EMX Co, the electronic fund trading and messaging exchange, is developing new message types to improve the abilities of intermediaries and providers to reconcile the number of units across all transactions. This service, which is being launched in Autumn 2002, will allow nominee account reconciliations on a monthly basis as required by the new FSA regulations.
Intermediaries need to reconcile their records of purchases against the records of a provider to ensure the right number of units has been bought. There is the danger with the current paper-based reconciliation process that mistakes will not be detected. If these mistakes are not quickly resolved, it could present intermediaries with an administrative nightmare. That is why there is growing pressure from the larger intermediaries, including the new funds supermarkets, to improve the traditional methods.
Reconciling purchases of unit trusts electronically through EMX Co presents the opportunity for savings in man-hours and expense as well as reducing the potentially considerable error rate involved in manual administration.
EMX Co expects the reconciliations service to be used when records of units held from providers and intermediaries do not match. Parties will be able to search for information via ‘agency’ references, client names or even by date range, product type and fund. A high degree of search flexibility has been built in to help locate records. Parties will also be able to access the reconciliations service via their HUB interface where they have it, and via the web browser, by downloading information from providers. One inexpensive piece of software* (source of software and costs) will allow intermediaries to match up the data they have in their back office systems with the data they receive from the management houses. (A diagram of the way that reconciliations will work is reproduced in the notes to editors.)
Phil Wise, chief executive of EMX Co, unveiling the new service, said: “Everyone within the industry understands and believes in the need to improve our standards. The regulator is insisting on monthly reconciliations which will involve considerable work for all parties. Traditional paper based systems can’t cope with the volume of work, never mind improve the standard of what we do. Errors give rise to potential regulatory breaches and the loss of credibility with suppliers and customers as well as the financial losses.
“By developing electronic messages between intermediaries and providers, we are developing standards which allow the industry to reconcile records with multiple providers consistently. Our goal is straight through processing which will mean fewer errors and breaches and the knock-on reduction on operational costs. This is a significant business tool and one which has been welcomed by the industry.”
From launch until June 2003, there is a tariff for the reconciliations service which has been set at 40p per message for product providers. This has been capped at 2,500 per provider.
Wise continued; “As our users are aware, all tariffs are subject to periodic review and in the case of this innovative service, we will be consulting with the industry on the tariff to take effect from June 2003. We believe that the reconciliations service will be of significant benefit to client money holding intermediaries – many of which find reconciliations a time consuming and costly burden particularly given the increasing regulatory interest in this area. As a result, they are keen to see widespread involvement of providers so that they can maximise the benefits for themselves. In order to secure this, some major intermediaries have made it clear that, if necessary, they would consider contributing a part of any savings they achieve towards the future costs of the service and thereby moderate the tariff for product providers.”