Dear CEO: Our Custody and Fund Services Supervision Strategy Letter
MoreCall: 0845 139 4444
Email: hello@square4.com
Call: 0845 139 4444
Email: hello@square4.com
Over the last 20 years, there has been a steady growth in the number of financial services firms outsourcing functions to third party providers.
Most things can be outsourced, from something as relatively simple as a one-off client mailing and handling of responses to the wholescale outsourcing of back office and operational functions.
Service Overview:
Outsourcing can offer great commercial benefits to firms through more efficient operations and access to economies of scale. It can also bring technical benefits by giving a firm access to specialist resource that it wouldn’t have access to if running the process in-house. However, a regulatory responsibility can’t be outsourced and therefore, outsourcing arrangements can bring new types of risk to a regulated business, which need careful management. The outsourcers has other challenges to manage, the main one being balancing the delivery of a good service to the client with ensuring its commercial success.
Whilst the FCA rules on outsourcing are relatively high level, for IFPRU investment firms, banks, building societies, payment service providers and e-money providers, the EBA Guidelines on Outsourcing apply and provide useful insights into FCA expectations in this area. There’s a lot for firms to think about, including due diligence on service providers, contractual arrangements, policies and procedures and ongoing monitoring and oversight.
Service Benefits
How Square 4 can help
We have worked with outsourced service providers to help them to build commercially viable offerings that enable them to deliver what their clients need. In some cases, this has included providing detailed analysis and advice on why the service the client is asking for isn’t sustainable for either the outsourcer or the client. We have also supported the firms making use of outsourcing arrangements, including carrying out due diligence on potential service providers; carrying out regulatory reviews of contractual arrangements; developing policies, procedures and registers; and helping firms putting ongoing oversight arrangements in place and running those arrangements.
Q: We’re an outsourced service provider and we’ve been asked to provide a new service, can you help us to assess the possible benefits and risks with this?
A: Yes, this is something we have extensive experience of. We can help by advising you on the implications of the new proposed service and in particular, think about how it impacts or interacts with other services already provided. We can also advise on how the new service could be provided in a way that ensures risks, conflicts and costs arising from the services are carefully managed.
Q: We want to outsource one of our back office processes, can you help us to identify an appropriate provider and put the right controls in place?
A: Yes, we can create an outsourcing policy for you, carry out due diligence on possible providers, review and provide regulatory feedback on proposed contractual arrangements, service level agreements and service descriptions as well as helping to set up and run oversight arrangements going forward.
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