Investment technology provider Simcorp is developing a shadow outsourcing service to help UK asset managers comply with recent Financial Conduct Authority (FCA) guidance on managed services.
In November, the FCA published the findings of its thematic review into the use of outsourced services among institutional investors, advising firms they should prepare for the possible failure of an outsourcing service.
Shadow outsourcing is among the ways businesses can reduce the risks associated with a provider’s failure, by providing a backup for essential services that can kick in when the main provider goes down.
“What buy-side firms are looking for is a low-cost utility service which won’t force them to increase their fees but which can take over essential outsourced functions such as investment operations, accounting and fund administration,” said Cath Rawcliffe, sales and marketing director at Simcorp.
Simcorp’s offering will utilise low cost operations centers provided by Tech Mahindra to provide a backup service at a fraction of the cost of a full outsourced service. During its “standby” mode, the services will be very low cost, with costs rising when it becomes active, though still likely to be below the cost of the regular outsourced service.
The shadow service is limited, providing the basic functionality that is most commonly needed by asset managers and is not intended to permanently take over from an outsourced service provider.
“We’re there to help the asset manager through the intervening period when they’ve had a service provider fail and need support for six to 12 months while they transition to a new provider,” explained Rawcliffe.
Simcorp will also ensure it is not dependent on the outsourced provider, with asset managers providing the shadow service with details of all its trades and settlement information directly to ensure all data is available should the full service need to be activated.
Simcorp is planning to launch a pilot scheme of its shadow outsourcing in 2014 with a full rollout expected later in the year.