There haven’t been many good news stories for the financial services industry recently so instead of the usual reports of greed, duplicity and the down-trodden customer, here’s a story about how the industry has worked together to achieve good consumer outcomes.
There is fierce competition between providers in the growing retail platform market and therefore every reason why consumers might want to transfer their Stocks and Shares ISAs or General Investment Accounts from one platform to another. However, until recently transferring accounts between platforms has been difficult at best. Either customers would need to wait many weeks for funds to be re-registered, a period during which they would lose visibility and control over their assets, or, even worse, they would be forced to sell their fund holdings, transfer the cash and suffer the consequent out of market losses and capital gains implications.
Discussions on improving the transfer process go back over a decade but it wasn’t until the FSA mandated the timely re-registration of assets between platforms in the Retail Distribution Review (RDR) that any meaningful progress was made. The Tax Incentivised Savings Association (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.
The result of the TISA initiative was a transfers framework comprising a technical standard based on ISO 20022 (courtesy of the UK Funds Market Practice Group), a standard legal agreement and a common service level agreement to which all participants would need to comply. TISA also set up a new company, TISA Exchange (typically abbreviated to TeX), to act as the guardian for the standard agreements and to operate a contract club. The legal agreement allows transfers to flow electronically without the ceding party needing to see a wet signature and by signing up to the contract club, providers can avoid having to thrash out bespoke bilateral agreements with all the other platforms and fund managers.
In the early stages of the TISA initiative there were some calls for an industry, or even government, funded centralised system to support electronic transfers. However, there was no appetite from providers to invest in this approach, particularly given the poor track record of centrally funded IT initiatives, and an open standards based approach emerged as the preferred option. Six technology vendors then invested in developing their own solutions and again, despite being competitors, worked together to ensure that their solutions would interoperate using the industry owned SWIFT network as the common point of connection between vendors. Two of these technology vendors, Altus and Origo, have recently announced the successful completion of interoperability testing and the start of electronic transfers between their respective customers, Funds Network and Skandia.
Establishing the TISA transfers framework has taken time but all the hard work is beginning to bear fruit. The competition between technology vendors has ensured that costs are kept low and innovative solutions are encouraged. Providers have had no significant up front investments to make and most expect to actually reduce overall costs by exploiting the new technology available. Live transfers began to flow in late 2012 and most leading providers are now participating. Consumers are beginning to see transfer times come down from a few weeks or even months towards the TISA SLA of 5 days for an ISA transfer with re-registered funds. Seeing this progress, the FSA has given wholehearted support for the initiative and held back from more draconian legislation.
Beyond the initial success of solving the RDR re-registration challenge, the TISA approach is a good template for resolving similar issues in the future. If the regulator is limited to giving high-level direction of the required outcome and the experts from within the industry itself are allowed to work out how best to achieve that aim then it should be possible to achieve the desired outcome with the least possible pain for the providers. Ultimately, any cost borne by the provider ends up as cost to the consumer so it’s not in anyone’s interest for providers to be subjected to detailed legislative requirements from a regulator with good intentions but a poor understanding of operational practicalities.
And the next challenge is already upon us. There is a perfect storm brewing for pension transfers whipped up by a combination of auto-enrolment, a more mobile work force and the fallout from RDR. The pensions industry is a complex, many-headed beast and agreeing a solution across life offices, occupational pension administrators and SIPP providers (not to mention the various industry bodies who represent them) will be no mean feat. The pensions minister, Steve Webb, recently referred to the “hornet’s nest” of “vested interests” he stirred up in his attempt to introduce an automatic “pot follows member” transfer system for small pension pots.
But some parts of the industry are rising to the challenge. The UK Funds Market Practice Group has already extended the ISO 20022 based technical standards to support pensions and TISA Exchange is in the process of extending legal and service agreements in a similar way. There is still much work to do and there are some who are yet to be convinced that this is the right approach but I am optimistic that by the end of the year we will have some more good news to report about how the industry has once again successfully collaborated in the interests of the end consumer.