Calastone Reconciliations Service

How reconciliations are handled today
Reconciliation processes in asset management have come a long way in recent years, but there is no doubt that further efficiencies are possible. When you consider the complexity of the statement of fund holdings (below), it is not surprising that reconciliations are costly and labour-intensive.

Typical challenges faced by distributors
Distributors use many different structures ranging from single nominee to multiple designations. In some instances, fund managers will complicate this by automatically creating new accounts/designations. Why would they do this? Maybe the account is not yet open, the new account is not an exact match for an existing account etc. As a consequence, the reconciliation process can become more complicated.

Multiple Formats
There is no uniform format in which fund managers prepare statements of holdings and statements of transactions. It is common for a distributor to handle reconciliation reports in .CSV, PDF, .XLS or Fax. There are pockets of standardisation in the industry, mainly centred around ISO standards, however this is complicated by the use of different ISO standards, ie 15022 and 20022. The use of these message standards is focused on Transfer Agents in Luxembourg and Dublin, and a few UK-based Transfer Agents.

Who holds the register?
Fund managers (or their Transfer Agents) are legally obliged to hold the legal record of title in the UK (the Register). Some offshore markets obligate the use of a Central Securities Depository (eg Clearstream) which can be used for that purpose. Distributors are legally obliged to reconcile their position with the fund manager typically once per month.

What does Calastone offer?
Calastone alreday provides ISO 20022 statement of holdings report and statement of transactions to a number of clients on a daily basis (ISO 15022 does not contain group 1 and group 2 units). However, the market required us to create a service whereby TPAs and fund managers could deliver their current statement of holding and transaction reports to the distributor in the format of the distributor’s choice. This overcomes one of the industry’s major challenges, which has typically been the non-standard formats in which reconciliation reports are delivered. More importantly, now that effective communication of holdings and transactions is taking place, we have built the structure required by the industry to move towards daily reconciliations.

How do you handle Group 1 and Group 2 units?
Calastone does not replicate a shadow or central register. But we do provide the tools for fund managers to deliver the information regarding their unit holdings held on the Register to distributors (using ISO 20022 or the format of their choice). This will include Group 1 and Group 2 breakdowns provided the fund manager holds that level of data.

What does it cost?
The Calastone Reconciliations service is free to fund managers and Transfer Agents. Since it is the distributor who derives the principle benefit from the service, there will be a charge to the distributor on a per-request basis, but the cost has not yet been finalised. There will be a sliding scale for distributors depending on how many fund managers they trade with, up to a maximum annual charge.

What our clients say about the Calastone Reconciliation Service:

John Beeston, Director – Group Head of Business Support at Brewin Dolphin, one of the largest independent investment managers for private clients in the UK: "We fully support all efforts to create efficiencies and processing enhancements in the post trade environment and we anticipate that Calastone’s reconciliation services will be a positive development for the mutual fund market".

Karen Hamilton, Senior Product Manager for asset servicing at Northern Trust: "Northern Trust currently provide fund administration services to clients representing over US$978.0 billion in assets and are delighted to offer a solution to these clients that will reduce costs and help minimise processing risk thereby improving efficiency. The industry has an enormous appetite for an automated solution for reconciliations processing, and Calastone’s solution is leading the field".

Allan Hamer, Chief Operating Officer, Marlborough Fund Managers: "We are extremely pleased to see Calastone adding reconciliation functionality to their existing messaging service. We recognise the need for a standardised and fully automated reconciliation process and are pleased to be working with Calastone in providing a reconciliation solution which reduces processing costs and increases operational efficiency for both Marlborough and our clients".

Gary O’Brien, Investment Support Manager at fund manager Old Mutual Asset Managers (UK): "We have worked with Calastone to implement a solution that allows our clients to improve the efficiency of their reconciliation processes. This development is a positive step for the industry which will benefit both us and our clients. We support Calastone’s efforts to provide greater choice for all participants".

Christopher James, Director Institutional Services at Cofunds: "As an existing member and early adopter of both the Calastone messaging network and settlement services we are very pleased to see the next piece of the settlement jigsaw drop into place. The lack of drive towards same day standardised reconciliation files has historically created unnecessary risk in the industry. Accepting monthly reports together with a lack of prescriptive regulation should not have been acceptable. We have been providing our clients with this service for several years now and at last somebody has taken the Fund Manager side up to the same level. This development will remove considerable operational risk from our offering and we compliment Calastone on being ahead of the game once again and providing a service required by the market for the benefit of the market. We urge others to join and reap the cost savings and efficiency benefits".