South Africa is the only country in the world to have successfully launched an industry-wide electronic bureau for the trading of unit trust funds. The business, called FinSwitch, is now 10 years old and is attracting international attention.
FinSwitch moves data between parties in the collective investments industry, providing a common automated platform to process transactions and other data between industry members. Whereas in the past all prices were faxed among parties at close of business, FinSwitch facilitates the daily delivery of prices, total expense ratios and income distributions for the entire South African unit trust industry on a straight-through electronic processing basis. The advantages are reduced administration, lower operational risk and enhanced trading certainty.
The FinSwitch platform is used by 81,5% of all management companies and linked investment service providers in South Africa. A total of 9-million transactions have been switched (traded) since the inception of FinSwitch in 1999 and since then volumes have increased at an average annual compound rate of 62%. In September this year alone, 168 000 transactions were switched with a total value of R11-billion, despite the economic downturn.
In 2010 the services of FinSwitch will be extended to an estimated 19 000 financial planners in South Africa. This will enable appropriately authorised financial planners to access current information relating to their clients’ investments via Astute, a company that assimilates information online from life insurance, disability and investment product providers.
According to FinSwitch MD Tim Holmes the success of FinSwitch “is proof of the positive approach of South African business in general and the capacity of the collective investment industry to work together for the greater good.
“While many other countries have attempted similar initiatives with vastly greater resources none have succeeded to the same extent as FinSwitch because they failed to achieve the required level of collaboration,” says Holmes, who is holding discussions with Australian counterparts to see if the model can be replicated in that country.
FinSwitch was originally set up as a 50:50 joint venture between administration outsourcer FinSource (now Maitland) and six unit trust management companies. In 2002 the company became an industry initiative with 10 equal shareholders and capped profitability.
FinSwitch chairman Dale Lippstreu says the business has a growing relationship with the Association for Savings and Investment South Africa (ASISA) and will be moving into ASISA’s offices in Claremont, Cape Town in 2010.
“In this way, FinSwitch will be more closely involved in formulating responses to developments affecting the industry and better placed to add further value to its user community. FinSwitch occupies a central position in the industry and is uniquely placed to promote industry standards around data access,” said Lippstreu.