Mellon European Fund Services (MEFS) today welcomed the issue on 30 July by the Financial Services Authority (FSA) of Consultation Paper (CP142) .It set s out draft guidance to firms on operational risk systems and controls, including the management of outsourcing arrangements. Mellon says it is already well placed to address the issues that the FSA has identified as requiring particular attention by users of outsourced services.
The FSA has concluded that, whilst each regulated firm is responsible for identifying its own key operational risk factors, there are a number of standard areas that should be closely monitored in order to minimise potential exposure and safeguard performance.
To follow is a brief summary of MEFS’ safeguards as they relate to the Consultation Paper. Julian Tregoning of Mellon European Fund Services would be happy to talk to you in more detail about MEFS experience of outsourcing and the management of operational risk.
MEFS has long recognised that effective management of operational risk is a key issue for clients outsourcing administrative functions to third party providers. Through its service offering, MEFS is already addressing the issues identified by the FSA for effective management of our clients’ outsourcing arrangements.
* Effect of outsourcing on the firm’s risk profile
MEFS works with all of its clients during the take-on phase and subsequently via review meetings to minimise the risk to the client under the outsource agreement.
* Continuation of service during transition
MEFS has an exemplary service record on delivering take-on projects and additional ad hoc work once the outsourced service is live. There have been no service disruptions as a result of client transfers, capital events (e.g. OEIC conversions) or subsequent fund launches.
* Adequate reporting
MEFS monthly review pack is highly detailed, and focuses on the key risks for each client. Each review is backed up by a written commentary and subsequent meeting.
* Available access for auditors, etc.
As part of the planning process, MEFS agrees with each client in advance a schedule of visits for auditors, depositories or trustees and other parties. For each visit, MEFS makes available key operational staff from each area under review.
* The need for confidentiality agreements and Chinese Walls to protect client information
MEFS takes client confidentiality extremely seriously. Each management company for which we provide outsourced services is allocated their own distinct region of the system and all transactions are clearly segregated.
* Business continuity
MEFS has a fully operational business continuity service allowing full replication of systems and minimal service interruption. The recovery plan is part of that in force for Mellon Financial Corporation and, as such, is tested robustly, on an annual basis.
* Change management
MEFS recognises that the needs of clients evolve in line with their business strategy and a large service support division is in place to identify, plan and accommodate service changes. Controlled through a dedicated Client Relationship Manager, MEFS works closely with clients to ensure that the service model adapts as required.
In summary, MEFS proactively works with its clients to ensure that the development of all relationships have at their core the requirement to minimise each client’s exposure to operational risk.