Services and Vanguard Investments Australia.
According to Mr Hamer, "The challenge for the market practice group was to work through the message standards to identify which pieces of information are essential to the Australian marketplace and how these messages could be used in an Australian context. It also set out the rules of engagement and how the messages should 'flow' between participants."
The second round of activities involved a pilot group, which was a subset of the market practice group and was charged with testing the decisions and message standards agreed by the market practice group. The pilot included ANZ Custodian Services, Ausmaq, Barclays Global Investors, BT Financial Group (Wrap platform), HSBC Securities Services, JPMorgan Chase Bank (WSS), National Custodian Services, RBC Dexia Investor Services and Vanguard Investments Ltd.
As Mr Hamer explains, "The market practice was the industry agreeing how to do it. The four-week pilot was about proving that it would work. We've now reached the point where this is real and tangible and no longer a question of 'if' it happens," he says.
"In all of my discussions with industry participants, everybody agreed that automation was the way to go," adds Mr Hamer, "but there were few that wanted to be industry leaders, put their hands up and put the required systems in place. Thanks to the market practice group, the pilot and this first group to go live, there's now no excuse for the others not to do the same." The expectation now is that more funds participants will join the automation initiative before the end of the year, with six other firms already committed in May 2008 to going live before the end of October 2009.
"I expect that when the global SWIFT community comes to our annual Sibos conference and exhibition in Hong Kong this 14-18 September, they will certainly be looking at the example of the Australian community as a clear indication of the inevitable move towards standardisation across the industry," says Mr Hamer.