Calastone’s managing director in Australia, Shannon Sweeney, says she is committed to working with the funds industry to help remove the fax from common usage. AST finds out more
Could you explain the reasons for Calastone’s entry into the Australian market?
Calastone is a global company. Its funds transaction network was already firmly established in Europe and was expanding into Asia when industry participants contacted the management team in 2010 to assess the market opportunity in Australia, as there were clearly opportunities to benefit from the Calastone solution in the country.
At the time, levels of automation within the Australian managed fund industry were low, less than 10 percent, compared with Europe which is more than 90 percent. With every meeting, we were hearing the same message: “We want to remove the fax from our processing”, that faxes were “less efficient”, with more “risk” for error and as well as less flexibility when it came to scaling up orders. Automation was the future.
In July 2011, Calastone Australia was established and began working with the industry to remove the general use of the fax machine. That November, the first organisation began utilising Calastone’s network.
Currently seven of the top 10 Australian platform administrators—representing around 60 percent of the Australian market—now use Calastone’s automated communication systems either directly or through their custodians.
How would you describe automation in Australia compared to, say, the US?
The US benefits from a strong centralised trading and settlement model in the DTCC and its NSCC services. Started in the 1970s and 1980s, it offers distributors and fund managers a one-stop shop for transaction and position data processing. The challenge is that, having been the single solution for so long, that as new distribution models arise—some which require new currencies and different settlement parameters—there isn’t the degree of flexibility to match the growing set of requirements.
Calastone is still assessing the business case in the Americas and has identified some key trends, including the need for increased access across global markets, tapping into new distribution lines across regions and delving into potential market reforms, such as those affecting the at-and post-retirement markets.
However, by way of comparison with all regions, including the US, Europe, Asia and the UK, Australia’s managed funds industry is traditionally less automated than its peers and Calastone has already recognised a real drive for automation by the funds industry in the last two years.
The superannuation market in Australia has recently had government reforms enacted that require participants to electronically connect for transfers between funds (called rollovers), and in 2014 the next wave of automation is legislated for the contribution to the funds.
What has been your specific product focus since you started at Calastone in February?
Calastone continues to innovate to provide the best solutions to help automate the funds industry. We are a global company, but we are also acutely aware of regional and national differences in funds industry requirements. Australia is an exciting opportunity to provide domestic customers with a solution to the managed funds industry’s move to automation right now.
I joined Calastone in February this year because I saw that there was going to be an exciting transition in technology in Australia that would benefit the pensions industry as a whole.
I am committed to working with the funds industry to help remove the fax from common usage. As there are still parties yet to join the network and enjoy the benefits of automation, this is an ongoing focus. Calastone’s initial product focus in Australia is order routing—the messages instructing the buying and selling of funds. We have also recently rolled out our second product, reconciliations, which will replace manual data flow for statements of holdings and transactions.
How do anti-money laundering and KYC processes hold back automation? Do you think that these processes can or will be changed at all in the future?
The Australian Securities and Investment Commission is considering a relief of the need for ‘wet signatures’ on product disclosure statements (PDS). The current need for a signed PDS, in conjunction with the AUSTRAC requirements for paper-based anti-money laundering and KYC requirements are certainly creating a barrier to entry for direct investors (or ‘advised direct’) into managed funds. These processes often encourage them to limit their investments to listed assets, or go through a more expensive aggregated channel, such as execution-only.
When you compare against broker accounts for buying and selling equities, or setting up a bank account, the services and processes are electronic and fast. This is in broad contrast to the process for managed funds and there is a lot of support for this to be changed, but most of lies in the hands of the regulator.
How does Australian regulation play into your product offering?
The level of regulatory reform that has been taking place for the last three years is finally easing. A new government is now in place, however, so we are still hearing discussion around whitepapers on further reform, which could have an impact on our clients’ operations, funding or asset allocations.
We are seeing a growing trend of investors moving to DIY, self-managed portfolios for their pensions and investments, often referred to as ‘self-managed super funds’, which are not regulated by the prudential authority.
This move towards DIY, in addition to the Future of Financial Advice regulations (simplistically, the Australian equivalent of the Retail Distribution Review) affecting commissions and models of advice, are putting pressure on the platforms’ business model, forcing them to redefine their value proposition and their fee models.
Our fund manager clients are looking to new distribution channels to align to this shift in terms of client segmentation. Calastone and its products help to reduce costs, lower the operational risks and provide accessibility between buy- and sell-side players, and hence is a key enabler against this changing landscape.
With regards to superannuation schemes, Calastone is a SuperStream gateway, servicing the regulatory requirements of superfunds, employers, payrolls and self-managed funds to comply with SuperStream standards.
The first phase was the automation for transfers between funds and in 2014 the next wave of automation is legislated for the contribution to the funds. Calastone built the new product offering in line with its global transaction network framework, to provide this solution to the market.