Keeping up with changes

The AT FI Investment Fund Transfer Agent System is used for settling operations of fund clients.

Clients deposit money into the fund and in this way obtain share units; they can also order for their units to be re-purchased by the fund. The funds are managed by KBC Towarzystwo Funduszy Inwestycyjnych S.A. (KBC TFI S.A.).

The role of the transfer agent in terms of open investment funds managed by KBC TFI is played by the Department of Custodial Services of Kredyt Bank. It is in this department that Bonair’s AT FI system has been implemented and its sales and distribution modules for investment funds are used by over 300 offices (departments and branches) of Kredyt Bank.

- AT FI considerably speeds up work and facilitates a vast amount of operations to be performed – states the director of the Department of Custodial Services, Robert Kubala. – Currently, there are several thousand registers in the database but technical capacities provide for even over a million of registers to be supported.

How does AT FI work?

A client who wants to be a fund participant, namely possesses share units, lodges an order for the purchase of units at a Kredyt Bank branch or another chain distribution point, while also signing an agreement. On the basis of this, a register in a fund is opened. The order lodged at a bank branch is entered into the AT FI database and awaits processing. Firstly, a transfer agent verifies if the amount on the order has been deposited; if so – it is registered on the quota account assigned to each client. Then, AT FI – on the basis of information from the investment association on the price of a share unit – calculates how many units the client is entitled to and registers this number on the client's register, which is also maintained as part of AT FI. Within the AT FI database, personal and contact information as well as a history of transactions is recorded on each of the registers (a participant can have many registers). When a client issues an order for the units to be re-purchased, the system calculates how much money the client is entitled to but must also perform more operations for, amongst others, it also calculates the amount of the tax due.

Work with other systems

It is not necessary to place an order at a bank teller in order to purchase fund units. Fund statutes enable units to be purchased through deposits made into the bank's internal account.

This is why we have integrated AT FI at the bank with other systems, including the system of mass payments - tells us Robert Kubala. - Each of the participants connected to this system receives a virtual bank account number that consists of an ID assigned to the participant's register that is given by the AT FI system. Financial means find their way to the account handled by Kredyt Bank; everyday we receive the total amount of deposits for a given day from the office responsible for the mass payment system as well as a file showing the amounts deposited by individual clients – on the basis of account numbers, the AT FI system can unequivocally allocate an amount to a given register.

AT FI also provides support to clients using internet banking accounts KB 24. Each user of KB 24 can open a register in any fund managed and supported by AT FI, place permanent orders and check balances on share units.

Statements and reports

AT FI is also used to provide reporting tasks emergent from the legal regulations in force.

- At the end of each operational day, we generate reports on the basis of data from AT FI for KBC TFI as well as the depository on all the performed transactions of re-purchase, purchase, conversion, transfers as well as the total number of units issued for a given fund – explains Robert Kubala – This is needed to calculate the current value of a share unit.

The necessity of reporting also arises from the act on counteracting money laundering. Reports on transactions above certain amount thresholds are prepared for the Chief Financial Inspector. AT FI also enables periodical preparation of information for DBC TFI on the taxes due from fund investment income (the so-called "Belka tax"); the association receives the total amount of all the deducted taxes, which it then deducts and pays to the appropriate tax office. At the same time, each of the participants receives information on the deducted tax amount.

“Belka tax” handling services

AT FI’s impressive capacities are the effect of ongoing adjustment of the system to legal regulation changes, new KBC TFI requirements, business strategies and market competition strategies. It all began in 1998 with Kredyt Bank signing an agreement with Bonair for the provision of a Transfer Agent system to handle AT FE Pension Funds and the twin Transfer Agent system to handle AT FI Investment Funds. In the second half of 1999, AT FI was ready but Kredyt Bank did not manage any funds as yet.

- In 2002, we launched three investment funds at Kredyt Bank which were supported by the AT FI system – recalls Robert Kubala. – However, before it reached this stage we had to adjust AT FI to the requirements of our client, namely KB TFI SA (later KBC TFI SA which was formed as the result of the merger with Warta Asset Management S.A. and Warta TFI SA), as well as the new legal regulations. Amongst the new regulations was also the “Belka tax” introduced in 2001. Adjustment of the application in this case meant significant changes. The “Belka tax” is charged when a fund client had purchased units and subsequently the units were repurchased by the fund at the client’s order and the client made profit on these transactions. Therefore, the number and price of the re-sold units as well as the price of their repurchase is needed for calculation of tax. We thought that each client should be able to define according to their own needs which units are to be re-sold. A client can say that they want to resell a purchase batch from two years before or define the strategy of staggering the units – explains Robert Kubala. The act states that if a client does not define anything then FIFO ordering, namely repurchase in the first order is applied to transactions of repurchasing units from the client. The functionality that has been introduced into AT FI enables users to define the means of ordering according to one of the three methods of FIFO, HIFO or LIFO. Furthermore, the client is able to change their strategy at any moment and indicate which purchase batch should be considered during the resale of units.

Substance testing as the most important

Each ordered functionality was tested before its collection. - Because a similar application with the same database was tested previously for Pension Funds, we knew that there would be no danger in terms of efficiency, namely the number of handled registers. We handled about 200,000 accounts within the scope of Pension Funds – tells us Robert Kubala.

In order to run the tests, test databases were created at the head office of Kredyt Bank on the basis of a script provided by Bonair. It was on these databases that Bonair specialists launched the application and showed its specific functions. Following this brief training session, Kredyt Bank employees tried to independently use the system on the test database and then trained employees from other departments using AT FI. They also had access to the test database and could learn this way how to use the system and their questions could be answered by the head office. Such a test database worked also when the system functioned normally as new functions appeared all the time.

