Are we seeing fundamental change in how investment firms consider outsourcing?

Nearly three years on from the FCA’s Thematic Review of Outsourcing in the Asset Management Industry (TR 13/10, November 2013) are we seeing fundamental change in how investment firms consider outsourcing?

In simple terms, no. The trend towards outsourcing continues – with the rollover of existing contracts, consolidation to fewer strategic suppliers, new outsourcing mandates being awarded, and firms continuing to consider further extensions to services – and first time outsourcings. The business rationale can still be compelling – from enabling global expansion, through avoiding expensive technology re-investment, to sharpening focus on business propositions and improving profitability.

Yet at the same time the regulatory challenge facing investment firms continues to grow – whether fund related (AIFMD, UCITSV, RDR etc) or investment related (EMIR, MiFID2 etc). In an outsourced operating environment this places particular challenge on ensuring the completeness and effectiveness of oversight of the supplier and on the clarity of roles and responsibilities – not only in delivering the end-to-end service model but in ensuring full regulatory compliance.

While we evidenced a flurry of activity post the Thematic Review and many firms addressed the challenges identified, the oversight hurdle has been raised. Not all firms – especially in sectors that are becoming subject to increased regulation – are raising their game accordingly. Will this prompt another Dear CEO on outsourcing?

Note: This opinion piece was first published by Knadel Limited prior to acquisition by Catalyst Development Limited

About the author

Throughout my career I have advised the investment industry on creating the operating and servicing models that will best serve their increasingly complex business goals, whether as a banker to – or working for – such firms, or now as an advisor to both.