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MAKING FINANCIAL SERVICES FASTER

15/10/2019

Kevin Okell, Managing Director at Altus

 

Over the last 25 years, technology has transformed the world we live in. Computer processing power and storage capacity have increased a thousand-fold; megahertz are now gigahertz and megabytes have become gigabytes. Network speeds have increased even more dramatically. In the late 1990s, a 56kb modem was at the cutting edge of communication; now we are seeing the rollout of Gigabit broadband routers promising 2,000 times the speed of a dial-up modem.

 

This increase in raw power and capacity has fuelled an explosion in the use of the Internet from 40 million users to 4 billion, with an estimated 70 billion devices now connected. And there’s more to come from technology. Big Data, Artificial Intelligence, the Internet of Things and Blockchain are all touted to revolutionise our lives even more radically over the next 25 years.

 

Astonishing as these new technologies may be, it is important to remember that they are built on solid engineering foundations rather than magic – a fact which occasionally seems to get overlooked in some quarters. For example, since the late 1980s, it has been clear that the messaging protocol on which the internet was built (IPv4 for those who are interested) would run out of unique addresses for the dizzying range of devices being continually connected. The theoretical maximum of 4.3 billion addresses was divided up across different regions and began to be breached in some parts of the world in 2011. Fortunately, the Internet Engineering Task Force (IETF) had been working on a successor (IPv6) since the turn of the century which will support 340 trillion, trillion, trillion addresses! Which means even my new fridge freezer has its own internet address!

 

The work involved to develop, agree and roll out a global standard like IPv6 is colossal, ongoing and has already spanned decades. Coordinating input from literally thousands of contributors across the globe, managing the evolution of technical standards through hundreds of versions and convincing commercial organisations to adopt them is a gargantuan but essential task.

 

There is a parallel here in the financial services industry in the shape of ISO2022 and the securities market practice group (SMPG). A number of factors ranging from taxation to technology have combined to swell the number of UK retail investors and the regulator is demanding they should be able to switch easily between providers. Whilst not quite as daunting as designing a protocol to work across 195 different countries, the development of a portfolio transfer framework spanning all parts of the UK investment sector is still quite an achievement. Under the auspices of SMPG (and now TeX), a group of dedicated industry experts from wealth management, stockbroking, fund management and pensions came together to thrash out a messaging standard which could handle the electronic transfer of an investment portfolio between providers.

 

The standard covers a huge range of asset types and tax wrappers, from a simple ISA to a complex SIPP, and enables most of those assets to be transferred in-specie without the need to sell and re-buy. Where all the parties involved have adopted the standards, an entire portfolio can be transferred in minutes with virtually no manual intervention.

 

It is fair to say that some parts of the investment industry have been quicker to adopt the standards than others but, with increased scrutiny from the regulator over transfers, it seems only a matter of time before consumers will get to benefit from all the hard work and engineering that has gone into providing the sector with its own equivalent of IPv6.

 

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