Funds Europe talks to Ross Fox, managing director, head of APAC, Calastone, about the state of automation rates in the APAC funds industry.
Funds Europe recently conducted a global survey of automation rates. The research, supported by Calastone, canvassed close to 600 participants across 12 countries including six in the Asia Pacific region – Australia, Hong Kong, Singapore, Thailand, Indonesia and Malaysia.
When asked to rate the level of automation across their organisation, APAC-based respondents ranked their respective firms relatively highly and on a par with many European countries. For example, on a scale of automation from one to five, Indonesia (3.82), Singapore (3.86) and Hong Kong (3.48) all score above Luxembourg (3.37) and the UK (3.15).
However, those same Asian nations also have high fax usage. The percentage of firms using faxes in Hong Kong (83%), Indonesia (80%), Malaysia (79%) and Singapore (76%) is much higher than in Luxembourg (54%) and the UK (61%).
Perhaps this is a case of perception over reality and how firms in different countries define ‘automation’ given the high fax usage in the Asian countries. In reality, the Asia Pacific market remains fragmented without the same kind of cross-border harmony or maturity as Europe and with a much wider variation in distribution models. Consequently, there is still much more room to improve when it comes to automation.
The region’s funds market operates as a number of silo countries that process fund orders on a cross-border level, says Ross Fox, managing director, head of APAC, for funds network Calastone. “Automation of the fund trading is relatively high in the mature asset management markets,” he says. “Australia is close to 100% automation for the trading of the wholesale managed funds, as are other markets such as Taiwan, Hong Kong and Singapore.
“But as you move across the back-office, you will find processes such as reporting, the transfer of assets and even the way firms communicate with each other where the rate of automation is much lower,” says Fox. “You will also find pockets of heavily manual processes.”
One reason for this is a lack of standards, something that is essential to instilling automation, says Fox.
Fox points to the example of Singapore – one of the more mature markets in the region. “The processing of Ucits-domiciled and cross-border funds has high levels of automation,” he says. “But the processing of retirement funds in Singapore is still very manual and an area that the market is looking to improve.
There are also less mature funds markets such as Thailand and Malaysia that still have a certain number of fax instructions. According to the survey, fax is still used by 62% and 79% respectively of firms in those two countries.
“We have been speaking to participants about how we can develop a more streamlined and standardised market because a lack of common processes and agreed standards stops the region becoming more efficient and adopting more automation.”
This work has centred on processes like cut-off times, redemption frequency and tax treatment. There are a number of forums that are focused on eliminating that friction such as the Asian Fund Standardisation Forum in Hong Kong, Thailand, China and Indonesia.
One of the reasons for these standardisation initiatives, aside from the pursuit of increased operational efficiency, is growth.
“Asia is predicted to become the largest funds market in the world,” says Fox. “There has been an explosion of HNWIs and AuM over the last five years. And if Asia wants to capitalise on that, eliminating friction will be key.”
And technology will play a critical role in the removal of friction, says Fox. “Calastone has been working with players across all processes to take that burden away from businesses. Automation no longer requires a huge amount of technological change and widespread adoption means the benefits can be achieved at scale.”
Another significant finding from the Funds Europe survey on global automation relates to the drivers for more automation and the shift from reducing cost and risk to enabling growth and better client service. “Cost and risk reduction are absolutely important but the primary drivers ultimately come down to the consumers and the end investors,” says Fox.
“As consumers we are so used to engaging digitally, the funds industry is an outlier. Investors want digital tools for their investment choices and want an immediate view of their holdings. So I am not surprised that client service is a big driver for automation,” says Fox.
He is also convinced that the industry is changing. “The technology is there to remove human interaction completely and reconstruct from the ground up. We need to have more creative, digital solutions for clients.”
If you build that foundation, you can achieve the required business outcomes. Automation has been achieved across a number of back-office functions because the technology is there to do so. Our job is to provide guidance on that.
One of the hindrances to greater adoption of automation is the reliance on legacy technology, something that is common across the globe. “The technology moves so quickly that it is not ideal to migrate the core systems every few years, so I can see why firms are reluctant to remove those systems. But in the current era it is essential to be digital and that can’t be achieved with old back-office technology.”
Nevertheless, Fox and Calastone are bullish about the ability to create a more tech-enabled funds ecosystem in the APAC region. Not least because the accessibility of technology means that the likes of Malaysia, Thailand, Indonesia and Hong Kong leapfrog other markets that have had long periods of inefficiency before adopting automation. At the very least, it should take the APAC markets less time to reach higher automation rates than the decades it took the likes of Luxembourg and other European markets.
Fox cites the example of India’s banking industry and its adoption of digital technology which has enabled more financial inclusion for people that have never previously had a bank account. “I see the same potential in the funds industry to include more first-time investors within a more digitally-enabled investment market. We are looking at the art of the possible.”
(First published Funds Europe 11/22: https://www.funds-europe.com/november-2022/art-of-the-possible)