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The arcane world of fund dealing rarely makes headlines. Asset managers seldom discuss it in public. Yet moving money into and out of UK portfolios can be difficult, time-consuming and costly. Settling the transactions is typically done manually and can take even longer. Increasingly, fund managers, administrators, brokers and financial advisers are seeking a fully automatic back-office system that will process funds faster and make them more attractive for investors.

After an extensive liaison process with some of the major players, one industry giant may have found a solution. Euroclear UK & Ireland, which already settles almost all UK equity trades, is offering an automated fund settlement system to its clients in the third quarter of this year. The system will be compatible with existing fund dealing platforms, otherwise known as order management or order routing systems, including Euroclear’s own messaging service EMX.

If adopted universally, Euroclear UK & Ireland would eradicate costly and inefficient manual processing. But whether the industry is prepared to invest in it is another matter.

Charlotte Black, director of corporate affairs at broker Brewin Dolphin, which Euroclear lists as a member of its funds liaison group, says she looks forward to the firm settling all its fund transactions using EMX and Calastone as order management systems. Although Brewin Dolphin has negotiated a workable means of performing fund deals and settling them, she says efficient electronic processing would make the asset class more attractive.

By contrast, Darius McDermott, managing director at broker Chelsea Financial Services, has outsourced almost all of his firm’s portfolio dealing and transaction settlements to electronic fund supermarket Cofunds. Under this arrangement, which is also used by a large contingent of financial advisers, outsourcers accrue the benefits of Euroclear UK & Ireland through improvements to their service provider rather than inhouse developments.

Taking Cofunds as an example of this approach, Mr McDermott points out fund deals through the supermarket platform already take no longer than 24 hours. But Cofunds puts the settlement time for an onshore fund transaction at five working days and six for an offshore vehicle.

Stephen Mohan, managing director of operational services at Cofunds, has observed the current time taken to settle fund transactions is unreasonable compared with an equity transaction settlement through Euroclear UK & Ireland.

However, while a universal automatic system would cut down on delays, Mr Mohan questions how long it would take for Euroclear UK & Ireland to dominate the funds world. For a fund supermarket, he says, the chief benefit would not be reduction in back-office staff costs, but a reduction of counterparty risk. Applied to fund deals, this would be the probability of a transaction not being settled on time due to a delay by one of the counterparties, or their administrators.

For some of the larger players, Euroclear UK & Ireland might save less in terms of costs and time. But as William Davies, head of operations at Troy Asset Management, recalls from a previous role at another company , the picture for many participants is more clear-cut.

“The worst culprit in terms of increasing our counterparty risk was the unit trust managers. The fact they were outside Euroclear UK & Ireland meant they were slow to settle. The fund administrators vary in terms of efficiency, but it could take a few weeks,” he says.

So far, the Euroclear UK & Ireland proposal looks like it has a chance of success. The settlement system has drawn some of the biggest names in the industry to its funds liaison group, although none of them are compelled to sign up to the resulting product.

Asset managers in the fund liaison group include Invesco Perpetual, Jupiter Asset Management and Threadneedle Investment Services. Retail brokers, other than Brewin Dolphin, include Charles Stanley and Hargreaves Lansdown. Four heavyweight transfer agents are on board - BNP Paribas, IFDS, Northern Trust and Bank of New York Mellon - while platforms include Fidelity FundsNetwork and Selestia Investment Solutions, with the notable omission of Cofunds.

No matter how universal the system becomes and however many inefficiencies it saves the industry, one key measure of the settlement system's success is whether it increases the volume of fund dealing in the UK. Without effective administration, funds are harder to use for market timing purposes, particularly if investors switching from one fund to another have to wait up to a month to receive their cash back so they can invest it in a new portfolio. If Euroclear UK & Ireland fails to achieve this, alternative instruments such as exchange traded funds stand to win an even greater market share.