Delays in account transfers can lead to clients missing out on market opportunities and damaging confidence in financial institutions.CoreDesignKEY/iStockPhoto / Getty Images
Account transfer delays are a real issue for the investment industry, the Canadian Investment Regulatory Organization (CIRO) says – and it’s looking for help fixing the problem.
“The financial system in Canada faces significant inefficiencies in account transfers, largely due to outdated processes, inconsistent standards, and fragmented communication,” says Alexandra Williams, CIRO’s senior vice-president for strategy, innovation and stakeholder protection.
Grumbles about account transfers regularly top the list of complaints among dealers and investors alike, she says. They increased to more than 500 last year from around 150 in 2015.
The self-regulatory organization has published a white paper addressing the problem. Accounts that are supposed to take days to transfer often take far longer, it warns. For example, GIC transfers are supposed to be completed in three days, but can take up to eight weeks.
The results can be severe. Clients who can’t access their accounts because of transfer issues can miss out on market opportunities, the paper says. It also increases operational costs for transfer teams and damages confidence in financial institutions.
One cause of account transfer delays is an overreliance on manual processes, the paper says.
“Many still rely on physical paperwork being sent by mail or fax, which naturally slows the entire process down,” says Praneil Ladwa, journey leader for “grow my wealth” at Questrade Financial Group. “With time, these measures should be phased out due to fraud risks and the impacts of delays.”
Automation is one thing CIRO hopes to achieve with the proposed rule amendments it also announced in July. These would force dealer members to use automated systems for eligible transfers and to use electronic communications even when automation isn’t possible.
Canada has a long way to go here, CIRO warns. The U.S. operates a standardized automated customer account transfer service (ACATS) via its Depository Trust and Clearing Corp. More than four in five account transfers delivered via that system are completed within four days.
However, electronic systems aren’t a cure-all, Ms. Williams warns, as incompatibility can still be an issue. While there are several systems in place, such as account transfer online notification (ATON) and Fundserv, to help with transfers, they’re not used universally and don’t support all products. In any case, costs – including setup – can be prohibitive for smaller companies.
The white paper also cites a lack of standardization as a contributing factor to account transfer delays. Decentralized operational structures make standardization difficult, it adds.
How to fix it
This isn’t the first time a regulatory body has explored the issue. The white paper incorporates recommendations from a 2020 discussion document issued by the Mutual Fund Dealers Association of Canada before it merged with the Investment Industry Regulatory Organization of Canada to form CIRO.
Aside from automating and eliminating manual processes, the new paper calls for consistent operational standards and rules, accountability for delays, and increased collaboration efforts using centralized tools.
The document also includes a request for proposals to help modernize the process through automation. It calls for a unifying digital solution that would integrate with existing networks while offering the features they collectively lack, such as real-time data exchange, status tracking, asset validation, communications standards and rejection protocols.
“In principle, we support a unified solution. CIRO’s proposed solution would act as a single, central hub for all investment transfers in Canada,” Mr. Ladwa says. “Think of it as an advanced version of the current system, but one that integrates other key platforms like Fundserv (for mutual funds) and Cannex (for GICs) all in one place.”
CIRO is not the only organization exploring the problem. The Canadian Securities Administrators are examining data portability options, including the transfer of client data.
What can organizations do now?
In the short term, CIRO calls for more immediate, incremental improvements. These include exploring automated solutions available today while adopting digital measures internally. It advocates for clear timelines and metrics, governed by centralized control structures, along with clear communication and escalation pathways.
Firms receiving transfers should vet transfer requests before submitting them and ensure they have clear transfer instructions, the paper says, while also recommending that they address transfer complexities early with clients.
Firms delivering transfers should standardize their validation and transfer workflows, especially for complex products, and automate residual balance management. They should also prioritize instructions from the receiving firm, it adds.
The white paper also calls for more regulatory standardization and collaboration. CIRO’s proposed rules mandate a standard 10-day period for account transfers, even when there are impediments to those transfers. If impediments do occur, clients would have to be notified within two days.
Some of the problem may have to do with firms dragging their feet, reluctant to let assets out the door.
“Achieving full industry support depends on broad collaboration, not just from CIRO and investment and mutual fund dealers, but also from fund companies, banks, infrastructure providers, technology vendors, and their regulators,” Ms. Williams says.