A sea of change
09 Jun 2021
The sea of regulatory change in the industry has impacted transfer agents from all angles, but experts say technology and data will be key to navigating the tides
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Since the financial crisis, transparency of information is now more important than ever and so the service that transfer agents provide is crucial. Transfer agents record changes of ownership, maintain the issuer’s security holder records, cancel and issue certificates, and distribute dividends. By standing between the issuing companies and security holders, their operations are critical to the successful completion of secondary trades on behalf of the fund(s). Transfer agents must fulfil regulatory and legal requirements for end investors by providing them with the servicing that is required by the applicable regulations and offering a memorandum.
They also play a vital role in acting as a liaison between a company’s registrar and an investor.
“The role of the transfer agent is critical as it is servicing and supporting the clients of the asset manager and is often the only one interacting with the investor,” affirms Nick Wright, CEO international, head of global investor and distribution solutions at SS&C.
Experts say transfer agency has changed considerably in the last 25 years and has become extremely competitive, with new fund types coming into the arena and existing fund types growing in complexity, and investor experience – once an afterthought – now at the forefront. Justin Hayes, global product manager, transfer agency, Linedata, suggests that while some asset managers might be able to handle this in-house, many don’t have the resources to keep up with increased regulation and rely on outsourcing to Third Party Administrators (TPA’s).
Jon Willis, global head of transfer agency, markets and securities services, HSBC, highlights that the functionality provided by the transfer agent is important because it acts as an enabler to sell into specific countries or client segments. Additionally, the ‘client experience’ of a fund’s shareholder will largely be dependent on the quality of service of the transfer agent, and this can make all the difference on the retention of clients.
“The new generation of investors will demand ever-increasing levels of service and connectivity to their investments,” predicts Willis.
With all of this in mind, experts say data and technology is key to success in this space.
Financial crisis and regulatory impacts
The financial crisis of 2008 added expense pressure to asset managers as well as other participants in the financial services industry, which caused some managers to review their service models and re-evaluate the transfer agency function. However, HSBC’s Willis argues that transfer agency has long since moved on from the financial crisis, when you look at the level of investment in recent years.
“There will always be a drive from fund managers for lower cost, but what we have also seen over the last few years is more of a move to a higher quality of service, investment in technology, and a focus on the overall customer experience. The transfer agent has become a differentiator for fund administrators’ overall offering,” Willis affirms.
Kate Webber, lead product manager, global fund services at Northern Trust, states: “The financial crisis created a sea change in how regulators approach our industry, with rapid increases in the pace and scope of regulatory change.”
Where this presents a particular challenge is that many of the operating models used by institutions across our industry are based on legacy architecture, which is functionally rich but complex to change, explains Webber.
This is coupled with digital transformation. As an industry, the reliance on legacy architecture often makes the process of accommodating the requirements of regulatory change a challenging task.
“The services being provided are constantly under evaluation because of heightened regulation, to ensure that they are the best they can be,” says Linedata’s Hayes.
While it has been observed by Hayes that some clients, such as private equity firms, want more granular details than just the opening and closing balance and activity, they still want as much information on why the investment is going ahead and the details behind it.
From that point of view, Hayes suggests transfer agents need to make sure fund administration is in line with their workflows and ambitions.
Meanwhile, an enhanced regulatory oversight on processes can create additional controls that need to be evidenced — this can occasionally take away the gains transfer agents achieve through technology improvements.
Modernisation of some existing regulations is therefore required to reduce the impact they have on the transfer agent’s ability to maximise technology advancements.
According to Steve Farlese, head of investor solutions, BNY Mellon, with the industry focus on digital solutions, regulations need to adapt to support critical, costly processes such as eDelivery vs. traditional mailed documents, and wet signature vs. eSignature.
In addition, Farlese states that the increased need for privacy and data protection requires us to carefully balance the needs of clients.
“Transfer agents want to give their clients transparency but must focus on making sure they are protecting their clients’ data and privacy at the same time by maintaining good processes and controls,” explains Farlese.
Enhanced portals
Technology has had to keep up with the complex regulatory requirements that have come in since the financial crisis and portals are becoming an increasingly popular option for transfer agents.
Experts observe that transfer agents are continuing to work on enhancing their portals and are developing more functionality online for self-service. Experts say it is important for transfer agents to ensure investors are adapting to this new digital environment.
However, the new digital environment brings challenges within itself. Cybersecurity has been particularly prevalent in recent years especially over the course of the pandemic.
“Transfer agents are responsible for maintaining and protecting shareholder records and information. These records are highly confidential and are the subject of the ongoing fraud and cybersecurity threats occurring in multiple forms,” Wright states.
The challenge is to strike a balance between keeping technology transformative and innovative but also regulatory compliant.
Wright stipulates that technology like a distributed ledger is demonstrating value in multiple applications. SS&C expects the utilisation of distributed ledger will continue to proliferate.
“Integrating these technologies into our industry’s current ecosystem may allow this technology to serve various functions while maintaining a balance of existing expectations and regulation,” says Wright.
