Investment Fund Automation on Rise in Luxembourg
March 12, 2010
Processing of orders for investment funds in Luxembourg – Europe’s largest cross-border market – is becoming far more automated, but there is still plenty of manual intervention, according to a survey just released by Swift and Efama, the Brussels-based European fund association.
The survey of 21 transfer agents in Luxembourg showed that in 2009’s fourth quarter only about 69.3 percent of subscriptions and redemptions which passed through fund distributors and investment fund platforms such as Euroclear’s FundSettle and Clearstream’s Vestima, were processed electronically. That compares with 65.6 percent in the same period in 2008.
Of the total number of automated orders, about 44.6 percent were conducted through the use of the International Standardization Organization’s accredited messages. About 40.3 percent were processed that way in 2008’s fourth quarter.
Fund distributors and other centralized platforms send investors’ orders to buy and sell shares in investment funds to transfer agents.
The survey considered automated orders to be those processed either through proprietary file transfers or two types of ISO-compliant messages which pass through the Swift network – the legacy ISO 15022 messages and newer ISO 20022 messages that have been adapted for investment funds. While the survey did not specify which of the two versions of ISO had the greatest uptake, fund distributors in Asia are using only ISO 20022-compliant messages as they were later to automate then their European peers.
Michele DeBoe, director of investment fund messaging for La Hulpe, Belgium-headquartered Swift, says that Swift and Efama opted to survey transfer agents instead of fund distributors which generate the orders because it was easier to gather the necessary data. While there are only a few dozen transfer agents in Luxembourg there are hundreds of fund distributors, she explains. The Swift network is widely used by financial firms worldwide to send trade and post-trade instructions for securities, payment and foreign exchange transactions.
“The trends [indicated in the survey] match what we have seen over the past year in terms of accelerated business growth through our FundSettle platform,” says Lieven Libbrecht, director of investment funds for international securities depository Euroclear Bank in Brussels. “We continue to see distributors moving away from phones and faxes to using fully automated solutions such as FundSettle which provide a single point of access to all relevant parties.”
The European investment management community has been eager to reduce the paper morass and high processing costs that plague European funds. To that end, in 2005 Efama encouraged investment fund managers, fund administrators, transfer agents, and custodian banks to communicate electronically using ISO 20022-compliant messaging
However, so far fund distributors which send orders to transfer agents, have been slow to adapt to ISO messages, in part due to the costs involved with using the Swift network. Swift introduced the ISO 20022-compliant messages for investment funds in 2004 and last year about 28 million of those messages were sent through its network.
At about EUR7 billion as of year-end 2009, the European investment funds industry is a fraction of the size of the U.S. market, but Europe has a greater number of investment funds and distribution channels are expanding beyond banks to independent advisers and broker-dealers. Unless the trend toward automation continues, the problems associated with disparate paper-based market practices is likely to get worse when transaction levels rise over the next few years.
