The Central Bank has requested that administration firms review their outsourcing arrangements to ensure compliance with its requirements on the outsourcing of administration activities (Outsourcing Requirements). Following a thematic review of administration firms in the fourth quarter of 2012, the Central Bank found that there are areas requiring enhancement by administration firms where controls were insufficient or inconsistently applied. The thematic review also identified clear incidents of non-compliance with the Outsourcing Requirements.
On 10 May 2013, the Central Bank issued a letter to industry setting out six recommendations to assist administration firms assess their compliance with the Outsourcing Requirements. This review of outsourcing arrangements must be ratified by the board of directors.
The six recommendations are as follows:
Comprehensive NAV Reviews
Firms should review their outsourcing arrangements to ensure that their NAV review is comprehensive, sufficiently documented and completed by a sufficiently experienced staff member of the firm.
Documented Outsourcing Policy
Firms must have a documented policy on their approach to all aspects of outsourcing. Firms must consider and document contingency plans for worst case extreme circumstances.
Firms should have a local risk management document referencing outsourcing. If a firm adopts group risk policies, they must contain reference to Irish regulatory obligations and requirements, including the Outsourcing Requirements.
Firms must ensure that there is a formal and comprehensive contract or service level agreement (SLA) in place for all outsourcing arrangements.
On-going Board Review of Policy and Procedures
Outsourcing should be discussed as a recurring item at board meetings to ensure that the board is satisfied with the on-going effectiveness of the outsourcing policies and procedures.
The Outsourcing Requirements should apply across all locations and apply equally to all outsourcing arrangements regardless of:
- Whether outsourcing is within the group
- Whether outsourcing is to an entity within the State or outside the State
- Whether the firm directly or indirectly provides fund administration services
- The location, time zone and regulatory status of the service provider
The Central Bank makes clear in its letter that it will, in future, seek to deploy the full range of its supervisory tools in relation to the Outsourcing Requirements, including taking enforcement action where necessary.
Contributed by Nicola Doran