What's happening in the open transfers market in 2019?

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Howard Finnegan, from Altus Business Systems, kicks off a series of blogs from voices across the industry by taking a look at what improvements are on the way in the open transfers market. If there’s an industry-related topic you would like to discuss, we’d love to hear from you. Drop us an email and let’s talk.

After three years of consolidation, plans are in place for significant improvements to the open transfer framework. Once in production by November 2019, these changes should help ease some of the current issues experienced in certain areas of transfer services. So what improvements can we expect to see?

Reminding ourselves of what has brought the industry to this point gives us a sense of why the new standards are so important.

The open transfer framework is made up of the following:

• A contract club and service level governance from TISA Exchange (TeX)
• Open technical standards based on ISO 20022 from the UKFMPG (the UK Transfer Market Practice that addresses the transfer of investment portfolios and re-registration of assets)
• Multiple interoperable and competitive technology solutions.

Between 2012, when open transfers first went live, and 2016, the open transfer framework rapidly progressed from simple ISA and fund transfers to cover a much wider range of transfers, including pensions, equities and sub-custodians. This resulted in a two-speed market, where some companies were keeping up with this rapid progress and others who, for various reasons, kept the original basic version of the market practice. In 2016, TeX members reached a compromise whereby companies that were already ahead of the game agreed to move forward with a new version of the market practice, while those who kept the original version were to upgrade by November 2019.

2019 is fast approaching, and the final scope of the new standard - which will be known as version 3.1.1 of the Market Practice - has been agreed by TeX and UKFMPG. The key new features to be included are:

• More sophisticated support for in-specie SIPP transfers with ring-fenced assets in drawdown
• Junior ISA (JISA) transfers, including transfers from Child Trust Funds (CTF) to JISAs
• Lifetime ISA transfers, if they are not scrapped after the recent calls we have seen
• Conversion instructions to allow restricted share classes to be converted and transferred in-specie rather than sold (although sadly not the ability to automate the conversion instruction to the fund manager).

All these features will be useful to the financial services industry as a whole, but the most important benefit is that, by using the same market practice version, all TeX members will be speaking the one language. This will maximise the number of transfers that can be automated, ultimately providing a better service for customers and encouraging competition in the investment market.

But we have not reached the final destination for open transfers by any means. Most notably, certain cash ISA and cash pension services still don’t interoperate with TeX open transfers. This inevitably means that many customer transfers will continue to fall down the cracks between incompatible services and causes the variability in customer service levels that the FCA has noted.

There are also some improvements that would undoubtedly further improve transfer services but did not make the cut this time. These include the automation of conversion instructions to fund managers and support for foreign exchanges and securities depositories. Hopefully a further update to the standards will address this in the not too distant future.

And now that more people are beginning to understand the importance of open standards and interoperability in the drive for innovation and competition, we can expect to see the TeX model being adopted to address a range of challenges from funds trading, to the pensions dashboard. Undoubtedly 2019 will be just the start of more positive change rather than the end.

If you want to find out more about Altus Business Systems visit their website, or drop Howard an email.

Please note, Ascentric and its agents or representatives do not endorse or in any respect warrant any third party products or services by virtue of any advertisement, information, material or content referred to, or included on, or linked from or to this page.

The information contained in this page is for professional Financial Adviser use only. If you are a private investor, please visit the Private Investor section or contact your Financial Adviser for more information.

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