InvestOpsDaily
in-depth
THE OFFICIAL NEWSPAPER OF INVESTOPS 2019
REGULATION
Asset managers pressured to enhance
oversight of outsourcing partners
REGULATORY PRESSURES ON ASSET MANAGERS TO OVERSEE AND GOVERN THEIR OUTSOURCING SERVICE PROVIDERS
HAS BECOME A CHALLENGE FOR THE BUY-SIDE.
I
nvestment operations teams at buy-side firms
are facing regulatory pressures to oversee
and govern their outsourcing service providers,
according to a panel.
Regulations, such as MiFID II, have highlight-
ed to buy-side firms that they are responsible
for compliance and data quality, regardless if
they use a third-party provider for certain non-
core functions.
“Relying on any partner is a challenge, espe-
cially when the regulations have made it clear
that we are responsible for the service regard-
less if we outsource. If that service fails, we
have to demonstrate that we can step in and
fix it,” said John Marsland, chief operating of-
ficer, investments, Schroders at the InvestOps
Europe conference in London.
“It doesn’t matter whether your supplier has
the best business continuity plan or how many
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INVESTOPS DAILY
sites they operate across, you have to be able
to operate your business without it. The only
way to do that is identify overlapping providers
and partner with them strategically.
“This means deepening partnerships with a
smaller number of vendors, but the expec-
tations of monitoring and governing them is
quite enormous.”
Asset managers have to also ensure the data
on their funds is accurate, both for regulators
and their own end-clients.
Fund administrators and custodians have
come under fire from regulators about the
soundness of their outsourcing services,
prompting buy-side firms to adopt governance
procedures in the event that their providers do
not provide a sufficient service.
Earlier this year, JP Morgan’s fund admin-
istration business in Ireland was fined €1.6
million for three breaches of the country’s
outsourcing requirements. The UK’s Financial
Conduct Authority (FCA) has also conducted
thematic reviews of the business models of
third-party outsourcing providers.
However, some providers have brought new
solutions for buy-side firms to enhance the
governance process of their outsourced provid-
ers. Last year, Brown Brothers Harriman (BBH)
launched a new tool allowing asset managers
to oversee the new asset value (NAV) function
performed by their third-part administrators.
Earlier this year, technology vendor Temenos
partnered with Bloomberg to allow its asset
manager users to generate their own NAV
estimates independent of, and in parallel, to
their fund administrators, enabling accurate
daily oversight and ensuring continuity of
operations in the event of an outage.