SS&C is looking at leveraging the blockchain for certain record keeping initiatives; however, the tokenization and monetisation of currency may represent a challenge from a regulatory perspective.
From BNY Mellon’s perspective, Farlese highlights the increased speed of information exchange is a positive development for the industry and one which will deliver many benefits.
BNY Mellon’s focus remains on creating processes that can take advantage of these new technologies while still ensuring that we have the right operational controls and checkpoints in place to ensure investor safety. Increasingly, these innovations will drive how BNY Mellon manages risk and protects data.
An explosion of innovation
In order to enhance technological offerings and overcome some of the regulatory challenges, some transfer agents are merging with software firms.
According to Hayes, some of the most useful technologies being introduced aid compliance with greater regulation, and there has also been an explosion of innovation due to covid.
Additionally, some software firms, which already had a specialisation in platform technology, have started offering transfer agency as a service on top of their software service offering, and there was a recent takeover of DST by SS&C in this space.
SS&C acquired DST in 2018, and Wright says this brought together industry leading service and technology from DST with SS&C who has had a consistent track record of innovation and growth through acquisition.
“Technology will need to keep pace with shareholder trends and expectations for improved automation and security. Software companies are uniquely positioned to help transfer agents transform legacy mainframe infrastructures to meet the enhanced expectations for the future,” Wright comments.
Elsewhere, Northern Trust recently acquired Parilux Investment Technology, LLC, allowing it to integrate Parilux’s software with a proprietary cloud-based web and mobile interface for its front office solutions business.
According to Webber, this provides a holistic data management platform for in-house investment teams managing complex, global multi-asset class portfolios.
“This type of acquisition can help asset servicers advance their technology stack and processing capabilities while taking advantage of new solutions initially developed outside their organisations,” Webber explains.
Looking to the future, Webber predicts the most significant opportunity is for the industry to move from inefficient and highly manual transfer agency processes.
“This means ending reliance on much of the outdated systems on which much of the funds industry still operates today. And it is not enough to simply build a portal on top of a legacy solution,” she highlights.
Webber adds: “Data is central to success. It is critical to arrange your architecture to deliver accurate, reliable, real-time data, and utilise the power of digital technology.”
Similarly, Wright says: “The role of the transfer looks to become increasingly more efficient and automated. Opportunities for the future include items that are being deployed in our call centres to leverage multi-factor authentication to reduce fraud and to leverage chat and chatbot technologies to improve client experience and reduce hold times.”
“The exciting future opportunities here lie in artificial intelligence, natural language processing and even blockchain. Giving an investor a blockchain identifier after one anti-money laundering/know your customer check that they can use again and again would mean no repeat processes – freeing up a huge amount of time,” concludes Linedata’s Hayes.
They also play a vital role in acting as a liaison between a company’s registrar and an investor.
“The role of the transfer agent is critical as it is servicing and supporting the clients of the asset manager and is often the only one interacting with the investor,” affirms Nick Wright, CEO international, head of global investor and distribution solutions at SS&C.
Experts say transfer agency has changed considerably in the last 25 years and has become extremely competitive, with new fund types coming into the arena and existing fund types growing in complexity, and investor experience – once an afterthought – now at the forefront. Justin Hayes, global product manager, transfer agency, Linedata, suggests that while some asset managers might be able to handle this in-house, many don’t have the resources to keep up with increased regulation and rely on outsourcing to Third Party Administrators (TPA’s).
Jon Willis, global head of transfer agency, markets and securities services, HSBC, highlights that the functionality provided by the transfer agent is important because it acts as an enabler to sell into specific countries or client segments. Additionally, the ‘client experience’ of a fund’s shareholder will largely be dependent on the quality of service of the transfer agent, and this can make all the difference on the retention of clients.
“The new generation of investors will demand ever-increasing levels of service and connectivity to their investments,” predicts Willis.
With all of this in mind, experts say data and technology is key to success in this space.
Financial crisis and regulatory impacts
The financial crisis of 2008 added expense pressure to asset managers as well as other participants in the financial services industry, which caused some managers to review their service models and re-evaluate the transfer agency function. However, HSBC’s Willis argues that transfer agency has long since moved on from the financial crisis, when you look at the level of investment in recent years.
“There will always be a drive from fund managers for lower cost, but what we have also seen over the last few years is more of a move to a higher quality of service, investment in technology, and a focus on the overall customer experience. The transfer agent has become a differentiator for fund administrators’ overall offering,” Willis affirms.
Kate Webber, lead product manager, global fund services at Northern Trust, states: “The financial crisis created a sea change in how regulators approach our industry, with rapid increases in the pace and scope of regulatory change.”
Where this presents a particular challenge is that many of the operating models used by institutions across our industry are based on legacy architecture, which is functionally rich but complex to change, explains Webber.
This is coupled with digital transformation. As an industry, the reliance on legacy architecture often makes the process of accommodating the requirements of regulatory change a challenging task.
