An industry-wide Outsourcing Working Group (OWG), which was set up to address the concerns highlighted in the U.K. financial services regulator’s Dear CEO letter on outsourcing last year, has today published practical measures for asset managers to improve the oversight and resilience of their outsourcing arrangements.
In December 2012, the Financial Services Authority (FSA) issued a ‘Dear CEO Letter’ to asset managers following a Thematic Review of outsourcing arrangements within U.K. asset managers in early 2012. During the first quarter of 2013 industry participants convened to address the issues raised in the letter, which ultimately led to the formation of the OWG. In April the Financial Conduct Authority (FCA) replaced the FSA as the main financial regulator.
The review considered middle office outsourcing, including fund administration and transfer agency functions. Custody was excluded from the scope of outsourced services considered by this initiative.
The ‘Guiding Principles’ cover three areas:
Oversight
-Building a full understanding of the scope, nature, locations and contractual terms of their outsourcing arrangements in order to effectively manage and oversee the relationship with their service provider
– Conducting a risk-based assessment of outsourcing arrangements to understand the impact on the firm and the end client
– Establishing an appropriate level of ownership at a senior level for the outsourced activities
Exit Planning
– the process of transitioning from one outsourcing service provider to another should include:
– A comprehensive exit plan
– Oversight by the asset manager’s governance framework
– Periodic review of the exit plan
Standardization
– having standard terminology and documentation, data interfaces and testing processes by outsourcing providers will help with transition management from one outsourcing company to another.
Standardization includes example includes services definitions such as Investment operations and trade processing including trade matching, trade settlement, trade notification to interested third parties, failed trade management.
The OWG comprises over 30 individuals from 24 organizations including the Investment Management Association (IMA), asset managers, outsourcing service providers including BNP Paribas, HSBC Securities Services, State Street and IFDS and support from the big four accountancy firms (Deloitte, EY, KPMG, PwC).
OWG Responds to Regulatory Review of Outsourcing by U.K. Asset Managers
An industry-wide Outsourcing Working Group (OWG), which was set up to address the concerns highlighted in the U.K. financial services regulator’s Dear CEO letter on outsourcing last year, has today published practical measures for asset managers to improve the oversight and resilience of their outsourcing arrangements.