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EFAMA’s FPSG Champions Standardisation of Corporate Actions Messaging, Use of ISO Standards for Funds Processing

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The European Fund and Asset Management Association’s (EFAMA) Fund Processing Standardisation Group (FPSG) has this month produced a report that charts the progress of standardisation initiatives in the European funds industry, including in the corporate actions space. The association’s working group, which was established in 2007, is positioning itself as a “catalyst for change” by highlighting the remaining obstacles to standardisation and outlining possible actions for removing them in this report.

EFAMA indicates that it is actively monitoring standards implementation within the funds industry as a whole in order to demonstrate the progress that has been made to regulators such as the European Commission and hence the benefit of their involvement in the process. This paper is therefore a second update to a report that the association published back in 2005 regarding recommendations to increase the standardisation of the data underlying funds processing in Europe. The motivations for this standardisation work, according to the association, are greater efficiency, reduced operational risk and enhanced service. The previous two reports, however, did not include a section on corporate actions standards.

The new section on corporate actions (section 8 of the 43 page report) therefore is aimed at improving the communication process between underlying beneficial owners and their servicing agents via the adoption of standards to this end. The section covers income entitlements and those arising from fund reorganisations, as well as communications relating to unit holder meetings and other investor notifications.

The report highlights the current issues that are present within this corporate actions space as being: “Some notifications are governed by regulation, but this is often focused on the communication to unit holders, whereas there is invariably a benefit to advise the wider market, for example to assist prospective investors or to inform those who service existing holders. In addition, even where there is regulatory notification obligation, the timing of the communication is not prescribed, leading to inconsistency across the funds industry, which creates inefficiencies for those that might use the information.”

EFAMA recommends the wider adoption of ISO 15022 and ISO 20022 messaging standards for these communications in order to rectify some these problems. It also details potential timelines and cut off points that should be introduced to ensure that there is some level of timescale standardisation at the European level for areas such as the distribution funds event process.

For income related corporate actions events, for example, the report recommends that distribution announcements should be made available to the market (including distributors, servicing agents and underlying investors) directly and/or via one or more data vendors, as appropriate. Such announcements should also include details of known dates within the event process and electronic formats should be used for these communications whenever possible.

In the wider funds market, the association is promoting the adoption of: the Fund Processing Passport (FPP) for the issuer communications space, which provides standards for data underlying trading and settlement; ISO 20022 for fund messaging; and ISO standard identifiers including ISINs, ISO country codes and Swift’s Bank Identifier Code (BIC). The order of the day is increasing message and data standardisation, while at the same time reducing the use of proprietary formats. To this end, the report states: “Proprietary message standards between client side institutions and fund side institutions should be avoided.”

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