The Investment Management Association (IMA) has responded to the Financial Conduct Authority's (FCA) concerns over outsourcing arrangements across the industry by producing a set of principles it expects members to adopt and adhere to.
Following the release of the FCA's Dear CEO letter on outsourcing last December, the IMA has put together a list of principles it feels should improve oversight of outsourcing arrangements.
The principles laid out by the IMA cover three main areas: oversight, exit planning and standardisation.
Outlined below are seven key guiding principles the IMA has put forward to help members meet the FCA's new criteria on outsourcing.
Comprehensive exit plan
Asset managers should have an exit plan that includes all relevant outsourced functions. Exit plans for each outsourced function should form part of a firm's resilience arrangements and be developed and maintained in consultation with service providers.
The existence and content of exit plans should be overseen by the firm's wider governance framework.
Plans should be reviewed at least annually and additionally on any material changes to the outsourcing profile of the firm. Reviews should be performed in conjunction with the service provider.
Exit plans should cover the arrangements in place for a controlled exit from an outsourcing relationship, but may also include considerations associated with exit in the event of a provider's severe operational distress, especially any potential impact to the end investor.
Exit plans should record the detail of relevant outsourcing arrangements, or refer to other documents that do (eg Service Level Agreements). This detail should include at a minimum:
- Which functions(s) are outsourced
- The contracted entity
- Where the work is performed
Exit plans should consider end-to-end transitions from old to new providers.
Exit plans should identify a governance framework to oversee a transition, and a migration plan by which a transition would be effected.
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