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FSA warns asset managers over outsourcing arrangements

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FSA warns asset managers over outsourcing arrangements

The Financial Services Authority (FSA) has warned asset managers to exercise ‘care and diligence’ when outsourcing activities to external service providers.

In a ‘Dear CEO’ letter, the FSA said that it was concerned that if an outsource provider were to face financial distress or operation disruption, asset managers would not be able to function properly, which would cause detriment to customers.

Clive Adamson (pictured), director of supervision at the FSA, said: ‘Based on our findings so far we are not confident that across the industry, effective recovery and resolution plans are in place for the asset management sector as a whole.’

He said asset managers had a responsibility to consider the implication of outsourcing to an external third party supplier and should be exercising ‘due skill and care and diligence’ when entering into, managing or terminating any outsourcing agreement.

'In all cases 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,' he said. 

‘We therefore ask you to review your current contingency plans taking into account the observations in this letter to ensure compliance with your obligations.'

Adamson asked for fund managers to send ‘immediate, constructive, adding the regulator intended to host an event on the issue early next year.

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