Cross-Border Distribution of UCITS

A CACEIS PRODUCT DEVELOPMENT PUBLICATION - 2011

CHALLENGES & OPPORTUNITIES

Graph 22: Operational challenges of third-party distribution

FRONT-END SERVICES

BACK-END SERVICES

FUND ACCOUNTING

TRANSFERAGENT/ CENTRALISINGAGENT

BROKER

FUNDCUSTODY

Institutional Investors

FUND ACCOUNTING

TRANSFERAGENT/ CENTRALISINGAGENT

CUSTODIAN

FUNDCUSTODY

FUND ACCOUNTING

TRANSFERAGENT/ CENTRALISINGAGENT

IFA/CONSOLIDATOR

FUNDCUSTODY

Private Investors

FUND ACCOUNTING

TRANSFERAGENT/ CENTRALISINGAGENT

SUPERMARKET

FUNDCUSTODY

FUND ACCOUNTING

TRANSFERAGENT/ CENTRALISINGAGENT

BANKBRANCH

FUNDCUSTODY

MANUALPROCESS

AUTOMATEPROCESS

AUTOMATEPROCESS

Source: CACEIS, 2008

Risks Service levels Operating costs

In 2007, Deloitte conducted a study on cross-border fund distribution in Europe 35 , which found that the overall level of straight-through processing (STP) in the industry was as low as 47 percent and that manual processing for one non-STP transaction took, on average, 10 minutes. In Asia STP levels are much lower, with less than 12 percent of STP rate today. Fax remains the most common mode of communication there. This can be explained by several factors: • The low appetite of distributors for automation; Fund distribution in the region is controlled by retail banks, which are driven by commission and trailer fees and think that the benefits of automation are greater for transfer agents and fund managers than for them; • The culture of the paper; • Relatively cheap labour cost (although the labour cost is rapidly increasing in some Asian countries), which make manual labour more profitable than investments in technology. Therefore, as trade volumes from Asia have exploded, the processing and operational chal- lenges also mount, all the more as the region remains a very fragmented market with different languages, currencies and payment systems that makes it difficult to put standardised proc- esses in place across the region. Manual processes and lack of standardisation in communication processes are obviously ex- pensive for industry players and investors. The Deloitte study mentioned above looked at the number of errors and found that 0.11% of transactions led to an error, resulting in financial compensation averaging about EUR 1,000. According to the report, if the fund industry would go 100% STP, it would save up to EUR 307 million each year - on a total of EUR 1 billion of total processing costs - representing 30% of savings, for cross-border fund distribution in the Lux- embourg and Irish industries. In the first quarter 2008, within the framework of a market con- sultation on SWIFT Alliance LITE specifications for funds (see § 3.4.2.2), SWIFT also calculated estimated costs of non automated fund processes in Europe and in Asia, making the distinction between manual processing with and without fax server: SWIFT conclusions were that when no fax server is used, the manual cost is double in Europe as in Asia. SWIFT also outlined that fax server is not a cheap solution; As an example, for a distributor with 10 orders a day, they estimated the annual cost of order processing with fax server in Europe at a total cost of EUR 76,000.00 (with direct cost estimated at EUR 19,000.00) 36 .

Manual processes and lack of standardisation of communication processes are obviously expensive for industry players and investors.

Notice

3.3

CACEIS reaches an average STP rate of 84.96% on its transfer agent and Prime TA ® OGS & Mirroring activities in 2011.

35 Source: Deloitte, “Cross-border fund distribution in Europe”, September 2007 36 Source: SWIFT, “Funds automation for low volume users - Lite”, February 2008

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