Regulating outsourcing from cradle to grave - the new FSA guidelines

Outsourcing and so-called ‘off-shoring’ have been big news in UK financial services recently. Firms are making increased use of these techniques to reduce costs and concentrate on core activities.The types of activities outsourced are becoming more complex and are no longer limited to call centres and back office operations. The FSA’s 2004 Financial Risk Outlook highlights this trend and the risks it may pose if the arrangements are not subjected to oversight and documented appropriately. The FSA regards business continuity arrangements and exit strategies as especially important. Brett Hillis of Denton Wilde Sapte examines the regulator’s latest thinking.

In many ways, the FSA’s risk analysis mirrors its new guidelines on outsourcing.These guidelines will become key to the work of compliance and risk teams overseeing the outsourced function and maintaining the firm’s compliance.The guidelines set out in a systematic way the issues that firms should consider and deal with throughout the life of the outsourcing arrangement, from taking the decision to outsource onwards. They include guidance on contingency arrangements for unexpected termination and other eventualities.