TR13/10 - Outsourcing in the asset management industry

We have published the findings from our review that assessed whether asset managers are effectively mitigating the risks relating to outsourcing.

We expect asset managers to act in the best interests of their customers by ensuring that the service they provide is not compromised by outsourcing activities.

Our review

Our review focused on two risks that could result in poor outcomes for customers. These were asset managers:

• having inadequate contingency plans in place to deal with a failure of their service provider (‘resilience’)
• applying inadequate oversight of their service provider (‘oversight’)

Thematic Review 13/10[1]

Our findings

Resilience is improving

We have started to see improvements in planning for the failure of a service provider, such as industry-led work to set out guiding principles to help firms with their contingency planning.

Oversight arrangements varied in effectiveness

We found that all asset managers who were part of our review had oversight arrangements in place to oversee their service providers, although their effectiveness varied. Where oversight of an activity was lacking, we found the main cause was insufficient internal expertise.

Next steps

In light of our findings, asset managers should:

• review and enhance their contingency plans for a failure of a service provider, adopting industry-led guiding principles where appropriate
• review the effectiveness of their current oversight arrangements and improve them where they can, in particular making sure there is sufficient internal expertise in place

We may follow-up on this work to see whether asset managers have taken steps to make improvements.

Want more information?

Dear CEO letter[2] (December 2012)

Outsourcing requirements[3] (SYSC 8)