In the bustle, noise and confusion of the trading floor a client order was often different to what was executed by the trader and different again to what was keyed into the system. With a 10-day settlement period most misheard or fat-fingered problems could be sorted out before becoming an issue for the broker, trader or custodian.
However, in the early 1990s as the London Stock Exchange grappled with bringing settlement times down from T+10 to T+5 this approach needed to change. Orders were captured and then passed electronically through all the parties involved in the settlement process without them needing to rekey the same bits of information over and over again, and straight through processing (STP) was born.
It was not just the stock market that developed STP solutions; about the same time the Society for Worldwide Interbank Financial Telecommunication (Swift) also started to introduce straight through processing to build on the benefits its standardised messaging had delivered for banking institutions.
With no physical product, data and information are the core components of financial services, so wherever there is a high volume, repeatable activity needing the same chunks of data, there is opportunity for an STP solution.
Wherever there is a high volume, repeatable activity needing the same chunks of data, there is opportunity for an STP solutionIf we follow an Isa application form received by a product provider then we might see the customer's name and address keyed into a system for identity verification, the customer's name and investment choices then entered into an illustration system, those same details along with the address then keyed into the line of business system to create the policy record and eventually some client information finding its way onto an HMRC return.
All this information was also likely to have been keyed into an adviser’s system before even arriving at the Isa manager's door. STP operates on the principle of inputting information once, then reusing it and adding to it throughout the transactional process, so our application form should be entered somewhere once and the packets of information needed by different systems would then be electronically shared to remove the rekeying.
Where product providers use multiple systems (and most do) straight through processing has been pursued internally to create electronic links between disparate systems and realise the benefits of reduced data entry, reduced risk and increased accuracy for the provider.
Creating this straight through process and realising the benefits is, however, more than just a technological challenge. For technology to solve a problem, particularly a processing problem, it is important that the process is properly understood and mapped out in a logical manner with a clear view on the policies and principles that need to be applied.
Once data is held electronically it is available to any authorised user, which means a process no longer has to move at the pace of paper around a building, various aspects of an end-to-end business process can be completed in a different order or activities carried out in parallel. For example, underwriting of a customer can be started almost immediately and run alongside other tasks for establishing insurance. Understanding if and where that can happen is what drives the benefits the technology enables.
A true straight through process should remove the need for any manual activity from inception to completion, with manual intervention only required for the handling of exceptions. This external straight through processing is something more challenging to achieve as it requires all the parties in an end-to-end process to support electronic data handling.
This can happen most effectively where standardised messaging, especially open standards, are available and is perhaps most clearly illustrated in the world of Swift where billions of bank payments now fly around internationally with limited human involvement. Closer to home, one STP moment product providers have adopted that brings real benefit to the services they provide advisers and customers, is in transfers.
Following a clear steer from the regulator that the time taken to re-register assets between platform providers was falling short of what might be expected, the industry explored ways of improving both time and accuracy for this. With no clear competitive advantage to be gained, providers worked together to agree a best practice approach for a common automated transfer process.
This was based on an International Organisation for Standardisation (ISO) open standard, ISO20022, from the UK Funds Market Practice Group and enables providers to buy or build software they know will work with other market participants as the standard defines how a message should be structured, what it should contain and the format of the data in the message – for example, that dates are always shown as DD/MM/YYYY).
In 2012 the scope was limited to Isas and funds, but has since been extended to support pensions, sub-custodians, equities and ETFs and other asset types. From a process that used to take weeks or months with paper forms bouncing between the target platform, the originating platform and the fund manager to agree holdings, values and references an account transfer can now happen within days of the request being instructed.
Even for a more complex transfer involving a pension, the new open market standards and linkage between provider systems and adviser systems mean an up-to-date view of progress is readily available as various parts of the transfer complete at various times.
Straight through processing is now an expectation for almost any financial services transactional activity, not just in the wholesale banking and trading arena where it began, but also in the retail consumer space.
From general insurance to credit application to investing, so much of this can now be done online the need for paper is diminished as the information needed is either keyed/selected by the customer or sourced electronically from a variety of services.
Some element of smoke and mirrors may exist for some activities, where an online application form ends up being typed into a system by a person – straight-to-printer – or a physical signature is asked for instead of an electronic one, but those are getting rarer and consumers are getting the benefits of a more transparent, timely and accurate view of how their transaction is progressing. Emergent technologies such as blockchain and distributed ledgers are set to further disrupt the way traditional financial services transactions, books and records take place and, by their very nature, bring a whole new dynamic to the notion of STP with near instantaneous update and validation of contracts.
Chris McCullam is principal consultant of Altus Consulting
Key points
Straight through processing was born from the need for traders to settle trades quickly.
Where product providers use multiple systems straight through processing has been pursued internally.
STP is now an expectation for almost any financial services transactional activity.
