Klea Neza sheds light on the importance of transfer agencies and explores how vital technology is to a transfer agent’s work
In the often complex realm of asset servicing, the importance of transfer agencies is easily overlooked. Despite this, their importance in the sector, and the vital role they play serving and meeting their clients’ needs, make these institutions a key linchpin.
In addition to transfer agencies themselves, it is important to consider how vital technology is to a transfer agency’s way of working, and the pivotal role these solutions and tech platforms play.
In a constantly changing environment, both transfer agents and technology firms that enable their work, must continuously adapt to the needs and demands of the market.
In a world where fund complexity, new technologies, increased regulation and investor demands are ever-changing, how do transfer agents and tech firms work together and tackle any setbacks?
Base knowledge
Transfer agencies, which can come both as dedicated specialists or within an umbrella organisation such as a bank, are assigned by organisations that entrust them to maintain, operate and manage an investor’s financial information. They have a number of responsibilities, such as sending tax information to investors or distributing annual reports to their shareholders. In many cases they can even be seen as an ‘electronic book’, digitising the recording of financial information for their customers that once would have taken place in paper ledgers.
One of the primary responsibilities of a transfer agent is to protect investors and issuers by ensuring the accuracy and reliability of their clients’ information and financial records. Another key aspect is security, where technological developments, as always, play a crucial role.
Evolving technology
Paul Daly, head of distribution products and solutions, Securities Service at BNP Paribas, deems technology to be “incredibly important to the role of the transfer agent”.
Daly mentions that the role of a transfer agent includes supporting global distribution, which requires the “ability to connect with distributors and investors around the world, and
manage multiple, often complex, operational solutions on clients’ behalf”. This, he notes, is only achievable through their use of different technologies.
BNP Paribas uses its proprietary platform to “handle local specificities or leverage our global operating model for centres like Luxembourg and Ireland, using platforms like Multifonds [and] NTAS,” says Daly.
In the last decade, the transfer agency industry has adapted to new technology, becoming “more digitised as it navigates a very competitive market, tight margins, changing investor demographics, and increasing regulatory demands,” states Aldric Dupaïs, head of Asset Management Northern Europe at Linedata.
Dupaïs notes that through the use of API interfaces, cloud-based software, and AI/ML-enabled workflow management, firms such as Linedata offer a number of benefits for their users.
“All of this helps our clients reduce cost, mitigate risk, and enhance customer service.”
Change in the industry
Over the last ten years, the transfer agency industry has been evolving to always best suit the needs of their clients.
Lisa Shea, head of Global Transfer Agency Services at FIS, sheds light on a focus that has been on “digital applications, regulatory requirements for funds” that possibly include money markets and investment product trends. This can include “convergence of alternatives and traditional funds in new fund wrappers, and the focus on real time data are all ways that we have evolved to support clients”.
The digital transformation of the transfer agency industry has also been highlighted by Garth Smith, global head of Product — Transfer Agency at Apex Group. Smith mentions that the digital transformation has allowed for the “democratisation of access to a bigger range of funds and asset classes to a broader base of investors while assisting the industry in reducing the overall cost of administering funds”.
The transfer agent continues to observe investor demands for greater liquidity in private market assets.
In addition to digital transformation, there have also been significant regulatory changes impacting the transfer agency world, many of which have led to improvements in transparency and enhanced investor protection. Smith suggests that the change in regulation has resulted in the process of money laundering becoming more preventable and detectable.
Despite the positive impacts of regulation, they do also bring increased risk and compliance costs — firms constantly needing to adapt to the various directives placed upon them.
Ensuring security
Naturally, security is a top priority for transfer agencies. Given the sensitive nature of the information they hold, agents such as Apex Group have to establish strong systems and procedures to safeguard clients’ information security, integrity, and confidentiality.
Smith highlights that all staff must apply best practices when handling confidential information, and “only disclose it to individuals who have a legitimate business need-to-know”.
He continues: “Data in transit is encrypted using strong encryption, and data at rest is stored encrypted within the Azure and Citrix infrastructure.”
According to Smith, this infrastructure has a number of features in place, including multi-factor authentication, access controls, endpoint detection and “response software, network controls and backups”.
Technology, and thus the firms who provide these solutions to transfer agents, plays a vital role in ensuring security-related issues are addressed and solved. Despite tech-firms not facing security-related issues directly with transfer agencies, they still have measures in place to ensure they are protecting their customers’ data and information.
Dupaïs comments that Linedata ensures that all measures are in place when dealing with a new client, and continuously monitors data security with existing clients. He notes that this includes using “data encryption and multifactor authentication (MFA) and complying with regulations such as GDPR”.
ESG
As with technology, the focus and concerns of society have also evolved in the last decade. Environmental, social, and governance (ESG) issues are now one of the main factors that companies must consider. Transfer agencies are no exception. Firms such as FIS Global have adapted to the ‘not-so-new’, but modern way of operating their business, needing to take environmental issues into consideration.
FIS’s Shea says: “In investor servicing and transfer agencies, there is a real opportunity to have a positive impact by evolving digital tools and digital delivery of documents to reduce the use of paper.”
She continues: “With paper delivery still the US mutual funds industry’s default requirement, transfer agencies can help our clients encourage affirmative election for e-delivery of documents by providing user-centric online experiences.”
In the past, transfer agencies, like many other industries, relied heavily on paper. As the importance and awareness of environmental issues escalated over time, the need for digital documentation became more prominent. A transfer agency’s traditional method of storing and sending financial information on paper, mailing out investor reports via the post, highlights how tech firms are able to advance ESG issues.
The move to digitised workflow has had a positive impact on the environment by decreasing the use of paper. Investors at Linedata are now able to view their transactions and statements through the company’s investor portal.
Dupaïs states: “Operationally, we have automated the day-to-day processing of a transfer agent so they can view all the necessary documents online. This means there is no longer a need to print, store and waste large amounts of paper and time. So, the paper used is minimal, which has a positive impact on the environment.”
As well as the physical environmental impacts that business operations have, ESG reporting has also become a key issue for transfer agencies. Technology firms such as Linedata, offer this type of reporting, allowing for transparency, accountability and “achieving sustainability targets that the transfer agencies may use,” explains Dupaïs.
Dupaïs comments: “They help to ensure they provide accurate data so their clients can meet the various regulations such as the Sustainable Finance Disclosure Regulation (SFDR).
“Through our software transfer agencies can ensure that this data is accurate and readily available so their clients can meet their ESG regulatory reporting needs.”
Transfer agencies ahead
According to Apex’s Smith, “client and investor experience is key”.
He explains that Apex expects an interconnected and interoperable industry as the difference between traditional and fund strategies and structures reduces with the “evolution of ELTIFs/LTAFs and tokenised funds.
“A next-generation digital transfer agent is fundamental to this shift as we bring together traditionally separate operating models and investor services to create a single digital investor experience.”
The majority of transfer agents have a clear focus to invest in technology going forward This includes distributed ledger technology (DLT), digitalisation, and end-user experience enhancements. As the demands of clients change, the technology must adapt with it in order to meet customer needs. New technology enables transfer agents to provide access to “real-time data for oversight and market demands,” mentions Daly.
He highlights that it is also crucial to some that an investment in employers is required through the process of talent development for a smoother sailing transfer agent who would like to achieve their objectives.
Overall, it seems that transfer agencies are gradually stabilising their place in the realm of asset services as their demand increases. Their importance can not be overlooked, and as they embrace the world of new technology, they are able to offer even greater service to their clients.
