Cross-Border Distribution of UCITS

A CACEIS PRODUCT DEVELOPMENT PUBLICATION - 2011

CHALLENGES & OPPORTUNITIES

3.4

Operational workflow

The inefficiencies of fund processing are obviously more apparent in a cross-border fund dis- tribution context. The importance of a global approach to fund processing remains as high as ever. If standards such as SWIFT ISO 20022 are progressively being rolled out for order execution, standardisa- tion remains insufficient in settlement, asset servicing and commission handling.

3.4.1

The growth in cross-border business and open/guided architecture tends to exac- erbate operational complexity

As a custodian and/or administrator of UCITS product, the challenge was previously more lim- ited to supporting managers residing in various countries but in broadly similar time zones. As products have become increasingly distributed on a global basis – in particular in Asia, in Latin America and in the wider EMEA region -, a more sophisticated approach is required to service both managers and distributors, as well as investors, stretching from the start of the Asian day to the end of the American day. Cultural differences and in particular the local service quality culture in Asia should not be ne- glected. Language differences also need to be considered for both reporting, data aggregation and client servicing aspects, including integration with existing IT infrastructure. Fund distribution support is now a complex activity, which may require operational teams lo- cated in the region of distribution, especially in Asia. Indeed, local employees, in the same time zone andwith the industry knowledge and understanding of local cultural issues, play a key role in servicing local distributors and investors. Besides, beyond the worldwide commercial success of UCITS - which emerges as a global and top quality brand in the universe of savings products - the fund industry keeps on suffering from operational inefficiencies (manual processes, lack of standardisation, etc.) and risk exposure in its trading, settlement and custody processes. One should keep in mind that signing agreements is one thing but processing successfully operations is another. More than ever, one of the key challenges facing the fund industry is automation of fund related transactions. Unlike other asset classes such as stocks and bonds which rely on electronic tools, the fund industry still widely uses faxes and telephone calls to communicate. As a result, transfer agents in Luxembourg and Ireland have to manually re-key many orders and other data, which generates costs, risks, lowers service levels and makes the market less efficient. The importance of open/guided architecture also exacerbates the ensuing operational costs for industry players and investors. Due to the structure of the industry today, there are mul- tiple relationships between distributors and their transfer agencies, each relationship being technically different and expensive to manage and maintain. The graph below illustrates these numerous relationships:

Unlike other asset classes such as stocks and bonds which rely on electronic tools, the fund industry still widely uses faxes and telephone calls to communicate.

3.4

Cross-border distribution of UCITS | page 53