The role of the transfer agent (TA) has been significantly impacted by the changing regulatory and technological environments of the industry over the last decade. This has mainly evolved in the form of a transition from solely processing information to the provision of value-add services, such as global and local distribution strategies, and tax regulatory compliance. With these changes, TAs have had to adapt to the changing requirements of asset managers.
Rachel Turner, head of asset management solutions for Europe, Middle East and Africa, and Asia Pacific at BNY Mellon, notes that needs of asset managers when appointing a TA now include the ability to “reach customers directly, using digital interfaces to offer differentiated experiences and develop long-term relationships”.
Turner adds that “the consequent move away from using fund distribution platforms means they increasingly rely on transfer agents to ensure user-friendly, timely and responsive interaction”.
Similarly, Andy Schmidt, vice president of global banking at CGI, identifies that asset managers are also asserting the need for TAs to be able to reduce fees, increase transparency and provide a “digital experience” that both incorporates legacy technology and ensures TA platforms are “natively digitally enabled, not added on as an afterthought”.
The deliverance of efficient access to data in real time depends on a greater transition to digitalisation, according to Antonio Barros, group product manager at CACEIS, including application programming interfaces (APIs), and internal systems development through cloud net technologies such as blockchain and distributed ledger technology (DLT).
Barros explains: “Digital is the industry’s main buzzword at the moment, with investors seeking a fully digital interaction at every stage. For example, the asset manager uses the TA’s systems to sell funds via a distributor, which in turn uses the TA’s internal systems to handle anti-money laundering (AML) and know your client (KYC) needs, as well as order processing and receipts. “
“TAs have to offer this digital experience. Those offering such a complete digital experience are greatly favoured by distributors.”
However, Barros reassures that “fintech is not destroying the TA industry” despite some instances of fearmongering; rather, fintech companies that are not yet marketplace intermediaries are collaborating with TAs and other asset servicing industry players as solution vendors.
The mitigated threat posed by fintech companies is further alleviated by the fact that many TAs already have a high straight-through processing (STP) rate, the majority of which are above 80 percent. Ironically, these high rates are somewhat attributed to fintech such as chatbots and robotic process automation (RPA).
Within this field of artificial intelligence, Turner believes it offers “promising ways to reduce the need for human intervention for basic relationship management—processing queries, interpreting problems, automating responses and investment choice navigation”.
“In addition, data analytics will play an increasingly important role within transfer agencies, with data mining and analysis leading to better client servicing and more focused client targeting and marketing.”
Schmidt also notes the growing emphasis on improving front-office asset management capabilities through emerging technologies, but simultaneously stresses the importance of enhancing back-office efficiency, costs, and risks in order to “directly benefit the investors through lower management expenses and improved customer service”.
Turner affirms that improving operations through greater automation and standardisation will positively affect the overall end-user experience of a TA.
This includes a reduction in human errors and costs, according to Barros, who also notes that these changes are being implemented “at a decent pace, not too hastily, which risks disrupting the industry and potentially implementing a sub-optimal solution, nor too slow, which means innovation is being stifled”.
It is also vitally important for TAs to balance the ever-changing regulatory environment, or as Barros describes it, the “administrative burden of AML, KYC and Foreign Account Tax Compliance Act regulations”.
Examples of recent regulatory changes in the last few years include the Investor Money Regulations, which implemented the six principles of segregation, designation, reconciliation, daily calculation, risk management, and investor money examination in an attempt to improve investor protection.
Other regulatory bodies, such as the Securities Exchange Commission (SEC) have been concerned with recordkeeping, record retention practices, and safeguarding of funds and securities under TAs. SEC-endorsed regulations include statements of income, financial condition, cash flow, and potential conflicts of interest at registration, and a formalised recognition of TA services in a written agreement, including a description of the services provided, and the terms of payment and fees.
Schmidt recommends companies having their own dedicated teams to solely focus on regulatory compliance. Turner highlights that such teams must balance the ability to “support all distribution channels and investor types, handle multiple fund ranges across different domiciles, as well as new fund types and asset classes, and can deal with regulatory change, technological evolution and changing investor preferences”.
In addition, Schmidt recognises that these teams have common themes of interest in investor data protection, fee transparency, and tax jurisdiction monitoring. He notes that this is particularly vital in the face of a “looming technology disruption in an open banking era”, where companies can survive by investing in innovation while still maintaining an operational focus.
