Outsourcing and Offshoring regulated Financial Services processes
You may be surprised to know that it is perfectly acceptable to outsource and offshore regulated services. It should come as no surprise that you cannot outsource your regulatory risk; therefore, the choice of provider and ongoing governance is key to success.
An FCA (Financial Conduct Authority) authorised representative is an individual or firm that acts on behalf of an FCA-regulated firm and has been authorised by the FCA to carry out certain regulated activities. This means that an FCA-regulated firm can appoint an authorised representative to perform certain activities on its behalf, such as providing customer service, claims or other back-office processes.
When an FCA-regulated firm outsources services to contractors or appoints an outsourcer as an authorised representative, the FCA-regulated firm remains responsible for ensuring that its customers are protected and that it complies with FCA rules and regulations. The FCA expects firms to take appropriate measures to manage the risks associated with outsourcing and ensure adequate oversight and control over their contractors or authorised representatives.
Key responsibilities when outsourcing financial services
The following are some of the key responsibilities of FCA-regulated firms that outsource services to contractors:
- Conduct due diligence: Firms should conduct appropriate due diligence on their contractors to ensure that they can provide the services required and meet the FCA’s standards for competence and integrity.
- Contractual arrangements: Firms should have written contracts with their contractors that clearly set out the services to be provided, the standards to be met, and the responsibilities of both parties.
- Risk management: Firms should have robust risk management processes in place to identify, assess, and mitigate the risks associated with outsourcing.
- Oversight and monitoring: Firms should have adequate oversight and monitoring of their contractors to ensure that they are providing the services required to the required standard and that they are complying with FCA rules and regulations.
- Notification: Firms should notify the FCA of any material outsourcing arrangements and provide the FCA with sufficient information to enable it to assess the risks associated with the outsourcing.
To be appointed as an FCA-authorised representative, an outsourcer must meet the FCA’s criteria for competence and integrity. It must demonstrate that they have the necessary knowledge, skills, and experience to carry out the regulated activities they have been appointed to perform. The FCA-regulated firm that has appointed the authorised representative must ensure that the authorised representative is suitable and competent to carry out the regulated activities and must provide appropriate oversight and supervision.
It is important to note that the FCA-regulated firm that appoints an outsourcer as an authorised representative remains responsible for the conduct of the outsourcer and any activities that they carry out on behalf of the firm. The FCA-regulated firm must ensure that the outsourcer complies with all relevant regulations and rules and must take appropriate action if any breaches or issues arise.
Overall, FCA-regulated firms that outsource services to contractors or appoint outsourcers as authorised representatives must ensure that their customers are protected and that they comply with FCA rules and regulations. They should take appropriate measures to manage the risks associated with outsourcing and have adequate oversight and control over their contractors or authorised representatives. They must ensure that the authorised representative or outsourcer is competent and suitable to carry out the regulated activities and must take ultimate responsibility for their conduct and the activities they carry out on behalf of the firm.
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Let us remove the complexities of selecting an outsourcing partner. Our tried and tested selection methodology will simplify and accelerate your approach to identifying the best outsourcing partner for your requirements. We cover all major outsourcing functions. Our extensive network could open your doors to a myriad of commercially beneficial services – suiting a whole range of companies, from SMEs to larger corporations. In addition to identifying UK partners, we provide practical assistance in selecting global delivery partners. These companies can deliver high-quality services whilst at the same time capturing labour arbitrage benefits. Often companies will see the off-shoring option as a “silver bullet” to secure cost
benefits in isolation. Our experts will help you understand and more fully appreciate what can and cannot be successfully off-shored by location. This critical aspect can easily be overlooked, resulting in a detrimental effect on the customer experience with the associated damage to the brand.