FSA Dear CEO letter on review of outsourcing arrangements in the asset management sector

12 Dec 2012

The FSA has written to the CEOs of asset managers regarding a review of outsourcing arrangements in the asset management sector.

The FSA states that it is assessing risks to its objectives arising from the outsourcing by asset management firms of operational activities to external service providers. The asset management industry outsources a growing number of activities and the small number of outsource providers are usually part of complex international banking groups. At group level, these organisations have balance sheet exposure to activities other than providing outsourcing activities.

The FSA’s concern is that if an outsource provider faced financial distress or severe operational disruption, UK asset managers may be unable to perform critical and important regulated activities, causing detriment to customers. The FSA is not confident that effective recovery and resolution plans are in place for the asset management sector. The FSA refers to the outsourcing of regulated activities and/or activities that are “critical or important” in the support of regulated activities as set out in the Senior management arrangements, systems and controls sourcebook (SYSC) 8.1.4R.

The FSA believes that it is responsibility of a firm’s directors to ensure that firms have devised viable, robust and realistic contingency plans, setting out a clearly defined exit strategy in the event of a termination of outsourced activity to enable the firm to carry out regulated activity if a service provider fails.

Therefore the FSA asks CEOs to review their current contingency plans to ensure compliance with SYSC 8 obligations. The FSA’s desired outcome is to ensure that there are effective recovery and resolution plans in place for the whole asset management industry.

The FSA wishes to be contacted with any immediate feedback and intends to host an industry event in early 2013 to discuss the proposals.

http://www.fsa.gov.uk/static/pubs/ceo/review_outsourcing_asset_management.pdf