UK asset managers are putting procedures in
place to handle the failure of an outsourced service provider but need to improve
their oversight processes, according to regulator the Financial Conduct
An FCA thematic review into how asset
managers use outsourced services found a significant improvement in the plans implemented
to mitigate the risks of a service provider going out of business.
In 2012, the FCA’s predecessor, the
Financial Services Authority, found that UK asset managers were unprepared for
an outsourced provider to fail and had inadequate contingency plans in place
for how they would ensure service continuity and maintain their operations if
the worst were to happen.
The FCA found that, over the past year, the
industry has made substantial progress in improving its procedures.
“We are 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 regulator said.
Cath Rawcliffe, vice president of UK sales
and marketing at SimCorp, a provider of software for asset managers, said her
firm’s clients have increased their focus on contingency plans.
“A lot of clients see that the regulator is
taking this issue very seriously and are keen to work together to ensure that
they have the risk management and oversight in place to minimise the potential
for disruption,” she said.
The FCA was also pleased with firms’
progress on providing oversight of their outsourced providers, though it said
this could vary significantly between different firms.
“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,”
its report reads. “Where oversight of an activity was lacking, we found the
main cause was insufficient internal expertise to carry out the oversight. “
At The TRADE Agora event in London in
September, the attitude of regulators was seen as a potential barrier to
buy-side firms adopting a more outsourced model.
The increased clarity provided in the
thematic review could give more firms the incentive to outsource their
services, according to Jay Hibbin, commercial director at market infrastructure
technology provider MarketPrizm.
“Outsourcing has become a mature market in
recent years. Provided firms using those services have a backup plan in place, they
shouldn’t fall foul of the regulator when they purchase managed services,” he
Rawcliffe added that, while the FCA’s
review is positive, firms should ensure they keep working to manage the risks
and improve their oversight.