Dear CEO: Have You Addressed the FSA’s Concerns re: Outsourcing Contingency Plans?

September 12, 2013

picture-of-united-kingdom“We expect firms to have devised adequate contingency plans which are viable, robust and realistic and set out a clearly defined exit strategy in the event of a termination of outsourced activity under any circumstances, including stressed market conditions.”

     – Clive Adamson, Director of Supervision at the FSA, as it was then.

It has been 9 months since the FSA (now known as the Financial Conduct Authority or FCA) issued its “Dear CEO” letter regarding the “Review of Outsourcing Arrangements in the Asset Management Sector”. While the letter did not spell out specific time frames for asset managers to review their current contingency plans and address deficiencies, the letter did raise awareness to potential risks and encourages asset managers to develop and implement solutions as soon as possible.

The FSA’s concerns outlined in the letter have an underlying common thread focused on who is responsible to the end client. Even though the asset manager is outsourcing some or all of the middle-and-back office operational services, the fiduciary and regulatory responsibilities are in the hands of the asset management organization. They are accountable to their clients and must ensure clients are protected and continually serviced, in the event of a “severe disruption”.

So what is the best way to provide an adequate recovery and resolution strategy that has:

  • an acceptable exit strategy, allowing a quick and efficient change in providers if needed, reducing dependency on a provider
  • a strong disaster recovery solution, ensuring no matter what the reasons for the failure, clients can be serviced without interruption
  • immunity to potential financial industry failures?

Many asset managers are finding a cost efficient solution, by using established systems such as SS&C PORTIA to shadow their accounts. Keeping a shadow book of records in-house creates an extra level of assurance and confidence for the asset manager and their clients. It gives the asset management organization the control over data and information should there be a failure of some sort on the part of the outsourcing provider. In addition, it goes a step beyond what the FCA is looking for, having a shadow book helps the organization verify that the information the provider is sending is accurate.

SS&C PORTIA provides asset managers the strong contingency solution they need:

  • a shadow book of records that puts the asset manager in control of their data and reduces the dependencies on outsourcing providers
  • an easy to maintain, fully functional accounting system so they can continue to service their clients should the outsourcing provider have some type of failure
  • a quick implementation allowing asset managers the ability to address the FCA concerns without a strain on their resources
  • a truly global system to support complex investment strategies
  • a data agnostic solution that can take in information from any system and deliver information up and down stream
  • an independent provider that is not part of a complex banking group, to limit risk should the financial markets fall into distress

Outsourcing is an important piece of an asset management organization’s business strategy. The cost and efficiency advantages provide a great benefit to companies of all sizes. But in the end, you can outsource some of the tasks but you cannot outsource your responsibility to your clients. That is what your organization is built on.

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