“The services being provided are constantly under evaluation because of heightened regulation, to ensure that they are the best they can be,” says Linedata’s Hayes.
While it has been observed by Hayes that some clients, such as private equity firms, want more granular details than just the opening and closing balance and activity, they still want as much information on why the investment is going ahead and the details behind it.
From that point of view, Hayes suggests transfer agents need to make sure fund administration is in line with their workflows and ambitions.
Meanwhile, an enhanced regulatory oversight on processes can create additional controls that need to be evidenced — this can occasionally take away the gains transfer agents achieve through technology improvements.
Modernisation of some existing regulations is therefore required to reduce the impact they have on the transfer agent’s ability to maximise technology advancements.
According to Steve Farlese, head of investor solutions, BNY Mellon, with the industry focus on digital solutions, regulations need to adapt to support critical, costly processes such as eDelivery vs. traditional mailed documents, and wet signature vs. eSignature.
In addition, Farlese states that the increased need for privacy and data protection requires us to carefully balance the needs of clients.
“Transfer agents want to give their clients transparency but must focus on making sure they are protecting their clients’ data and privacy at the same time by maintaining good processes and controls,” explains Farlese.
Enhanced portals
Technology has had to keep up with the complex regulatory requirements that have come in since the financial crisis and portals are becoming an increasingly popular option for transfer agents.
Experts observe that transfer agents are continuing to work on enhancing their portals and are developing more functionality online for self-service. Experts say it is important for transfer agents to ensure investors are adapting to this new digital environment.
However, the new digital environment brings challenges within itself. Cybersecurity has been particularly prevalent in recent years especially over the course of the pandemic.
“Transfer agents are responsible for maintaining and protecting shareholder records and information. These records are highly confidential and are the subject of the ongoing fraud and cybersecurity threats occurring in multiple forms,” Wright states.
The challenge is to strike a balance between keeping technology transformative and innovative but also regulatory compliant.
Wright stipulates that technology like a distributed ledger is demonstrating value in multiple applications. SS&C expects the utilisation of distributed ledger will continue to proliferate.
“Integrating these technologies into our industry’s current ecosystem may allow this technology to serve various functions while maintaining a balance of existing expectations and regulation,” says Wright.
SS&C is looking at leveraging the blockchain for certain record keeping initiatives; however, the tokenization and monetisation of currency may represent a challenge from a regulatory perspective.
From BNY Mellon’s perspective, Farlese highlights the increased speed of information exchange is a positive development for the industry and one which will deliver many benefits.
BNY Mellon’s focus remains on creating processes that can take advantage of these new technologies while still ensuring that we have the right operational controls and checkpoints in place to ensure investor safety. Increasingly, these innovations will drive how BNY Mellon manages risk and protects data.
An explosion of innovation
In order to enhance technological offerings and overcome some of the regulatory challenges, some transfer agents are merging with software firms.
According to Hayes, some of the most useful technologies being introduced aid compliance with greater regulation, and there has also been an explosion of innovation due to covid.
Additionally, some software firms, which already had a specialisation in platform technology, have started offering transfer agency as a service on top of their software service offering, and there was a recent takeover of DST by SS&C in this space.
SS&C acquired DST in 2018, and Wright says this brought together industry leading service and technology from DST with SS&C who has had a consistent track record of innovation and growth through acquisition.
“Technology will need to keep pace with shareholder trends and expectations for improved automation and security. Software companies are uniquely positioned to help transfer agents transform legacy mainframe infrastructures to meet the enhanced expectations for the future,” Wright comments.
Elsewhere, Northern Trust recently acquired Parilux Investment Technology, LLC, allowing it to integrate Parilux’s software with a proprietary cloud-based web and mobile interface for its front office solutions business.
According to Webber, this provides a holistic data management platform for in-house investment teams managing complex, global multi-asset class portfolios.
“This type of acquisition can help asset servicers advance their technology stack and processing capabilities while taking advantage of new solutions initially developed outside their organisations,” Webber explains.
Looking to the future, Webber predicts the most significant opportunity is for the industry to move from inefficient and highly manual transfer agency processes.
“This means ending reliance on much of the outdated systems on which much of the funds industry still operates today. And it is not enough to simply build a portal on top of a legacy solution,” she highlights.
Webber adds: “Data is central to success. It is critical to arrange your architecture to deliver accurate, reliable, real-time data, and utilise the power of digital technology.”
Similarly, Wright says: “The role of the transfer looks to become increasingly more efficient and automated. Opportunities for the future include items that are being deployed in our call centres to leverage multi-factor authentication to reduce fraud and to leverage chat and chatbot technologies to improve client experience and reduce hold times.”
“The exciting future opportunities here lie in artificial intelligence, natural language processing and even blockchain. Giving an investor a blockchain identifier after one anti-money laundering/know your customer check that they can use again and again would mean no repeat processes – freeing up a huge amount of time,” concludes Linedata’s Hayes.
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