Five major fund managers and third party administrators have introduced what a press release describes as “true Straight Through Processing (STP), without the need for manual re-keying of data, for the institutional pensions market.” It makes use of SWIFTNet messages originally designed for the mutual fund market.
Early in 2006, Barclays Global Investors, Legal & General Investment Management, Capita Hartshead, Mercer Human Resource Consulting and Watson Wyatt agreed to work together, with a view to sharing knowledge to create a common message standard that could be used across the pensions industry.
The five firms had recognised that manual processing systems would find it increasingly difficult to cope with rising Defined Contribution(DC) pension plan transaction numbers. They were also conscious of the Fund Processing Principles recently published by the Investment Management Association. So they took the initiative to identify an STP solution.
Detailed analysis of business requirements and the various alternative approaches led the group to select the SWIFT ISO20022 international standard as the most appropriate method for the format of messages. Subsequently, under the guidance and facilitation of Idea Group, the five firms were able to specify and document a common message standard.
That document, which is now freely available for others to use, was prepared in close collaboration with the Securities Market Practice Group, the SWIFT-sponsored organisation charged with the global harmonisation of ISO20022 usage.
Idea Group says that, with an agreed standard in place, it was a relatively straightforward task for each participant to develop their own systems to be able to send and receive messages and then to undergo rigorous testing, both internally and with each other.
The participants decided to use the SWIFTNet Funds service on the SWIFT network for the transmission of messages because of its security and resilience and for its specialised support services for the ISO20022 standard.
Concurrently, legal issues had also to be considered, since STP transactions take place automatically without signatures.
Transaction requests, prices and confirmations are now being passed electronically, with the messages being automatically downloaded into each party’s systems without human intervention.
Idea Group says that, although suitable for defined benefit (DB) as well as DC transactions, the breakthrough will have the greatest impact in the DC market, where the number of transactions per scheme is growing rapidly – for two reasons.
First, membership of DC schemes, where transaction numbers per million pounds of investments are already exceeding twelve times those of DB schemes for some investment managers, has ballooned. Around a quarter of all active members of private sector arrangements are now in DC schemes and each year new entrants to DC schemes outnumber DB new entrants by 3:2.
Secondly, frequency of transactions is increasing as DC scheme members take greater interest and responsibility for investment decisions.
Steve Wallace, Head of STP Initiatives at Idea Group, who worked with the participants to address business requirements and market practice issues, emphasises the importance of the group’s achievement. “This was not an industry initiative; it was an initiative by five leading players on behalf of the pensions industry,” he says. “Others can benefit from following their lead. A second group of investment managers and third party administrators has now come together to use the standard to develop their own systems. STP has been talked about for many years and has been widely recognised as essential for the development of DC pension arrangements in the UK. At long last it has happened.”
The Investment Managers Straight-through-processing Development Group (IMSDG) IMSDG is a forum of organisations operating in the corporate pensions market that first came together in 2004 to try to find a way in which they could send transaction requests and confirmations to each other electronically so that straight through processing could become a reality. A consensus emerged at the beginning of 2006 that enabled two of the UK’s largest investment managers (Barclays Global Investors and Legal & General Investment Management) to join with three leading third party administrators (Capita Hartshead, Mercer Human Resource Consulting and Watson Wyatt), under the auspices of Idea Group.