Winning converts

Since witnessing transaction time change from days to minutes, HSBC’s private banking branch has been singing songs of praise for the FundSettle order processing platform. Roxane McMeeken writes on the rewards of standardisation and automation.

The need to automate and standardise trade ordering, clearing and settlement in the European investment fund industry has long been preached. But the holy grail of universal straight-through processing (STP) and T+1 has yet to be reached. This begs the question of whether our unquestioning faith in this doctrine is misplaced. And if everyone believes we need standardisation, why hasn’t everyone taken the plunge and invested in the necessary systems? The industry has got along alright thus far, so doesn’t the old saying “if it ain’t broke don’t fix it” apply? One true believer who has taken the plunge is Rachel Orlandini, head of the securities department at the Monte Carlo branch of HSBC Republic Bank, the private banking arm of HSBC Group with E170bn under management. She says that signing up for a system that has automated order routing, clearing and settlement processes has radically improved the way the bank operates. The Monaco operation joined the FundSettle platform, offered by Brussels-based Euroclear, a year ago. Since then, “order processing has become easier and less expensive”, Ms Orlandini says. The average transaction time has fallen from a couple of days to just two minutes. “Before, we had to contact the fund manager by phone, then send a fax to say that we wanted to subscribe, then we would receive an application form and have to return that by fax or DHL (courier). After that we would need payment for the subscription and once we had confirmation of that, we could go ahead.” Frequently, she adds, this confirmation failed to materialise. Now, all this is achieved at the press of a button through FundSettle, which directly links the bank with transfer agents and fund managers. Besides improving timing, automation has also improved HSBC Republic’s efficiency, says Ms Orlandini. “Euroclear sends us a statement each month by Swift, which allows us to check all the positions that we have with FundSettle. In fact, we can check all our positions on a daily basis.” This compares with the old system of relying on the various fund managers to submit statements. The problem with this, Ms Orlandini explains, is that “some fund managers don’t want to give you a statement every month, some only do it once a year. In these cases you would have to call or fax them to get the information.” This is clearly more time-consuming and not exactly a streamlined way to gather information, much less collate it and present it to clients. Improvements One problem with FundSettle is highlighted by Gertrud Furrer, assistant vice-president of AIG Private Bank in Switzerland. She says: “The only disadvantage we see with FundSettle is that it does not really deal with offshore funds in the Caribbean and that Swiss funds are not accepted in FundSettle today”. However, she adds, “that should be changed early next year”. But, according to Ms Orlandini, this is a small price to pay for the benefits of automation, which she believes has helped the Monte Carlo office to win new business. This is because the improved efficiency has made it possible to offer a better service to offshore customers and also for the bank to spend more time on one of its core competencies – investment research. So Ms Orlandini further believes that the automation and standardisation of the dealing and settlement process of funds should be implemented across Europe. She says: “In the back office it is very important to have one single system. It means we can get the information we need straight away without spending time checking information received on paper.” She adds that she is advising all her fund management and investment adviser contacts to do business on FundSettle. For Ms Orlandini, then, the quest for universal and standardised automation is indeed justified. When asked what advice she would give a firm considering making the investment, she says: “Just go for it”. HSBC picked FundSettle primarily because Euroclear took the time to visit the Monaco office and demonstrate the platform in person, according to Ms Orlandini. In addition, FundSettle was found to be user-friendly and to have a strong telephone-based assistance service. Barbara Vuylsteke, director and head of product management for investment funds at Euroclear, says that seeing customers in the flesh is a vital way of winning converts. “Our experience is that you gain the most through face to face contact.” This helps potential clients to fully understand FundSettle and to allay any fears they might have. One particular concern has come up time and again. “Certain clients have thought that FundSettle would become an intermediary between them and the agent, and as a result that they would lose their commission or at least part of their commission.” But she says, “this is not at all the case. FundSettle has been built to bring the maximum transparency. With us, clients keep the relationship they have with the funds and the power to negotiate commissions.” This differs to the systems offered by Brown Brothers Harriman and FundsHub, which take a cut of commission, according to Ms Vuylsteke. But since FundSettle and other platforms, such as Clearstream’s Vestima, do not take any commission, there appears to be no need for the commission issue to discourage European investment industry players from investing in automated processing systems. Volume surge Ms Vuylsteke is in fact convinced that automation and standardisation are both necessary and inevitable. She says: “When trading volumes pick up again, if the industry doesn’t buy into an STP solution it will have problems.” She adds that private wealth managers are “definitely very keen to standardise”. And many are not going to wait for the economic recovery before they make the jump, according to Ms Vuylsteke. She says that while it is true that volumes are not high at present due to the market conditions, “people are getting ready for a volume surge”. Indeed, in the past four months Euroclear has seen the number of customers joining FundSettle accelerate from two or three a month, as seen in the first half of the year, to four or five a month or one a week. So it seems that Europe’s investment fund industry has not lost its faith in the notion that the automation and standardisation of trade ordering, clearing and settlement is vital to its future.