Outsourcing in asset management industry: FCA publishes the findings from its review
The Financial Conduct Authority (FCA) has published its findings into its review as to whether asset managers are effectively managing the risks relating to outsourcing.
The review was stimulated by the growing number of critical activities that the asset management industry outsources to a small number of service providers. The FCA carried out its review as it is ‘uncertain whether asset managers generally were effectively managing the risks associated with outsourcing to ensure that customers are not adversely affected’. SYSC 8.1.7R requires that firms should be exercising ‘due skill and care and diligence’ when entering into, managing or terminating any outsource arrangement. The FCA’s view is that this includes having adequate contingency plans in place to deal with either an unexpected termination of an outsourcing contract or a service interruption affecting a service provider.
On the basis of its initial findings, the FCA wrote an open letter to the chief executive officers of asset managers last year, which set out its concern that ‘if an outsource provider were to face financial distress or severe operational disruption, UK asset managers would not be able to perform critical and important regulated activities, thereby causing detriment to customers’…
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