Ian Stephenson, Global Head of Fund Services and Tim Wood, Head of UK at HSBC Securities Services explain the need for a global solution in today’s rapidly shifting transfer agency market.

Why is transfer agency attracting asset managers’ interest at the moment?

Ian: Historically, transfer agency was regarded as a dull ‘must-do’. It was, particularly in the UK, a necessary service that didn’t feature in the buying decision when it came to a servicing partner. In the last five years, however, it has become clear that
this story is changing.

As functions such as investment accounting, custody and middle office have become lead differentiators, with the major providers all offering a suite of solutions, transfer agency has emerged as one of these. Communicating with transfer agents and accessing the information they provide has become increasingly important: asset managers have realised that a strong transfer agent can help them in growing their customer base and extending the range of services that can be sold to it.

How is your global platform a response to this shift?

Tim: It had got to a stage at HSBC where we had more transfer agency platforms than countries that we operated in. The obvious step was to create a global platform onto which we could move all our services. So, ten years ago we started to invest heavily, both through developing our organic services – in particular, with the help of our technology provider– and through acquisition.

Our services had always been attractive in markets where most traditional competitors had little or no capacity – many custodians tend to be under represented in Asia, for example. We already had considerable scale in the Asian retail market – especially in Taiwan and Hong Kong – where customers were outsourcing
transfer agency, middle office and fund accounting to us.

Ian: Besides greater efficiencies and the ease of a single interface, it was clear from the start that a global platform would provide considerable benefits to our asset management customers. In particular, it would allow firms whose fund customers were distributed across different regions to bundle them together at the fund level. In turn, this would facilitate the process by which a customer could be sold the same product – a Hong Kong mutual fund, say – in multiple countries.

We are investing heavily in Taiwan, Hong Kong and mainland China as well as the UK. These are markets in which we see particular demand for a more sophisticated transfer agency service. The process began years ago with the retail end of the market in Asia. We saw the potential for technology to transform our offering to allow our clients to get closer to their customers – improving access to data and providing the ability to deal through mobile phone apps, for example, as well as enhancing the fund manager’s understanding of their clients across multiple distribution channels.

Initially, we extended the platform that we had built in Asia to Europe. First this meant Luxembourg and Ireland. By the end of 2014 we realised that there was a need for the same service in the UK: while we provided services to wholesale funds, what was needed to extend this to retail funds. So we started working with our technology partners to leverage our global platform in this direction.

How does a global solution benefit clients when it comes to transfer agency?

Tim: In the first case, the idiosyncrasies of the many markets we operate in means that we have been able to create something that is functionally rich. Given the range and diversity of the markets we must support, there isn’t much that the platform can’t do.

Ian: In addition, as a large global firm we have the resources to fund new functionality and can leverage investment made in our other lines of business. Such features include enabling the API transfer of data, providing mobile interfaces like the dealing app and creating effective customer support. In the latter case we have been able to draw from our existing retail banking technology in telephony and biometrics to provide a slicker and more efficient customer experience. This would have been a hugely expensive undertaking without the Bank’s pre-existing infrastructure.

A global platform helps our customers negotiate the challenges of local regulatory environments, too. In Taiwan, for example managers are now required to manufacture domestic products rather than purely distribute their UCITs. Where once they sold Luxembourg funds, managers must now create Taiwanese ones – we are able to support this on the same platform. As global regulatory challenges continue, this type of integrated offering will provide more and more benefits for managers. The core concept is providing them with a single pipe down which to exchange key information, which we can then put to work supporting the services they deliver in multiple local marketplaces.

We will see this more in mainland China, too. Managers there are now permitted to set up wholly owned fund management firms and, if they have a three-year track record, enter the retail market. Again, the functionality to service these private funds will be valuable and we are working hard to partner with the growing number of new firms created by this change.

How is transfer agency changing in the UK and what are you doing to respond?

Tim: The UK has experienced considerable changes in the commercial landscape recently. The move comes as part of a wider trend that we’re seeing in the UK towards a more bundled service offering. Previously we might take the custody and fund administration and other providers would often do the transfer agency. With the current limited choice of service providers, customers are looking to alternatives: suppliers of fund administration, keen to retain business, want to provide transfer agency in addition. New entrants have also accelerated the shift towards one-stop shops. These changes have challenged the traditional perception that transfer agency sits at the dull and dusty end of the product line. Increasingly, there is a realisation that it can be a strong commercial proposition with significant benefits.

Ian: For asset management customers and intermediaries the quality of client service and ease of contact is crucial. Receiving a professional, informed and consistent contact experience through multiple channels is an important differentiator. A firm like ours already supporting transfer agency in 14 countries – the UK is number 15 – is well placed to provide that bundled proposition in which customers can be confident they are getting the service they want.

Tim: Our UK offering will be a game changer we believe, adding - as it does from 2019 - the one leg of the table that was missing in our services here. It is backed up by the heavy investment we are making on the single global platform, which is a central plank of our global strategy for the asset management segment and one that we are particularly focused on currently.

What role will technological innovation – notably the distributed ledger – play in the future of transfer agency?

Tim: There is considerable interest in the potential of distributed ledger to transform transfer agency. Recording transactional activity and ownership information is central to transfer agency and appears particularly well suited to the distributed leger. HSBC is involved in initiatives to see whether that technology can help make transfer agency more efficient. Remember, too, that historically transfer agency has been one of the more manual components of asset servicing – even today faxes are heavily used. So we are looking across the range of available technologies to help build a quicker, more accurate, lower cost solution. The UK offering is a particular focus. Our work here is particularly well placed to benefit from technological innovation because we are building a solution from scratch, unencumbered by the constraints of any legacy system. As a new entrant to the UK market we have the luxury of designing the operating model from the ground up and in the process making the most of what technology can offer.

Ian: Transfer agency, especially for the UK, is undergoing significant change and HSBC is well positioned to be able to provide the services and technology that our clients are demanding, both now and in the future.

Disclaimer

For Professional Clients and Eligible Counterparties only.

Not for Retail customers.

Issued by HSBC Bank plc

8 Canada Square, London, E14 5HQ

Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority