Embracing Automation: Transforming Fund Settlements in Australia______

Marsha Lee, Managing Director - Head of Australia and New Zealand

In Australia’s rapidly evolving managed funds industry, one pressing question persists: “Why are so many operational processes still manual?” Despite significant advancements in automating trade processing, settlement operations often lag behind, creating inefficiencies that could be addressed.

The Persistent Challenge of Manual Settlement Processing and Cost

The current settlement process in the managed funds industry is riddled with inefficiencies and high operating costs. Settlements are processed via overnight batch bank files, leaving firms unable to see their settlement status until the next business day. This also means issues are not identified until the next day which can lead to missed deadlines, requiring manual review and actions to match settlements to trades. Settlement issue investigation is a time sensitive, manual process involving multiple teams across different organisations, leading to potential claims and delays.

The knock-on effect of these inefficiencies is significant, causing late settlements, data input errors, and processing delays with substantial financial implications as missed value dates can lead to good value claims and penalties. In a competitive market, such incidents can damage a firms’ reputation and result in loss of investor confidence.

The shift to T+1 settlement cycles, as observed in the US and other major markets, underscores the urgency for automation in Australian fund settlements. Preparations across Australasia are underway to adapt to the accelerated settlement times and the transition not only requires substantial investment in technology and process changes, but also impacts various stakeholders across the industry, from fund managers to custodians.[1]

The Case for Automation

Automation offers a compelling solution to these challenges. By digitalising the settlement process, firms can achieve increased operating efficiency, reduce costs, and improve service levels. Our automated settlement service, for example, enables automation of both orders and its associated cash settlements, providing real-time processing and increased oversight. The model enables clients to address problems on the trade date instead of discovering there are settlement issues the following day.

Calastone Settlements is facilitated by the New Payments Platform enabling real-time 24/7 cash settlement. Each settlement is also tagged with a unique reference, making it easy to match settlements to trades. By transforming the reconciliation process, firms can spot settlement issues on the trade date and gain comfort from the additional governance and control that their payments have been processed correctly.

Transforming the Industry

The benefits of automation extend beyond operational efficiency. Automated settlements enable better governance and oversight, with audit reports available to track every transaction. For investors, this means missed value dates become a thing of the past, leading to a better overall investment experience.

Automation also supports scalability. Firms can win and onboard new clients without having to increase FTEs in their back-office as they become agnostic to trading volumes. Automating settlements to complement existing automation in managed funds trading allows firms to offer service levels akin to those investors and consumers have come to expect in direct investment and online banking. This is crucial in a highly competitive marketplace where investors can be unforgiving of poor brand perception and service experiences.

Our vision for the future of fund settlements is one of flexibility, certainty, and clarity. Our solution accommodates straight through connectivity, any payment bank or currency, providing a real-time view of settlements as they build up throughout the day.

Embracing the Future

In the face of clear benefits, the pressing need for automation in fund settlements cannot be overstated. By embracing digital solutions, firms in the Australian managed funds industry can transform their operations, delivering a more efficient, reliable, and scalable solution for the future.

At Calastone, we are committed to driving this settlement transformation in Australia. By embracing automation, we can change the economics of fund settlement, providing a pathway to a more efficient and effective future for the managed funds industry.

Calastone Settlements is an automated, settlements calculation and payments solution that lets firms settle trades using any bank and any currency. Together with our managed fund order routing solution this gives firms a holistic, real-time view of all their global fund trades, settlement positions and liquidity requirements.
Find out more here!

[1] https://investmentnews.co.nz/investment-news/nzx-asx-need-for-speed-as-t1-takes-off-in-us/

Marsha Lee, Managing Director, Head of Australia and New Zealand

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