PwC's Managing upstream risk: Regulatory reform review - An asian perspective November 2013 | Page 27

4.2 Outsourcing

Update

The FCA on 4 November 2013 published a
thematic review on the use of outsourcing in the
asset management industry assessing whether
asset managers are effectively mitigating
the risks relating to outsourcing. The review
focused on two risks that could result in poor
outcomes for customers. These were asset
managers:
• Having inadequate contingency plans in
place to deal with a failure of their service
provider (‘resilience’) and
• Applying inadequate oversight of their
service provider (‘oversight’).

Key findings with respect to each risk are:
1. Resilience risk
Last year FCA found that asset managers
were largely unprepared for the failure
of a service provider undertaking critical
activities, as firms’ contingency plans had not
considered how to maintain operations and
service to their customers. So the Authority
wrote to CEOs in December 2012 setting
out our expectations of asset managers that
outsource critical activities.
The FCA is pleased with the level of
engagement from asset managers in
response to our Dear CEO letter and during
2013 we have started to see improvements
in asset managers’ planning for the failure
of a service provider. The authority is
also encouraged by the industry-led work
intended to help firms with contingency
planning. This work is being driven forward
by the Outsourcing Working Group (OWG)
whom are devising principles to guide
the industry, with a key aim of improving
portability between providers. In addition
to helping mitigate the resilience risk, there
could be wider benefits to the industry and
their customers if asset managers were able
to move service providers more readily.
2. Oversight risk
The FCA is reassured that all asset
managers within the sample had oversight
arrangements in place to oversee their
service providers. The effectiveness of
oversight arrangements varied from firm to
firm, with only some asset managers able
to demonstrate high standards of oversight
consistently across all outsourced activities.
Where oversight of an activity was lacking,
it was found that the main cause was
insufficient internal expertise to carry out
the oversight.

Banking | Regulatory Reform Review

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