The testing stage is always the most time-consuming during the introduction of new functionalities. Actions that will be performed during the normal use of the system have to be done on the same test database as the real one. This is not just a question of simulating simple calculations but the input of complicated transactions. Bonair’s programmers had to come up with test tasks and chose parameters in such a way that calculations would include as many complexities as possible.

Migration or, the fusion of funds

The fusion of TFI Warta, TFI Warta AM and TFI KB took place in 2005, which resulted in the creation of KBC TFI. The owner decided that the Department of Custodial Services at Kredyt Bank would be the transfer agent for the merged associations. This meant further modifications of Bonair’s AT FI system and the most important one of these related to the migration of the entire data from the OFI transfer agent system, which was used by TFI Warta. The implementation was commenced at the end of 2005/ in early 2006 and the complete take over of the fund handling role by Kredyt Bank occurred in mid-2006 although changes are still being introduced.

- Data migration is difficult due to the different construction of databases, different meaning of individual information contained in these databases and differences in the functionality of the transfer agent application – evaluates Robert Kubala. – Many meetings between Bonair and OFI were needed in order to define the meaning of the individual fields. OFI defined the format into which the data was to be exported and Bonair prepared the appropriate conversion mechanisms of this data into the form used by the AT FI system at Kredyt Bank. Before the migration was performed, tests on the efficiency as well as correctness of the transferred data were performed on copies of the real data. The migration was performed overnight from Friday to Saturday, followed by a series of tests and verification activities. In the same way as with the tests, the write up of the data conversion procedure tool several hours but tests on the database transferred to the new system took several weeks. Robert Kubala claims that preparation for the migration took long but thanks to this, the operation was carried out without any problems. Naturally, OFI maintained its system ready to support the transferred funds in case of failure however, this proved to be unnecessary.

Addition of IKE support

One of the more interesting changes in AT FI was the addition of handling of Individual Pension Accounts (IPAs). The way in which an IPA works is that a financial institution opens a special account for a person saving up for retirement. The money on this account cannot be withdrawn for a defined period but instead, the future pensioner does not pay income tax on the profit made. Amongst others, investment funds are entitled to manage IPAs. A client can save up for retirement for example for two years and then transfer the money to a bank deposit account and then return it to an investment fund again. It was necessary to add to AT FI such functions that would enable verification if a given person meets the savings requirements for an IPA and if not, functions that would enable the calculation of the amount payable to the Polish Social Insurance Institution (ZUS). Such calculations are complicated.

- As in every system, mistakes are also made in the AT FI system but there’s only a few of them and they are mainly the result of user error - claims Robert Kubala. If a user of AT FI was to make a mistake, i.e.: confusing the numbers in a share unit value then the consequences would be immense, especially if there were several hundred transactions then several hundred calculations would be wrong. Moreover, the system works in such a way that at the end of one day and the beginning of another, there is no possibility to make modifications or amendments for the previous financial day (such a mode of calculation emerges from the very essence of an investment fund). The financial effects of such an error need to be calculated and book-keeping operations need to be made to remove them. Bonair’s specialists know this system best and know how to correct errors – adds Robert Kubala. – Also, they do this very quickly- in accordance with the service agreement for problem resolution, they only have a few hours.

Regardless of this, maintenance is carried out once a month. A Bonair employee checks the state of databases, i.e.: in terms of the correctness of book-keeping, balancing of accounts, etc. This guarantees their correctness. In case of data inconsistency, it is possible to act immediately and not half a year later during inspection for example. The correctness of keeping registers and performing calculations by AT FI is supervised by such a body as the Board of Financial Supervision. The Board ensures that the management of funds occurs in accordance with the regulations and none of the fund participants make losses as a result of incorrect functioning of an Association of Investment Funds. Inspections can also be carried out by the Tax Office in terms of the correctness of tax deductions on income from interest.

Expansion plans

The AT FI system is being continually adjusted to KBC TFI’s business strategy and new possibilities appear all the time. The latest project concerns the launching of distribution of foreign fund share units that are managed by the KBC group. Kredyt Bank would act as an intermediary between Polish clients and a foreign agent managing foreign funds. The AT FI system would have to register the purchase orders and money amounts to perform them as well as orders of re-sale and transfer money to international funds and orders to the given local agent. Bonair’s programmers are faced with another task of resolving the issue of tax declarations as well as conversion between various currencies in which foreign funds are maintained. There’s not a shadow of a doubt that everything will be done on time and will run smoothly.

Implementation facts

What:

Kredyt Bank’s Investment Fund Transfer Agent (AT FI) System, including the sale and distribution of share units modules; data migration from the OFI transfer agent to Kredyt Bank; expansion of the AT FI system with new functions including calculation of tax, IPA support.

Where:

The Department of Custodial Services at Kredyt Bank – system and database, 300 points of sale (branches and offices) of Kredyt Bank - online access for the sale and distribution modules.

When:

1999 - creation of the AT FI system, not launched as Kredyt Bank does not manage investment funds as yet.

2002 – modification of AT FI adjusting the system to legal regulations – addition of functions to provide services on interest tax with the possibility of selecting strategies for staggering share units by clients; modification of AT FI adjusting the system to KBC TFI requirements; launching of the system to support three funds.

2004 – AT FI modifications enabling support by the Individual Pension Accounts (IPA) system.

2005 – 2006 data migration from the OFI transfer agent and take over of management of investment funds managed previously by TFI Warta; ongoing introduction of changes.

2006 – work on the expansion of AT FI to include management of foreign funds.

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