The UK’s Financial Conduct Authority (FCA) has eased concerns over the pricing and quality of bundled custody and administration services, but raised new worries about firms reliant on outsourced technology services.
The publication of the FCA’s Investment Management Sector View revealed the regulator’s belief that the UK custody market is working well in pricing bundled services “despite the small number of providers.”
It highlighted the potential risk for some smaller-sized asset managers that could be overpaying for bundled services, stating, however. that: “Given the current macroeconomic environment, we expect the likelihood of this concern growing to be low as there are no anticipated changes in the custody bank or ancillary services landscape.”
Over the past year, the FCA has taken a deeper look into the UK’s custody market with a particular focus on pricing, and in its 2018/19 Business Strategy report, suggested it will conduct several thematic reviews on the business models of third-party outsourcing providers.
The FCA highlighted the potentially significant effects outsourcing providers could have on a wider range of firms that rely on them.
“Outsourcing to third-party technology providers is growing, meaning that the proportion of assets potentially affected is increasing,” the FCA stated.
“Any increase in levels of outsourcing, which could exacerbate the likelihood of firm or technology failure, may be offset by increased regulatory focus on third-party service provision oversight.”