Australia's superannuation back-office is beset by manual processing, fragmented platforms and proprietary systems, says the Depository Trust and Clearing Corporation (DTCC).
The Productivity Commission should consider the middle and back office functions of the superannuation sector when assessing the 'operational efficiency' of the sector, according to DTCC Asia Pacific executive director Matthew Chan.
In a submission to the Productivity Commission on its draft report titled How to Assess the Competitiveness and Efficiency of the Superannuation System, the DTCC said, "inefficient practices can create unnecessary costs and downside risk at the expense of end investors’ returns".
The superannuation process in Australia must shift away from its "domestically orientated" focus towards a more global outlook, Mr Chan said.
"The growing scale of Australia’s superannuation system combined with advances in technology, cost pressures, increasing regulatory and compliance requirements, greater globally interconnectedness between markets, and evolving needs and expectations of investors requires a step change in how market participants transmit, receive, verify, reconcile, store, apply and protect post-trade data," Mr Chan said.
"In some cases these activities are still performed by manual methods, proprietary systems and fragmented platforms (eg, post trade systems that cannot handle both cross-border and domestic trade processing, and/or equity and fixed income trade processing) in the Australian market," he said.
Pension funds in mature markets, notably the US and Europe, are embracing centralised network platforms for post-trade activities, Mr Chan said.
"This step-change is seeing participants move from legacy processes and siloed systems to single source-of-truth management models and centralised processing platforms to reduce risk and cost, including eliminating duplicated processing infrastructure," he said.
"Increasingly, overseas institutions are leveraging global operational platforms that enable cross-border trading capability alongside domestic."
The Productivity Commission should review the extent to which fund management firms and counterparties are utilising global infrastructures to "optimise process efficiency and risk management", Mr Chan said.
Middle and back office friction, systems fragmentation and manual processing should also be examined to determine whether it is resulting in cost and risk as well as hampering institutions’ ability to offer offshore investment exposure, he said.
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