Written by Ben Cocks on Thursday 19 January 2017
It’s now five years since the first ISA was transferred using the open transfer framework. In the intervening years the open transfer initiative has increased dramatically in both scope and levels of participation, and customers have seen huge strides forward in service levels. With yet another wide reaching industry consultation on transfers underway, and perhaps some confusion over the different transfer services, it might be a good time to reiterate why the open transfer initiative is different.
The debate on improving the transfer process has surfaced regularly for many years, but it wasn’t until the then FSA mandated the timely re-registration of assets between platforms in the RDR that any meaningful progress was made. TISA picked up the challenge from the FSA and pulled together a group of retail platforms, fund managers, technology vendors and other interested parties to thrash out how best to comply with the FSA policy. Recognising that there was no competitive advantage to be gained, normally fierce competitors worked closely together to agree a new approach for a common automated transfer process.
Rather than build another centralised utility service the TISA initiative created the open transfer framework comprising:
- An open technical standard based on ISO 20022 (courtesy of the UK Funds Market Practice Group)
- A standard legal agreement and a common service level governed by TISA Exchange (TeX)
- Multiple technology suppliers offering competitive but interoperable systems
The open transfer framework has a key advantage over a centralised utility. With an open framework there is no need for central funding of technology and no one technology supplier has a monopoly position. Financial services providers are free to choose any technology supplier and can still be sure that they can connect to all other participating organisations. The competition between technology suppliers ensures there is pressure to keep costs low and to continuously improve the systems on offer. Providers are free to benefit from the emergence of new technologies at their own pace and incumbent technology suppliers can easily be ousted by new, more innovative market entrants.
When the open transfer initiative first started in 2012 the scope was limited to ISAs and funds but was soon afterwards extended to support pensions, sub-custodians and a range of other asset types including equities and ETFs. Early adopters were primarily fund managers and platforms but the increase in scope allowed a much greater cross-section of the investment industry to participate. There are now around 100 participating providers and five competing technology solutions on offer. Customers have seen transfer times plummet from weeks or even months towards the TeX SLA of five days. The FCA has given wholehearted support for the initiative and the increasingly intense competition between platforms suggests that the FCA is achieving its aims without needing to introduce more draconian legislation.
However, the FCA has noted that not all types of transfer are working well and has once again challenged the industry to improve the service to customers. In particular, there are challenges for Cash ISAs and some types of pension where proprietary utility services cannot interoperate with the open transfer community. The initial response from the industry is promising, with active participation from a wide range of providers and a number of constructive proposals under consideration. We hope that the industry will back the open transfer initiative and seek ways to open up the remaining proprietary utility services, and we urge all organisations to respond to the consultation. We’ve come a long way with open transfers in the last five years and hopefully we can connect up the rest of the industry well before the next five are up.